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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 23, 1998
REGISTRATION NO. 333-334765
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO.1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
IXION BIOTECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 2834 59-3174033
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
12085 Research Drive
Alachua, Florida 32615
904-418-1428
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
Weaver H. Gaines
12085 Research Drive
Alachua, Florida 32615
904-418-1428
(Name, Address and Telephone Number of Agent for Service)
------
Copy to:
Bruce Brashear, Esq.
920 NW 8th Ave., Suite A
Gainesville, FL 32601
352-336-0800
Facsimile No. 352-336-0505
Approximate Date of Proposed Sale to the Public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Max Proposed Max Amount of
Class of Registered Offering Aggregate Registration
Securities to Price Per Offering Fee
be Registered Unit (1) Price (1)
Units,
consisting
of 400,000 Units $10.00 $4,000,000 $1,212
(a) One Share
Voting
Common
Stock,
par value
$0.01 per
share
("Common
Stock") 400,000 Shares
(b) .25 Charitable
Benefit
Warrant to
purchase
shares of
Voting
Common Stock
at $20.00 per
share 100,000 Warrants
Voting Common
Stock purchasable
pursuant to
Warrants 100,000 Shares $20.00 $2,000,000 $606
(1) Estimated solely for purposes of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
IXION BIOTECHNOLOGY, INC.
------
CROSS REFERENCE SHEET
------
Form SB-2 Item Nos. and Caption Prospectus Caption
1. Front of Registration
Statement and Outside
Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Inside Front and Outside Back
Back Cover Pages of Prospectus Cover Pages
3. Summary Information and Prospectus Summary; Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Dilution
7. Selling Security-Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Plan of
Distribution
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Securities; Shares
Eligible For Future Sale
13. Interest of Named Experts and
Counsel Legal Matters; Experts
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Description of Securities
15. Organization Within Last Five
Years Certain Transactions
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and
Analysis or Plan of Operation Management's Discussion and
Analysis of Financial Conditions
and Results of Operations
18. Description of Property Business
19. Certain Relationships and
Related Transactions Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters Description of Securities
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
<PAGE>
As Filed with the Securities and Exchange Commission on January 23, 1998,
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Preliminary Prospectus Dated January 23, 1998
Prospectus
400,000 Units
Minimum Purchase 100 Units
IXION
IXION BIOTECHNOLOGY, INC.
Common Stock, $.01 par value
All of the 400,000 Units (the "Units") are being sold directly by Ixion
Biotechnology, Inc. ("Ixion" or the "Company") at a price of $10.00 per Unit
(the "Offering"). Each Unit consists of one share of Ixion Common Stock ($.01
par value) (the "Common Stock") and .25 Charitable Benefit Warrant (the
"Charitable Benefit Warrants"). Four Units are required to acquire one whole
Charitable Benefit Warrant. The Charitable Benefit Warrants will be detached
from the Common Stock immediately on purchase. Charitable Benefit Warrants
may not be resold and are not transferable except by will or descent or by
donation to qualified charitable organizations which must be approved by
the Company. See "Description of Securities - Charitable Benefit Warrants
Included in the Units" Each whole Charitable Benefit Warrant entitles the
holder to purchase one share of Common Stock at a price of $20.00 per share.
Approved qualified charitable organizations may exercise Charitable Benefit
Warrants at any time until December 9, 2007; holders other than approved
qualified charitable organizations may not exercise except between December
9, 2006, and December 9, 2007. Prior to the Offering, there has
been no public market for the Company's Common Stock; therefore, the public
offering price has been determined solely by the Company. After completion of
this Offering, and dependent largely upon the number of Units sold in the
Offering, the Company's shares may be traded on a stock exchange (no
application has been made to any stock exchange) or in the over-the-counter
market, or no active trading market may develop or be sustained. See "Risk
Factors" and "Shares Eligible for Future Sale."
The Offering is being made directly by the Company. There is no minimum
number of Units to be sold in the Offering, and all funds received will go
immediately to the Company. See "Use of Proceeds." The Offering will be
terminated upon the earliest of: the sale of all Units, twelve months after
the date of this Prospectus (unless extended), or the date on which the
Company decides to close the Offering. A minimum purchase of 100 Units
($1,000) is required. The Company reserves the right to reject any Unit
Purchase Agreement in full or in part. See "Plan of Distribution."
The Company is a development stage, biotechnology company which has
incurred operating losses since its inception. As of September 30, 1997,
the Company had an accumulated deficit of $1,784,366. The Company
expects substantial additional operating losses in the further development and
commercialization of its products.
THE SECURITIES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT SHOULD
INVEST. FOR A DESCRIPTION OF CERTAIN RISKS OF AN INVESTMENT IN THE COMPANY
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" (PAGE 6) AND
"DILUTION" (PAGE 16)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Discounts Proceeds to Issuer (2)
the Public and Commissions (1)
Per Unit $10.00 $.50 $9.50
Offering $4,000,000 $200,000 $3,800,000
(1) The Company plans to sell the Units directly to investors through a
designated executive officer who shall not receive any commission and has not
retained any underwriters, brokers, or placement agents in connection with the
Offering , except in Florida where the offering will be made through Unified
Management Corporation, a Florida-registered Broker/Dealer, who will be paid a
commission of 2.0% of the gross commissions on sales to Florida residents The
Company reserves the right to use brokers, dealers or
placement agents and could pay commissions equal to as much as 10%, not to
exceed $200,000 or 5% of gross proceeds in the aggregate. See "Plan of
Distribution."
(2) Before deducting expenses of the Offering, estimated at $221,712,
payable by the Company.
The date of this Prospectus is January 23, 1998.
<PAGE>
This Prospectus is available in an electronic format at
<http:\\www.ixion-biotech.com>. The Company will
also transmit promptly, without charge, a paper copy of this Prospectus to any
such resident upon receipt of a request. Requests for Prospectuses should
be made to the Company's printer, BACOMPT at 317-574-7481 or 1-800-595-9886
.
TABLE OF CONTENTS
Page Page
Available Information 2 Business 23
Summary 3 Management 42
Risk Factors 6 Certain Transactions 47
Special Note Regarding Principal Shareholders 48
Forward Looking Statements 14 Description of Securities 49
Use of Proceeds 15 Certain Federal Income Tax
Dilution 16 Consequences 52
Dividend Policy 16 Shares Eligible for Future Sale 55
Capitalization 17 Plan of Distribution 56
Selected Financial Data 18 Legal Matters 57
Management's Discussion and Experts 57
Analysis of Financial
Condition and Results of Unit Purchase Agreement 58
Operations 19 Index to Financial
Statements F-1
AVAILABLE INFORMATION
On December 10, 1997 , the Company became subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act") for its current fiscal year. Upon completion of this
Offering, the Company may be required to file annual and quarterly reports.
In any case, the Company intends to furnish its shareholders with
annual reports containing financial statements audited by an independent public
accounting firm after the end of its fiscal year. The Company's fiscal year
ends on December 31. In addition, the Company will send shareholders quarterly
reports with unaudited financial information for the first three quarters of
each fiscal year.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Requests
for such information should be directed to Ms. Gwen Thompson, Director of
Administration, Ixion Biotechnology, Inc., 12085 Research Drive, Alachua, FL
32615, tel: 904-418-1428, fax: 904-462-0875, email: [email protected]
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933 with the Securities and Exchange Commission with
respect to the Units offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto; certain portions have been omitted pursuant to rules and regulations
of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete (but
do consider all material matters) and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities of the
Commission in Washington, D.C., and certain of its regional offices and copies
of such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission as follows: the Midwest Regional Office,
500 West Madison Street, Chicago, Illinois 60661; and the Northeast Regional
Office, 7 World Trade Center, New York, New York 10048, and copies of all or
any part thereof may be obtained at prescribed rates. Electronic registration
statements made through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's World Wide
Website at <http://www.sec.gov>.
The Company was incorporated in Delaware in March 1993. Its executive
offices are located at 12085 Research Drive, Alachua, FL 32615, its telephone
number is 904-418-1428, and its facsimile number is 904-462-0875. The
Company's home page is <http:\\www.ixion-biotech.com>. Materials available at
or linked to the Company's web site are not incorporated by reference into
this Prospectus.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus and, accordingly, should be read in conjunction with that
information. Prospective investors should carefully consider the information
set forth under the heading "Risk Factors."
The Company
Ixion Biotechnology, Inc. ("Ixion" or the "Company"), is a development
stage, discovery research biotechnology company, with several product
candidates in development. The Company is the holder of world-wide exclusive
licenses to patents and pending patents in two key areas: diabetes and
oxalate-related disorders. Ixion has executive offices and development
laboratories at the Biotechnology Development Institute, a small
business incubator operated by the Biotechnology Program at the University of
Florida.
Ixion is developing diabetes products based on its Islet Progenitor/Stem
Cell ("IPSC") technology, including a proprietary line of in vitro (in test
tube) islet stem cells for use in cell transplantation therapy. This
development program is aimed at optimizing the growth of functioning islets or
islet progenitors in vitro from IPSCs that Ixion has established in cell
cultures. The transplantation of islets is the only known potential cure
for Type I diabetes. The Company believes that successful islet
transplantation therapy will provide better management of diabetes than
conventional treatment with insulin.
In addition to developing its cell transplantation therapy, Ixion
has an ongoing discovery program to identify and characterize IPSCs as well as
novel growth factors associated with them. The goal of this program is to
discover factors important in islet cell differentiation and to identify stem
cell markers to which the Company hopes to produce antibodies useful in stem
cell isolation. All of the Company's potential diabetes products are in the
discovery research stage.
The Company is also developing products based on its oxalate technology
for the diagnosis and treatment of oxalate-related diseases. The Company's
oxalate technology is based on genes from the non-pathogenic anaerobic
intestinal bacteria, Oxalobacter formigenes, which produce enzymes responsible
for oxalate degradation in healthy people. Inadequate colonies of O. formigenes
result in reduced ability to degrade oxalate. Excess oxalate from dietary and
metabolic sources plays a role in a variety of disorders including kidney
stones, hyperoxaluria, cardiomyopathy, cardiac conductance disorders, cystic
fibrosis, Crohn's disease, renal failure and toxic death, and vulvodynia.
The most developed product candidate in Ixion's development pipeline is a
combination diagnostic and therapy for the management of oxalate-related
disorders.
The diagnostic component of the Company's oxalate-related disease
management product is a DNA probe for the rapid and sensitive detection of
human O. formigenes (the "HOF Probe"). The current tests for O. formigenes
are laborious, time consuming, and unreliable. In addition, the current
tests are not sensitive and are poorly suited to a clinical setting. The HOF
Probe, on the other hand, can accurately and reliably detect very small numbers
of O. formigenes, is quantitative, and is capable of automation.
The therapeutic component of the Company's oxalate-related disease
management product is an orally administered product consisting of a
recombinant version of two enzymes normally found in O. formigenes and
responsible for oxalate degradation ("IxC1-62/47"). The Company believes that
the administration of these enzymes will greatly diminish the recurrence of
calcium oxalate kidney stones and will have positive therapeutic effects on
other oxalate-related disorders.
The Company intends to file an Investigational New Drug application with
the Food and Drug Administration for its IxC1-62/47 enzyme therapy for
oxalate-related diseases and an application under Section 510(k) of the Food,
Drug, and Cosmetic Act for the HOF Probe, both within 12 months from the date
of this Prospectus. See "Business - Government Regulation."
Ixion is in the development stage, has earned only limited revenues, the
majority of which have been research and development payments, and has
incurred accumulated deficits of approximately $1,784,366 from its
inception through September 30, 1997. See "Risk Factors."
<PAGE>
The Offering
Securities offered 400,000 Units, each Unit consisting of one share
of Common Stock and 0.25 Charitable Benefit
Warrant. The Common Stock will be immediately
separated from the Charitable Benefit Warrants, and
will be immediately transferable. Each Whole
Charitable Benefit Warrant entitles the holder to
purchase one share of Common Stock at a price of
$20.00 per share. Four Units are required to
acquire one whole Charitable Benefit Warrant
Approved qualified charitable organizations may
exercise Charitable Benefit Warrants at any time
until December 9, 2007; holders other than
approved qualified charitable organizations may not
exercise except between December 9, 2006, and
December 9, 2007. Charitable Benefit Warrants
may not be resold and are not otherwise
transferable except by gift to an approved
qualified charitable organization. Approved
qualified charitable organizations are certain tax
exempt organizations approved by the Company and
include, at the date of this Prospectus, the
Juvenile Diabetes Foundation, the Joslin Diabetes
Center, Inc., the American Kidney Fund, the
National Vulvodynia Association, the Crohn's &
Colitis Foundation of America, the Cystic Fibrosis
Foundation, the Oxalosis and Hyperoxaluria
Foundation, the Mycological Society of America, the
Intestinal Disease Foundation, the National Kidney
Fund, the National Institute of Diabetes and
Digestive and Kidney Diseases, the North American
Mycological Society, the University of
Florida Research Foundation, Inc., and Florida
Cystic Fibrosis, Inc. See "Description of
Securities."
Common Shares outstanding
before Offering (1)
2,464,544
Common Shares outstanding
after Offering (1)(2)
2,864,544
Charitable Benefit Warrants
outstanding after
Offering (2)
100,000
Use of Proceeds Net proceeds, after deduction of offering expenses
is estimated at $3,578,288 if all Units are
sold; $2,628,288 if 75% of the Units are
sold; $1,678,288 if 50% of the Units are
sold; and $728,288 if 25% of the Units are
sold. The Company has broad discretion in the use
of proceeds, but expects to use substantially all
of such proceeds to fund research and product
development programs and for general corporate
purposes. There is no minimum number of Units to
be sold, and no escrow account. Subscriptions will
be paid directly to the Company.
Risk Factors The Units offered hereby are speculative,
involve a high degree of risk and immediate
substantial dilution, and should not be
purchased by investors who cannot afford the loss
of their entire investment.
See "Risk Factors" and "Dilution."
(1) Excludes 43,900 shares reserved for issuance pursuant to the exercise
of outstanding stock options, 13,817 of which are exercisable; 23,630
shares reserved for issuance pursuant to outstanding warrants; 232,100
shares reserved for issuance to employees and 49,000 reserved for issuance to
directors and members of the Scientific Advisory Board pursuant to options
available for grant under the Company's 1994 Stock Option Plan; 18,000 shares
reserved for issuance under the Company's 1994 Board Retainer Plan; and up to
323,557 shares issuable upon conversion of the Company's Unsecured Convertible
Notes.
(2) Assumes all Units offered are purchased.
<PAGE>
Summary Financial Data
Year Ended
December 31, Nine Months Ended
September 30
1995 1996 1996 1997
(unaudited)
Statement of Operations
Data:
Total Revenues $ 8,122 $ 171,205 $138,251 $ 219,547
Total Expenses 382,334 724,844 546,439 806,507
Net Loss $ (374,212) $ (553,639) $(408,188) $(586,960)
Net Loss per Share (0.18) $ (0.23) $ (.17) $ (.24)
Weighted Average
Common and Common
Equivalent Shares 2,025,975 2,411,275 2,438,544 2,456,412
Balance Sheet Data (unaudited) September 30, 1997
(unaudited)
Cash and cash equivalents $ 88,103
Working capital 1,783
Total Assets 384,832
Total Liabilities 1,116,604
Total Capital (Deficiency) (731,772)
<PAGE>
RISK FACTORS
An investment in the securities being offered by this Prospectus is
highly speculative, involves a high degree of risk, and should be considered
only by persons who can afford to lose the entire investment. In addition to
the other information contained in this Prospectus, prospective investors
should carefully consider the following risk factors before purchasing any of
the Units.
Early Stage of the Company: Accumulated Deficit. The Company is in the
development stage, and has realized only limited revenues, most of which have
derived from payments from Genetics Institute, Inc., in connection with
contract research and development under a sponsored research agreement and a
Small Business Innovation Research Grant, both of which will terminate in
1997. No revenues have been generated from product sales. The Company
will be required to do significant research, development, testing, and
regulatory compliance activities which, together with projected general and
administrative expenses, are expected to result in material and increasing
operating losses for the foreseeable future. There can be no assurance that
the Company will successfully complete the transition from a development stage
company to successful operations or profitability. At September 30, 1997,
the Company had an accumulated deficit during the development stage of
$1,784,366.
Potential investors should be aware of the problems, delays, expenses,
and difficulties encountered by any company in the development stage, many of
which may be beyond the Company's control. These include, but are not limited
to, unanticipated problems and additional costs relating to development,
testing, regulatory compliance, production, marketing, and competition.
Absence of Products; No Commercialization of Products Expected in Near
Future. The Company's product candidates are in an early stage of
development. The Company has not completed the development of any products
and, accordingly, has not received any regulatory approvals or commenced
marketing activities. No revenues have been generated from the sale of its
products. The Company's product candidates will require significant
additional development, preclinical and clinical trials, regulatory approval,
and additional investment prior to commercialization. The Company may be
unable to market any products for several years. Furthermore, it will be a
number of years, if ever, before the Company will recognize significant
revenues from product sales or royalties. In addition, the Company's product
candidates are subject to the risks of failure inherent in the development of
products based on innovative technologies. Accordingly, there can be no
assurance that the Company's research and development efforts will be
successful, that any of the Company's product candidates will prove to be
safe, effective, and non-toxic in clinical trials, that any commercially
successful products will be developed, that the proprietary or patent rights
of others will not preclude the Company from marketing its product candidates,
or that others will not develop competitive or superior products. As a result
of the early stage of development of product candidates and the extensive
testing and regulatory review process that such product candidates must
undergo, the Company cannot predict with certainty when it will be able to
market any of its products, if at all. The Company's product development
efforts are based on unproven scientific approaches. There is, therefore,
substantial risk that these approaches may not prove to be successful. See
"Business - Product Development."
Uncertainty Associated with Preclinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of the Company's
products, the products will be subject to extensive preclinical and clinical
trials to demonstrate their safety and efficacy in humans. The Company
intends to employ third parties to conduct clinical trials of its products
because it has no experience in conducting clinical trials. Preclinical
studies have been commenced with regard to two of the Company's oxalate
products; however, no clinical trials have been commenced with respect to any
of the Company's potential products. Furthermore, there can be no assurance
that preclinical or clinical trials of any of the Company's products will
demonstrate the safety and efficacy of such product at all or to the extent
necessary to obtain regulatory approvals. Companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after demonstrating promising results in earlier trials. The failure to
adequately demonstrate the safety and efficacy of a product candidate under
development could delay or prevent regulatory approval of the product
candidate and would have a material adverse effect on the Company's business,
operating results, and financial condition. See "Business - Government
Regulation."
Earnings Inadequate to Pay Fixed Charges. Earnings are, and will for the
foreseeable future remain, inadequate to cover fixed charges, including
interest on the Company's 10% Unsecured Convertible Notes. Payment of
principal on the 10% Unsecured Convertible Notes and the Unsecured Variable
Convertible Notes will be dependent on the Company's ability to raise
additional funds through the sale of its securities, corporate alliances, or
otherwise.
<PAGE>
Dependence on Key Personnel and Relationships. Ixion is dependent on its
executive officers, consultants, and its scientific advisors, especially Dr.
Ammon Peck, the Company's Chief Scientist and Chairman of the Scientific
Advisory Board. The Company has only one full-time executive, Weaver H.
Gaines, Chairman and Chief Executive Officer. Three of the Company's officers
- - David C. Peck, President and Chief Financial Officer, John L. Tedesco, Vice
President - Operations and Regulatory Affairs, and Kimberly A. Ramsey,
Controller, are consultants who devote substantial time to other employers.
Ixion has an employment contract with Mr. Gaines, an exclusive consulting
agreement with Dr. Peck, and consulting agreements with Messrs. Tedesco and
David Peck. The agreements of Dr. Peck, Mr. Gaines, Mr. Peck, and Mr. Tedesco
all contain non-compete provisions. See "Management - Consulting Agreement
with Dr. Peck," "Management - Consulting Agreement with Brandywine
Consultants, Inc.," and "Management - Employment Agreements." The loss of any
individuals on which the Company is dependent could have a material adverse
effect on the Company. Ixion has a key person life insurance policy in the
face amount of $500,000 on Dr. Peck.
Competition among pharmaceutical and biotechnology companies for
qualified employees is intense, and the loss of qualified employees, or an
inability to attract, retain, and motivate additional highly skilled employees
required for the expansion of the Company's activities, could adversely affect
its business and prospects. Gainesville, Florida is a developing area for
biotechnology, and to date there are not many companies located there. This
fact is an inhibition on both recruiting and retaining personnel. There can
be no assurance that the Company will be able to retain its existing personnel
or to find and attract additional qualified and experienced employees.
Individuals whom the Company has targeted to be its scientific
collaborators and its current and proposed scientific advisors are employed by
employers other than the Company, and some have consulting or other advisory
arrangements with other entities that may conflict or compete with their
obligations to the Company. See "Business - Scientific Advisory Board."
Reliance on Relationships with the University of Florida. The Company
has sought to maintain a close and favorable relationship with the University
of Florida since 1993 when the Company was founded. The Company expects to
benefit, and has already benefited, from its relationship with the University
of Florida, in particular from the basic research performed. This
relationship includes certain contractual arrangements, particularly the
License Agreement for Islet Progenitor/Stem Cells and the License Agreement
for oxalate technology. Negotiations have also commenced to license other
technologies. In addition, the Company is an affiliate of the Biotechnology
Program of the University, which provides certain business support services to
the Company, it has its labs and offices at the Biotechnology Development
Institute, a University facility, and its Chief Scientist and two members of
its Scientific Advisory Board are faculty members at the University. See
"Business - Facilities" and "Business - Scientific Advisory Board." There can
be no assurance that disputes or disagreements will not cause the favorable
relationship to deteriorate. A deterioration in the relationship between the
Company and the University of Florida could have a material adverse effect on
the Company. In particular, the Company could be forced to expand
substantially its research facilities and staff to replace or supplement the
research currently performed by researchers at the University of Florida.
Additionally, if the University of Florida were to suffer financial or
operating setbacks in the future, such as in financing, research staff,
research efforts, facilities or management, such setbacks could have a
material adverse impact on the Company's future technology. Moreover, the
Company has no input into or control over the direction or content of research
undertaken by the University of Florida. Accordingly, no assurance can be
given that discoveries made at the University of Florida, if any, will be
capable of being developed or marketed, will fall within the Company's areas
of expertise or interest, or will be available to the Company on acceptable
terms. See "Business - Business Strategy," "Business - Relationship with the
University of Florida," and "Business - Licensed Technology."
State of Florida and University of Florida Conflicts of Interest Laws and
Rules. The Company's Chief Scientist and two members of its Scientific
Advisory Board are employees of the Florida State University System, and, as a
result, they (and consequently the Company) are subject to Florida statutes
and University policy regarding conflicts of interest. In order for the
Company to conduct business with the University (including its license
agreements, future cooperative research and development agreements, and other
activities), it is necessary to obtain and maintain an annual exemption from
the application of the Florida conflict of interest statutes for its Chief
Scientist, and to obtain annual approval for outside activities for the
University of Florida members of its Scientific Advisory Board. If the
University were to decline to approve the outside activities of the Company's
Chief Scientist, or the University of Florida members of its Scientific
Advisory Board, or were to change the terms of its conflicts of interest
policy, it could have a material adverse effect on the Company. See "Business
- - Government Regulation."
<PAGE>
Dependence on Licensed Technology. The Company's development and
commercialization rights for its proposed products are derived from its
license agreements with the University of Florida and others. To date, the
Company owns no patents outright. The Company's rights under license
agreements are subject to early termination under certain circumstances,
including failure to pay royalties or other material breach by the Company or
bankruptcy of the Company, among others. In the event that the license
agreements terminate for any reason, the Company's rights to manufacture and
market products derived from those licenses would terminate. See "Business -
Licensed Technology."
Ethical, Legal, and Social Implications of Islet Progenitor/Stem Cell
Therapies. The Company's Islet Progenitor/Stem Cell ("IPSC") program may
involve the use of IPSCs that would be derived from cloned human materials,
and therefore may raise certain ethical, legal, and social issues regarding
the appropriate utilization of this technique. The cloning of human tissue in
scientific research is an issue of national interest. Many research
institutions have adopted policies regarding the ethical uses of cloning, and
state and federal legislatures are considering legislation regarding cloned
human materials. These policies may have the effect of limiting the scope of
research conducted in this area, resulting in reduced scientific progress.
The inability of the Company to conduct research on IPSCs due to such factors
as government regulation or otherwise could have a material adverse effect on
the program. In the event the Company's research related to IPSC-based
therapies becomes the subject of adverse commentary or publicity, the
Company's name and goodwill could be adversely affected.
Intense Competition. The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological
change. Competitors of the Company are numerous and include, among others,
major, multinational pharmaceutical and chemical companies, specialized
biotechnology firms, and universities and other research institutions. Many
of these competitors have greater financial and other resources, including
larger research and development staffs, than the Company. Acquisitions of
competing companies and potential competitors by large pharmaceutical
companies or others could enhance financial, marketing and other resources
available to such competitors. As a result of academic and government
institutions becoming increasingly aware of the commercial value of their
research findings, such institutions may be more likely to enter into
exclusive licensing agreements with commercial enterprises, including
competitors of the Company, to market commercial products. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective or less costly than any
which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive.
In addition, some of the Company's competitors have greater experience
than the Company in conducting preclinical and clinical trials and obtaining
U.S. Food and Drug Administration ("FDA") and other regulatory approvals.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for competitive product candidates more rapidly than the
Company. Companies that complete clinical trials, obtain required regulatory
agency approvals, and commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage, including certain
patent and marketing exclusivity rights. There can be no assurance that
products resulting from the Company's research and development efforts will be
able to compete successfully with competitors' existing products or products
under development or that they will obtain regulatory approval in the United
States or elsewhere. See "Business - Competition."
Uncertainty Regarding Patents and Proprietary Rights. The Company's
success will depend in part on its ability to obtain U.S. and foreign patent
protection for its product candidates and processes, to protect its trade
secrets, and to avoid infringing the proprietary rights of others. Because of
the length of time and expense associated with bringing new drug or medical
device candidates through the development and regulatory approval process to
the marketplace, the Company believes that obtaining patent and trade secret
protection is very important. One U. S. patent has been issued for certain
claims in the Company's oxalate-based patent applications, and certain
claims pertaining to the IPSC technology have been allowed by the U. S. Patent
and Trademark Office ("PTO"); however, there can be no assurance that any
additional patents will be issued covering any of the patent applications
licensed to the Company. Further, there can be no assurance that any rights
the Company may have under issued patents will provide the Company with
significant protection against competitive products or otherwise be
commercially viable. Legal standards relating to the validity of patents
covering pharmaceutical and biotechnological inventions and the scope of
claims made under such patents are still developing. There is no consistent
policy regarding the breadth of claims allowed in biotechnology patents. The
patent position of a biotechnology firm is highly uncertain and involves
complex legal and factual questions. There can be no assurance that any
existing or future patents issued to, or licensed by, the Company will not
subsequently be challenged, infringed upon, invalidated, or circumvented by
others. In addition, patents may have been granted, or may be granted, to
others covering products or processes that are necessary or useful
<PAGE>
to the development of the Company's products. If the Company's product
candidates or processes are found to infringe upon the patents, or otherwise
impermissibly utilize the intellectual property of others, the Company's
development, manufacture, and sale of such products could be severely
restricted or prohibited. In such event, the Company may be required to obtain
licenses from third parties to utilize the patents or proprietary rights of
others. There can be no assurance that the Company will be able to obtain such
licenses on acceptable terms, or at all.
The Company is aware of potentially significant risks regarding the
patent rights licensed by the Company relating to Islet Progenitor/Stem Cells
and to its oxalate technology, particularly bacterial oxalyl-CoA
decarboxylase, an enzyme used in the Company's proposed oxalate-related
products including the HOF Probe and the IxC1-62/47 enzyme therapy. The
Company may not be able to commercialize its proposed diabetic products based
on its method of proliferating IPSCs in vitro or its proposed oxalate-related
disease management products, both due to patent rights held by third parties
other than the Company's licensors. As a result, the positions of the Company
and its licensors with respect to the use of IPSCs or products containing
oxalyl-CoA decarboxylase are uncertain and involve legal and factual questions
that are unknown or unresolved. Although management believes its patents and
patent applications provide a competitive advantage in its efforts to
discover, develop, and commercialize useful products, if any of these
questions is resolved in a manner that is not favorable to the Company's
licensors or the Company, the Company may not have the right to commercialize
products relating to certain aspects of IPSC technology or products containing
oxalyl-CoA decarboxylase in the absence of a license from one or more third
parties, which may not be available on acceptable terms or at all. The
Company's inability to commercialize any of these products would have a
material adverse effect on the Company. In addition, there can be no
assurance that the Company is aware of all patents or patent applications that
may materially affect the Company's ability to make, use, or sell any
products. Any conflicts resulting from third party patent applications and
patents could significantly reduce the coverage of the patents or patent
applications licensed to the Company and limit the ability of the Company to
obtain meaningful patent protection. If patents are issued to other companies
that contain competitive or conflicting claims, the Company may be required to
obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company will be able to obtain
any such license on acceptable terms or at all. If such licenses are not
obtained, the Company could be delayed in or prevented from the development or
commercialization of its product candidates, which would have a material
adverse effect on the Company. See "Business - Licensed Technology."
In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborators, employees, and
consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any
such breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known or be independently
discovered by others.
Dependence on Reimbursement. The Company's ability to commercialize its
planned products successfully will depend in part on the extent to which
reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, such as the
Health Care Financing Administration, private health insurers, managed care
plans, and other organizations. Government and other third-party payors are
increasingly attempting to contain health care costs, in part by challenging
the price or benefit of medical products and services. Products with long-term
benefits but initial short-term costs may not be acceptable to managed care
plans or others with short-term payback requirements. Thus, significant
uncertainty exists as to the reimbursement status of newly approved health
care products, and there can be no assurance that adequate third-party
coverage will be available to enable the Company to maintain price levels
sufficient to realize an appropriate return on its investment in product
development. If adequate coverage and reimbursement levels are not provided
by government and third-party payors for use of the Company's planned
products, the ability to market those products would be adversely affected.
No Assurance of Market Acceptance for Proposed Products. There can be no
assurance that any products successfully developed by the Company,
independently or with its collaborative partners, if approved for marketing,
will achieve market acceptance. The degree of market acceptance of any
products developed by the Company will depend on a number of factors,
including the establishment and demonstration of the clinical efficacy and
safety of the Company's products, their potential advantage over existing
therapies or diagnostics, and reimbursement policies of government and
third-party payors. There is no assurance that physicians, patients,
independent laboratories, or the medical community in general will accept and
utilize any products that may be developed by the Company.
Government Regulation; No Assurance of Regulatory Approval. The
Company's activities are subject to extensive regulation by the FDA and health
authorities in foreign countries. Regulatory approval for the Company's
planned products (other than those for research rather than diagnostic or
therapeutic use), will be required before such
<PAGE>
products may be marketed. The process of obtaining regulatory authorization
involves, among other things, lengthy and detailed laboratory and clinical
testing, manufacturing validation, and other complex and extensive procedures.
The approval process is costly, time-consuming, and often subject to
unanticipated delays. In the United States, the FDA has discretion in the
approval process, and it is not possible to predict at what point, or whether,
the FDA will be satisfied with the quality or quantity of information submitted
by the Company to support its applications for marketing approval. There can
be no assurance that the FDA will not require additional information or
additional clinical trials that could substantially delay approval of
applications. Moreover, there can be no assurance that FDA approval will cover
the clinical indications for which the Company intends to seek approval, or
will not contain significant limitations in the form of, for example, warnings,
precautions, or contra-indications with respect to conditions of use. There
can be no assurance that approvals for any of the Company's products,
processes, or facilities will be granted on a timely basis, if at all. Any
failure to obtain, or any delay in obtaining, such approvals would materially
and adversely affect the Company. Further, even if such regulatory
authorizations are obtained, a marketed product and its manufacturer are
subject to continuing regulatory requirements and review, and later discovery
of previously unknown problems with a product or
manufacturer, or failure to comply with manufacturing or labeling
requirements, may result in restrictions on such product or enforcement action
against the manufacturer, including withdrawal of the product from the market.
See "Business - Government Regulation."
Risk of Product Liability; Insurance. The use of any products produced
by the Company could expose the Company to product liability claims. The
Company currently carries no product liability insurance, but intends to
acquire such insurance prior to selling any of its licensed products for
commercial use. There can be no assurance that the Company will be able to
obtain or maintain such insurance, or if obtained, that sufficient coverage
can be acquired at a reasonable cost. An inability to obtain or maintain
insurance at acceptable cost or otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of the
Company's planned products, including its research use only products. A
product liability claim or recall could have a material adverse effect on the
business or the financial condition of the Company.
Dividends. Ixion has never paid any cash dividends and does not
intend to pay any cash dividends on its Common Stock in the foreseeable future.
Limited Experience in Sales and Marketing. The Company has no
significant experience in pharmaceutical sales, marketing, or distribution.
To market any of its products directly, the Company must develop a substantial
marketing and sales force with technical expertise and supporting distribution
capability. Alternatively, the Company intends, for certain product
candidates, to obtain the assistance of companies with established
distributions systems and direct sales forces. There can be no assurance that
the Company will be able to establish sales and distribution capabilities,
will be able to enter into licensing or other agreements with established
companies, or will be successful in gaining market acceptance for its
products. See "Business - Business Strategy" and "Business - Manufacturing
and Marketing."
Absence of Manufacturing Facilities or Personnel; Dependence on Others.
The Company owns no manufacturing facilities or equipment, and employs no
direct manufacturing personnel. The Company anticipates using third parties
to manufacture its products on a contract basis. There can be no assurance
that the Company will be able to obtain such manufacturing services on
reasonable terms. Having obtained such services, the Company would be
dependent on its ability to manage all parties who may hereafter conduct
manufacturing for it. See "Business - Business Strategy" and "Business -
Facilities."
Limitation on Liability of Directors and Officers. As permitted by
Delaware law, the Certificate of Incorporation provides that no director of
the Company will be liable for money damages for breach of fiduciary duty as a
director, except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) for
approval of certain unlawful dividends or stock purchases or redemptions, and
(iv) for any transaction from which the director derived an improper personal
benefit. See "Description of Securities."
Control by Management and Existing Shareholders. At October 31, 1997,
the current officers, directors, and members of their families sharing their
household own or have rights to acquire within the next 60 days, directly or
beneficially, 1,661,587 shares of Common Stock representing approximately 66%
of the outstanding shares of the Company's Common Stock. In the event all of
the Units offered herein are sold, following the Offering, such persons will
own approximately 57% of the Company's Common Stock, and are and will be, able
to control all matters requiring approval by the stockholders of the Company,
including the election of Directors. In the event fewer than all of the
<PAGE>
Units offered herein are sold, the percentage of the Company's outstanding
Common Shares held by the current officers, directors, and members of their
families sharing their household would be between 66% and 57% of the
outstanding Common shares of the Company. Such concentration of ownership may
also have the
effect of delaying or preventing a change in control of the Company that may
be favored by other stockholders. See "Management" and "Principal
Shareholders."
Need for Additional Financing. Based on its current operating plan, the
Company expects that the net proceeds of this Offering, assuming the sale of
all the Units offered hereby, together with contract research revenue and
possible grant income from grant applications made or to be made, will be
adequate to satisfy its planned operating requirements for approximately 12
months, but will not be sufficient to fund the Company's operations to the
point of introduction of a commercially successful product.
The Company's plan of operations has been adjusted for four possible
levels of sales of Units, ranging from all 400,000 Units sold to 100,000 Units
Sold. (See "Use of Proceeds.") If only 200,000 Units were to be sold, the
Company believes it will nevertheless be able, subject to the uncertainties of
research and development discussed in this Risk Factors section (see
"Uncertainty Associated with Preclinical and Clinical Testing") and elsewhere
in this Prospectus, to carry out its research and development program in
oxalate technology through the milestones of filing a 510(k) on the HOF Probe
and filing an IND with regard to IxC1-62/47, the oxalate therapeutic, with the
FDA, and will also be able to make further progress on its diabetes research
over the next 12 months without additional capital. If fewer than 200,000
Units are sold, the Company's operations will necessarily be scaled back well
below optimum levels.
Even if the Company is able to sell all 400,000 Units, it will require
significant additional capital, and its future capital requirements will
depend on many factors, including the degree of success of the present
Offering, the costs involved in future capital raising activities, continued
scientific progress in its research and development programs, the magnitude of
such programs, the potential addition of new programs, the progress of
preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the costs involved in preparing, filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
establishment of collaborative agreements, costs of commercialization
activities, and the demand for the Company's products, if and when approved.
Ixion intends to commence additional financing activities shortly after the
termination of this Offering, and it intends to seek further funding through
additional arrangements with corporate partners, through public or private
sales of debt or equity, or through other sources. Future financings may
result in the issuance of securities which are senior to the Common Stock or
result in substantial additional dilution of shareholders. There can be no
assurance that additional funding will be available on acceptable terms, if
at all. If adequate funds are not available, the Company may be required to
curtail significantly or defer one or more of its research and development
programs or to obtain funds through arrangements that may require the Company
to relinquish certain technological or product rights. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Use of Proceeds."
No Minimum Amount for This Offering. Because there is no minimum amount
of Units required to be sold in the Offering, all the cash received will go
directly to the Company to be used as described in "Use of Proceeds." If only
22,200 or fewer Units are sold, the result would be that all the proceeds will
be used to pay the expenses of the Offering. The sale of fewer than 100,000
Units would materially and adversely effect the Company in that it would be
required to significantly limit its operational expenses, by curtailing
significantly or deferring one or more of its research and development
programs or to obtain funds through arrangements that may require the Company
to relinquish certain technological or product rights. Such spending
reductions would significantly extend the development time for the Company's
products and limit the number of products developed. See "Use of Proceeds."
Direct Public Offering: No Underwriter. The Units offered herein are
offered directly by the Company. The Company has not retained any
underwriters, brokers, dealers or placement agents in connection with this
offering. The absence of an underwriter could adversely affect the Company's
ability to sell the Units.
Management's Broad Discretion in Application of Proceeds. The Company
intends to use the proceeds of the Offering to pay the costs of the Offering
and the balance will be added to the Company's working capital where it will
be available for general corporate purposes, including repayment of bridge
financing and the funding of the Company's research and development
activities. As of the date of this Prospectus, the Company cannot specify
with certainty the particular uses for the net proceeds to be added to its
working capital. Accordingly, management of the Company will have broad
discretion as to the application of the net proceeds of the Offering. See
"Use of Proceeds" and
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Product Research and Development Plan."
Absence of Public Trading Market for Securities; Valuation. There is no
public market for the Common Stock, and it is unlikely that any such market
will develop after the Offering. There is no public market for the Charitable
Benefit Warrants. By the terms of such Warrants, they will not be tradeable
following the Offering. The Company does not currently meet the requirements
for listing on an organized stock exchange or quotation of over-the-counter
market maker trades on the Nasdaq market. After completion of the Offering,
the Company may apply for a listing on a United States regional exchange, if
the Company meets certain numerical listing requirements. However, there can
be no assurance that the Company will be listed or that a market will develop
or be sustained.
However, there is currently no agreement between the Company and such a
registered securities broker-dealer. The Company may, after termination of
the Offering, seek to provide a passive, bulletin board system on the
Internet providing information to buyers and sellers of the Company's Common
Stock to facilitate trading. Such passive bulletin board system, if any,
will be designed to comply with published rulings of the Securities and
Exchange Commission strictly limiting the operations of such system. In
the absence of a public trading market, purchasers may be unable to resell the
Common Stock for an extended period of time, if at all. See "Plan of
Distribution."
Development stage biotechnology valuations are rarely based upon
traditional financial standards, like earnings multiple, current yield, or
book value. In fact, the perception of the future value of the proprietary
science, and any possible applications deriving from it, together with
relative illiquidity and momentum often form the basis of stock performance
in this industry. There is great risk that external perceptions will change
over time, subsequently affecting the Company's ability to fund its
operations. Thus, future trading prices, if any, of the Company's securities
will depend on many factors, including, among others, those mentioned above,
together with prevailing interest rates, the Company's operating results,
preclinical and clinical trial results, scientific defections, personnel
turnover at corporate partners, general conditions in the biotechnology
industry, announcements of discoveries of new products by the Company, its
competitors, and others, and the market for similar securities, which market
is subject to various pressures, including, but not limited to, fluctuating
interest rates. In addition, the stock market is subject to price and volume
fluctuations unrelated to the operating performance of the Company.
Risks of Low-Priced Stocks. If the trading price, if any, of the
Common Stock were to fall below $5.00 per share, trading in the Common Stock
would also be subject to the requirements of certain rules promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a "penny stock" (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and
the risks associated therewith, and impose various sales practice requirements
on broker-dealers who sell penny stocks to persons other than established
customers and accredited investors (generally defined as an investor with a
net worth in excess of $1,000,000 or annual income exceeding $200,000,
$300,000 together with a spouse). For these types of transactions, the broker-
dealer must make a special suitability determination for the purchaser and
have received the purchaser's written consent to the transaction prior to
sale. The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if
the broker-dealer is the sole market-maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market. Such
information must be provided to the customer orally or in writing prior to
effecting the transaction and in writing before or with the customer
confirmation. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon broker-
dealers by such requirements may discourage them from effecting transactions
in the Common Stock, which could severely limit the liquidity of the Common
Stock and the ability of purchasers in this offering to sell the Common Stock
in the secondary market.
Limitations on Transfer and Exercise of Charitable Benefit Warrants.
The Charitable Benefit Warrants included in the Units offered hereby may not
be resold by investors. They are not otherwise transferable (other than by
will or descent) except by gift to an approved qualified charitable
organization. Approved qualified charitable organizations are certain tax
exempt organizations approved by the Company and include, at the date of this
Prospectus, the Juvenile Diabetes Foundation, the Joslin Diabetes Center,
Inc., the American Kidney Fund , the National Vulvodynia Association,
the Crohn's & Colitis Foundation of America, the Cystic Fibrosis Foundation,
the Oxalosis and Hyperoxaluria Foundation, the Mycological Society of America,
the Intestinal Disease Foundation, the National Kidney Foundation , the
National Institute of Diabetes and Digestive and Kidney Diseases, the North
American Mycological Society, the University of Florida Research Foundation,
Inc., and Florida Cystic Fibrosis, Inc. Although investors may propose
<PAGE>
other charities to be added to the list of approved qualified charitable
organizations, the Company has absolute discretion in granting or withholding
its approval.
Charitable Benefit Warrants may be exercised at any time through their
expiration date only by an approved qualified charitable organization. All
other holders may not exercise their Charitable Benefit Warrants except during
the tenth and final year of their term. See "Description of Securities -
Charitable Benefit Warrants Included in the Units."
Determination of Offering Price. The Company has unilaterally and
arbitrarily determined the offering price of the Units. Among the factors
considered in determining such price were offering prices of recent
biotechnology initial public offerings, the Company's capital requirements,
the percentage of ownership to be held by investors following the Offering,
the prospects for the Company's business and the biotechnology industry, the
assessment of the present early stage of the Company's development, the
prospects for initiation or growth of the Company's revenues, and the current
state of the economy in the United States. The offering price does not
necessarily bear any relationship to the Company's assets, book value,
earnings history, or other investment criteria and should not be considered
an indication of the actual value of the Company's securities. See "Plan of
Distribution."
Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of outstanding options and warrants or upon the conversion of the Unsecured
Convertible Notes) in the public market, if any, after this Offering or the
prospect of such sales could adversely affect any market price of the Common
Stock and may have a material adverse effect on the Company's ability to raise
any necessary capital to fund its future operations. Upon completion of this
Offering, assuming all Units are sold, the Company will have 2,864,544 shares
of Common Stock outstanding. The 400,000 shares included in the Units offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except
for any shares held by "affiliates" of the Company within the meaning of the
Securities Act which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act ("Rule 144"). The remaining 2,464,544
shares are "restricted" securities that may be sold only if registered under
the Securities Act, or sold in accordance with an applicable exemption from
registration, such as Rule 144. The officers and directors, who together hold
1,628,544 shares of Common Stock, and rights to purchase an additional 42,452
shares of Common Stock (of which 33,186 can be acquired within the next
60 days), have agreed not to sell directly or indirectly, any Common Stock
for a period of 180 days from the date of this Prospectus (the "Lock-up
Agreements"). Commencing on the expiration of the Lock-up Agreements,
1,628,544 shares of Common Stock will be eligible for sale in the public
market, if any, subject to compliance with Rule 144 In addition, holders of
1,051,544 shares of Common Stock, and holders of warrants and Unsecured
Convertible Notes convertible into a maximum of an additional 340,917 shares
of Common Stock have "piggyback" registration rights and/or demand
registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, if any, such sales or the perception
that such sales could occur, could have a material adverse effect on the
market price of the Common Stock. In addition, any demand of such holders
to include such shares in Company-initiated registration statements could have
an adverse effect on the Company's ability to raise needed capital. In
addition, Messrs. Gaines and Peck, the Company's Chairman and CEO and President
and Chief Financial Officer, respectively, own 969,496 shares of the Company's
Common Stock subject to both "piggy-back" and mandatory registration rights
under the provisions of their respective employment agreements. The demand by
either of these executive officers for a registration of their securities (of
which they may only make one) could, under certain circumstances, create a
conflict between their personal interests and the Company's interests;
however, such demand may be postponed by the Company under the terms of the
employment agreements for a reasonable period of time if the Company is
conducting or about to conduct an offering of its securities and such offering
would be adversely affected by the demand registration of the officers'
shares. The Company may also decline a "piggy-back" inclusion of the
officers' shares if it believes an offering of its securities would be
adversely affected. See "Shares Eligible for Future Sale - Registration
Rights."
Immediate and Substantial Dilution. This Offering involves an immediate
and substantial dilution between the initial public offering price of $10.00
per share and the pro forma net tangible book value per share of Common Stock
after the Offering. Such dilution will amount to $9.17 (92%) if all Units
are sold; $9.49 (95%) if 75% of the Units are sold; $9.82 (98%) if 50% of the
Units are sold; and $10.19 (102%) if 25% of the Units are sold. Dilution
will be increased to the extent that the holders of outstanding options,
warrants, and Unsecured Convertible Notes who have rights to acquire Common
Stock at prices below the public offering price exercise such rights. See
"Dilution."
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the dates on which the Company anticipates
commencing clinical trials or filing of an Investigational New Drug Exemption
Application ("IND") or application under Section 510(k) of the Food, Drug, and
Cosmetic Act with respect to its product candidates, constitute
forward-looking statements under the federal securities laws. Such statements
are subject to certain risks and uncertainties that could cause the actual
timing of such clinical trials or filings to differ materially from those
projected. With respect to such dates, the Company's management team has made
certain assumptions regarding, among other things, the successful and timely
completion of preclinical tests, the approval of INDs for each of the
Company's drug candidates by the FDA, the availability of Section 510(k) for
its device candidates, the availability of adequate clinical supplies, the
absence of delays in patient enrollment, and the availability of the capital
resources necessary to complete the preclinical tests and conduct the clinical
trials. The Company's ability to commence clinical trials or file an IND or
510(k) on the dates anticipated is subject to certain risks, including the
risks discussed under "Risk Factors." Undue reliance should not be placed on
the dates on which the Company anticipates filing an IND or 510(k) or
commencing clinical trials with respect to any of its product candidates.
Statements herein regarding the Company's research and development plans also
constitute forward-looking statements under the federal securities laws.
Actual research and development activities may vary significantly from the
current plans depending on numerous factors including changes in the costs of
such activities from current estimates, the results of the programs, the
results of clinical studies referred to above, the timing of regulatory
submissions, technological advances, determinations as to commercial
potential, and the status of competitive products.
All of the above estimates are based on the current expectations of the
Company's management team, which may change in the future due to a large
number of potential events, including unanticipated future developments.
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units, after
deduction of estimated offering expenses, and the Company's anticipated use of
proceeds at each level of Units sold is set forth below. There is no
minimum number of Units that must be sold in the Offering, and all funds will
be paid directly to the Company.
The Company intends to use a majority of the net proceeds (regardless of
the number of Units sold) to pay the expenses of the Offering, to repay
bridge financing, if any, and to fund the Company's general corporate
operations and research and development activities, including product
characterization, method development, testing (including toxicology), cell
line characterization, process development, clinical lot manufacturing,
stability research protocols, and preclinical studies for the Company's
proposed products. The amounts and timing of expenditures for each purpose is
subject to the broad discretion of the management and will depend on the
amount of bridge financing, if any, the progress of the Company's research
and development programs, technological advances, determinations as to
commercial potential, the terms of any collaborative arrangements, regulatory
approvals, and other factors, many of which are beyond the Company's control.
400,000 300,00 200,000 100,000
Units Sold Units Sold Units Sold Units Sold
(100%) (75%) (50%) (25%)
Gross Proceeds from
Offering $4,000,000 $3,000,000 $2,000,000 $1,000,000
Less Offering Expenses 221,712 221,712 221,712 221,712
(5.5%) (7.4%) (11.1%) (22.2%)
Maximum commissions 200,000 150,000 100,000 50,000
Net proceeds from
Offering $3,578,288 $2,628,288 $1,678,228 $728,288
Use of Net Proceeds
R&D, IPSCs $ 750,000 $ 650,000 $ 500,000 $ 200,000
R&D, Oxalate 2,048,100 1,338,100 770,500 270,500
Capital Equipment 40,000 30,000 20,000 10,000
Patents 150,000 150,000 125,000 100,000
General Corporate 590,188 460,188 262,788 147,788
The optimum rate of product development requires the sale of all
400,000 Units. If fewer than 400,000 Units are sold, the Company would delay
or scale back its operations, as indicated above. In each case, in the
opinion of management, the net proceeds of this Offering, together with
anticipated revenues from operations, will allow the Company's product
development and operations to proceed at the varying rates set forth above for
at least 12 months. If only 200,000 Units were to be sold, the Company
believes it will nevertheless be able, subject to the uncertainties of
research and development discussed in this Prospectus to carry out its
research and development program in oxalate technology through filing a 510(k)
on the HOF Probe and filing an IND with regard to IxC1-62/47, the oxalate
therapeutic, with the FDA, and will also be able to make further progress on
its diabetes research over the next 12 months without additional capital. See
"Management's Discussion of Results of Operations and Financial Condition -
Liquidity and Capital Resources."
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments, and other investment-grade
quality instruments.
<PAGE>
DILUTION
As of September 30, 1997, the Company's Common Stock had a deficit
in net tangible book value of $(984,742) or approximately $(.40) per
share. The following table sets forth the difference between the price to be
paid by new shareholders and the negative net tangible book value per share at
September 30, 1997, as adjusted to give effect to the Offering.
400,000 300,000 200,000 100,000
Units Sold Units Sold Units Sold Units Sold
Assuming a public
offering price of $10.00 $10.00 $10.00 $10.00
Net proceeds to
Company $3,778,288 $2,778,288 $1,778,288 $778,288
Net tangible book
deficit per share for
existing shareholders
before Offering (1) $(.49) $(.49) $(.49) $(.49)
Increase per share
attributable to
payment
for shares purchased
by new investors $1.32 $1.00 $0.67 $0.30
Pro forma net tangible
book value (deficit)
after Offering (2) $.83 $0.51 $0.18 $(0.19)
Dilution per share to
new investors (2)(3) $9.17 $9.49 $9.82 $10.19
(1) "Net tangible book deficit per share" is determined by dividing the
number of shares of Common Stock outstanding into the tangible net deficit of
the Company (tangible assets less total liabilities and less the unamortized
debt discount).
(2) "Dilution" means the difference between the public offering price per
share and the net tangible book value (deficit) per share of Common Stock
after giving effect to the Offering.
(3) Does not include the effects of any options or warrants or conversion
of the Company's Unsecured Convertible Notes.
The Company was initially capitalized by a sale of Common Stock to its
founders. Subsequently, the Company has completed two private placements of
Common Stock and a private placement of Unsecured Convertible Notes. The
following table sets forth the difference between the Company's officers,
directors, promoters, and affiliates thereof, and purchasers of the Units in
the Offering with respect to the number of shares purchased from the Company
(or which such persons have the right to purchase), the total cash
consideration paid (or to be paid), and the average price per share. The
table assumes that all of the Units offered hereby are sold.
Shares Issued(1) Total Consideration(1) Average Price
Number Percent(2) Amount Percent(2) Per Share
Officers, directors,
promoters and
affiliates 1,830,996 63% $298,323 5.9% $0.16
New Investors 400,000 13% $4,000,000 78% $10.00
(1) Includes 42,452 shares which may be issued to officers, directors,
promoters, and affiliates upon exercise of stock options or conversion of
Unsecured Convertible Notes, 33,186 of which are issuable within 60
days, and the payment of the exercise or conversion price relating thereto and
assumes the sale of all Units offered hereby.
(2) Shares purchased (or with rights to purchase) divided by the sum of
total shares outstanding after Offering, plus all shares officers, directors,
and promoters have rights to purchase.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay any cash dividends on its Common Stock for
the foreseeable future.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to reflect the receipt of the net
proceeds from the issuance and sale by the Company of the Units offered hereby
at an assumed initial offering price of $10.00 per Unit. This table should be
read in conjunction with the Company's financial statements and notes thereto
included elsewhere in this Prospectus.
September 30, 1997
As Adjusted
400,000 300,000 200,000 100,000
Actual Units Sold Units Sold Units Sold Units Sold
Debt:
Short-term
debt including
current portion
of long-term
debt $ 91,454 $ 91,454 $ 91,454 $ 91,454 $ 91,454
Long-term debt
less current
portion (1) 1,025,150 1,025,150 1,025,150 1,025,150 1,025,150
Stockholders'
Equity
(Deficiency):
Common Stock,
$0.01 par value,
4,000,000 shares
authorized,
2,464,544 shares
issued and
outstanding,
2,864,544
(100% sold),
2,764,544
(75% sold),
2,664,544
(50% sold),
or 2,564,544
(25% sold),
as adjusted
(2) 24,645 28,645 27,645 26,645 25,645
Additional paid-
in capital1,198,520 4,772,808 3,823,808 2,874,808 1,925,808
Common stock
warrants
outstanding 20,494 20,494 20,494 20,494 20,494
Deficit
Accumulated
during the
development
stage (1,784,366) (1,784,366) (1,784,366) (1,784,366) (1,784,366)
Less unearned
compensation (191,065) (191,065) (191,065) (191,065) (191,065)
Total capital
(deficiency) $(731,772) $2,846,516 $1,896,516 $946,516 $(3,484)
(1) Includes deferred fees and deferred salaries, including accrued
interest, payable to related parties.
(2) Excludes 43,900 shares reserved for issuance pursuant to the exercise
of outstanding stock options, 13,817 of which are exercisable, 23,630
shares reserved for issuance pursuant to outstanding warrants, 232,100 shares
reserved for issuance to employees and 49,000 reserved for issuance to
directors and members of the Scientific Advisory Committee pursuant to options
available for grant under the Company's 1994 Stock Option Plan, 18,000 shares
reserved for issuance under the Company's 1994 Board Retainer Plan, and up to
323,557 shares issuable upon conversion of the Company's Unsecured Convertible
Notes.
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
Statements of Operations for the years ended December 31, 1995 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus. The selected financial data at September 30, 1996 and 1997,
for the nine months ended September 30, 1996 and 1997, and for the
period March 25, 1993 (Date of Inception) through September 30, 1997, are
derived from the Company's unaudited financial statements included elsewhere in
this Prospectus and include, in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's financial position at those dates and results of operations for
those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results for any future period. The
data set forth below should be read in conjunction with the Company's financial
statements, related notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
For the Period
March 25, 1993
(Date of
Inception) For the Nine Months
through Year Ended Ended
September 30 December 31 September 30
Statement
Of
Operations
Data: 1997 1995 1996 1996 1997
Revenues: (unaudited) (unaudited)
Income under
Research
agreement $ 275,000 - $ 139,079 $ 133,333 $135,922
Income from
SBIR Grant 91,650 - 20,000 - 71,650
Interest income 22,043 5,060 7,760 1,451 9,223
Other income 13,567 3,062 4,366 3,467 2,752
Total revenues 402,260 8,122 171,205 138,251 219,547
Expenses:
Operating,
general and
administrative 1,051,809 230,423 276,642 247,060 290,271
Research and
development 963,758 130,984 392,010 275,906 432,378
Interest 171,059 20,927 56,192 23,473 83,858
Total expenses 2,186,626 382,334 724,844 546,439 806,507
Net Loss $(1,784,366) $(374,212) $(553,639) $(408,188)$(586,960)
Net Loss
Per
Common Share $ (0.18) $ (0.23) $ (0.17) $ (0.24)
Weighted
Average
Common
Shares 2,025,975 2,411,275 2,438,544 2,456,412
Balance Sheet September 30,
Data: (unaudited)
1996 1997
Cash and cash
equivalents 491,865 88,103
Working capital 432,528 1,783
Total Assets 617,968 384,832
Total Liabilities 1,151,184 1,116,604
Total Capital
Deficiency (589,112) (731,772)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes thereto included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" and in "Special Note Regarding Forward-
Looking Statements."
Overview
The Company is a development stage, biotechnology company. The Company
is considered to be in the development stage because it is devoting
substantially all of its efforts to establishing its business and its planned
principal operations have not commenced.
Since its inception in March of 1993, the Company's efforts have been
principally devoted to research and development, securing patent protection,
and raising capital. The Company has not received any revenues from the sale
of products, and does not expect any of its product candidates to be
commercially available for at least the next one to five years. From
inception through September 30, 1997, the Company has sustained
cumulative losses of $1,784,366. These losses have resulted primarily
from expenditures incurred in connection with general and administrative
activities, research and development, patent preparation and prosecution, and
interest.
The Company expects to continue to incur substantial research and
development costs in the future resulting from ongoing research and
development programs, manufacturing of products for use in clinical trials and
preclinical and clinical testing of the Company's products. The Company also
expects that general and administrative costs, including patent and regulatory
costs, necessary to support clinical trials, research and development,
manufacturing, and the creation of a marketing and sales organization, if
warranted, will increase in the future. Accordingly, the Company expects to
incur increasing operating losses for the foreseeable future. There can be
no assurance that the Company will ever achieve profitable operations.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's current drug candidates are
not expected to be commercially available for several years.
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of development must be
considered when evaluating the Company's prospects. To address these risks,
the Company must, among other things, successfully develop and commercialize
its product candidates, secure all necessary proprietary rights, respond to
competitive developments, and continue to attract, retain and motivate
qualified persons. There can be no assurance that the Company will be
successful in addressing these risks. See "Risk Factors - Early Stage of the
Company; Accumulated Deficit."
The operating expenses of the Company will depend on several factors,
including the level of research and development expenses. Research and
development expenses will depend on the progress and results of the Company's
product development efforts, which the Company cannot predict. Management may
in some cases be able to control the timing of development expenses in part by
accelerating or decelerating preclinical testing and clinical trial
activities. As a result of these factors, the Company believes that period-to-
period comparisons in the future are not necessarily meaningful and should not
be relied upon as an indication of future performance. Due to all of the
foregoing factors, it is possible that the Company's operating results will be
below the expectations of market analysts, if any, and investors. In such
event, the prevailing market price, if any, of the Common Stock would likely
be materially adversely affected. See "Risk Factors - Absence of Public
Trading Market for Securities; Valuation."
Results of Operations
Nine Months Ended September 30, 1996 and 1997
The Company's revenues under research agreements increased 1.9% from
$133,333 in the first nine months of 1996 to $135,922 in the first nine months
of 1997, due entirely to recognition and receipt of income from a research
<PAGE>
support agreement with Genetics Institute, Inc. Revenues under the Genetics
Institute agreement will cease at the end of the agreement in 1997. Income
from the Company's SBIR grant increased from none in the first nine months of
1996 to $71,650 in the equivalent period of 1997. That grant expired on
September 30, 1997 and no further revenues are expected under it.
Interest income increased 536% from $1,451 in the third quarter of 1996
to $9,223 in the same period in 1997. This increase was attributable to the
investment of the proceeds from the sale of Unsecured Convertible Notes in the
last quarter of 1996. Interest income will decline as these funds are used
for operating expenses.
Operating, general and administrative expenses increased 17.5% from
$247,060 in the first nine months of 1996 to $290,271 in the first nine months
of 1997. These increased expenses reflect increased personnel and increased
patent amortization expenses and amortization of certain capitalized costs
incurred in connection with the offering of Unsecured Convertible Notes in the
fourth quarter of 1996, offset to some degree by a decline in legal expenses in
1997 compared to 1996. Both these amortization expenses commenced during
1997. The Company expects its general and administrative expense to increase
during the remainder of 1997 and 1998 as a result of the hiring of additional
personnel, increased amortization of capitalized patent costs as new patents
are issued, and increased amortization of capitalized private placement
expenses.
Research and development expenditures consist primarily of payroll-
related expenses of research and development personnel, laboratory supplies,
animal supplies, laboratory rent, depreciation on laboratory equipment,
development activities, payments for sponsored research, and payments to
scientific and regulatory consultants. Research and development expenses
increased 56.7% from $275,906 in the first nine months of 1996 to $432,378 in
the first nine months of 1997, primarily as a result of additional research
and development personnel, the rental of additional lab space, and increased
research activities. The Company anticipates that its research and development
expenses will continue to increase during the next 12 months as the Company
expands research and development programs and preclinical and clinical testing
for its product candidates and technologies under development.
Interest expense increased 257% from $23,473 in the first nine months
of 1996 to $83,858 in the first nine months of 1997 due primarily to cash
interest on the Company's 10% Notes, the amortization of debt discount
(initially $285,835) attributable to the beneficial conversion feature of the
Company's Variable Notes, both issued in the last quarter of 1996, and the
compounding of interest on deferred fees and salaries,
including deferred interest, payable to related parties. See "Management -
Deferred Compensation Plan." Interest will continue to increase during 1997
as a result of the 10% Notes and Variable Notes' being outstanding for
the entire year, and as a result of the continued compounding of interest on
deferred fees and salaries accounts.
Years Ended December 31, 1995 and 1996
The Company recognized contract research and development revenues of
$159,079 for the first time in the year ended December 31, 1996. This
revenue consisted of a portion of the $200,000 payment under a research support
agreement between the Company and Genetics Institute, Inc. (received upon
execution of the agreement), which the Company is recognizing, ratably over
the 12-month life of the research project. Revenues also included funds
received under a grant from the National Institutes of Health under the Small
Business Innovation Research ("SBIR") Program. Prior to this, the Company's
only revenues had been from interest income and nominal consulting fees for
services rendered by Ixion personnel to the Biotechnology Development
Institute. Revenues under the Genetics Institute Agreement are expected to
cease in 1997. Payments of up to $73,000 under the SBIR will continue in
1997, but will terminate in September 1997.
Interest income increased 53% from $5,060 in 1995 to $7,760 in 1996,
primarily as a result of the investment of the proceeds of the Company's
offering of 10% Notes and Variable Notes in the last quarter of 1996.
Other income increased 43% from $3,062 in 1995 to $4,366 in 1996 due primarily
to an increase in consulting fees for services rendered by Ixion personnel to
the Biotechnology Development Institute.
Operating, general and administrative expenses increased 20% from
$230,423 in 1995 to $276,642 in 1996, primarily due to additions to the
Company's personnel.
Research and development expenses increased 199% from $130,984 in 1995 to
$392,010 in 1996. This increase was primarily attributable to increases in
research personnel and the scale of research operations during the
<PAGE>
year. The Company recorded non-cash compensation expense in the amount of
$139,295 in 1996 related to the issuance of compensatory options and restricted
stock.
Interest expense increased 169% from $20,927 in 1995 to $56,192 in
1996,
due primarily to additions to deferred fees and salaries, including deferred
interest payable to related parties, arising from the deferral of fees and
salaries in 1993, 1994, 1995, and 1996 by Company officers and consultants,
and the compounding of deferred interest in those accounts, to the cash
interest on the Company's 10% Notes, and the amortization of debt discount
(initially $285,835) attributable to the beneficial conversion feature of the
Company's Variable Notes, both issued in the last quarter of 1996.
Liquidity and Capital Resources
In September 1996, the Company completed a private placement transaction
in which it sold Unsecured Convertible Notes for an aggregate gross
consideration of $787,270. In addition on April, 16, 1996, the Chairman and
Chief Executive Officer and the President of the Company each entered into an
agreement to extend the Company up to $25,000 in the form of a bridge loan.
Interest on the loan is at 8% but can be reset annually, at the election of
either party, to the prime rate in effect on January 1 of any given year, plus
3%. Under these agreements, the Company borrowed a total of $32,100, all of
which was repaid in cash by the Company on June 14, 1996. In addition, the
Chairman, on June 21, 1996, agreed to increase his loan commitment to an
amount up to $150,000, if necessary, to enable the Company to continue
operations. These facilities are available to the Company, but no amounts are
outstanding at September 30, 1997. The Company expects to borrow and repay
under these facilities from time to time to meet working capital needs.
The Company does not have any bank financing arrangements. The Company's long-
term indebtedness consists primarily of deferred fees and salaries payable to
related individuals and a chattel mortgage agreement.
At September 30, 1997, the Company had $88,103 in cash and cash
equivalents, and working capital of $1,783.
On January 1, 1996, the Company purchased laboratory equipment pursuant
to a chattel mortgage agreement in the amount of $32,309. The agreement calls
for monthly payments of $897, commencing August 1, 1996. The Company
anticipates making capital expenditures of approximately $40,000 for the year
ended December 31, 1997, primarily for acquisitions of additional laboratory
and office equipment.
For the period March 25, 1993 (date of inception) through September 30,
1997, the Company capitalized costs of $202,245 associated with the
prosecution of various patent applications. As further research continues and
the Company acquires additional patent rights, management expects the patents
pending asset to increase.
The Company has incurred negative cash flows from operations since its
inception, and has expended and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts,
commence clinical trials, and diversify its technology. The Company's future
capital requirements and the adequacy of available funds will depend on
numerous factors, including the successful commercialization of its HOF Probe
and IxC1-62/47, progress in its product development efforts, the magnitude and
scope of such efforts, progress with preclinical studies and clinical trials,
the cost of contract manufacturing and research organizations, cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, and the
development of strategic alliances for the development and marketing of its
products. The Company requires the proceeds of this Offering and
interest thereon to meet its planned operating requirements through December
31, 1998. In the event the Company's plans change or its assumptions
change or prove to be inaccurate or the proceeds of the Offering prove to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems or otherwise), the Company could be required to seek additional
financing sooner than currently anticipated. In addition, the Company will be
required to obtain additional funds in any event through equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources in order to bring its products through regulatory approval to
commercialization. The terms and prices of any equity or debt financings may be
significantly more favorable than those of the Units sold in this offering.
The Company does not have any material committed sources of additional
financing, and there can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale-back, or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product
<PAGE>
candidates, products, or potential markets. If adequate funds are not
available, the Company's business, financial condition, and results of
operations will be materially and adversely affected.
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade
quality instruments.
Product Research and Development Plan
The Company's plan of operation for the 12 months following completion
of this Offering will consist primarily of research and development and
related activities including:
further development of the Company's IPSC research programs aimed at
proprietary populations of functioning islets for transplantation into
diabetic patients;
continuing the funding of the ongoing discovery program in which the
Company intends to identify and characterize novel growth factors
associated with the IPSCs, to discover factors important in islet cell
differentiation and possible regulation of diabetes and to identify stem
cell markers to which the Company hopes to produce antibodies useful in
stem cell isolation;
further preclinical development of the Company's diagnostic HOF Probe
for Oxalobacter formigenes detection, and if successful, the initiation
of clinical trials;
further development of IxC1-62/47, including formulation, product
characterization, method development, testing (including toxicology),
cell line characterization, process development, clinical lot
manufacturing, stability, research protocols, and preclinical studies
for the Company's proposed products, primarily its oxalate-related
products;
continuing the prosecution and filing of patent applications; and
hiring additional employees.
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological
advances, determinations as to commercial potential and the status of
competitive products. The focus and direction of the Company's operations
will also be dependent upon the establishment of collaborative arrangements
with other companies, and other factors.
There can be no assurance that the Company will be able to commercialize
its technologies, or that profitability will ever be achieved. The Company
expects that its operating results will fluctuate significantly from quarter
to quarter in the future and will depend on a number of factors, many of which
are outside the Company's control.
Recent Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. This statement, which is effective for
the Company's annual report for the year ended December 31, 1997, establishes
new requirements for the calculation, presentation, and disclosure of earnings
per share. The Company estimates that Basic Earnings Per Share
presented in accordance with Statement No. 128 would not differ materially from
what is currently presented. Diluted Earnings Per Share under Statement
No.128 would not be required since the Company is reporting losses and effects
of additional shares would be anti-dilutive.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. This statement, which is effective for the Company's annual report
for the year ended December 31, 1998, establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Adoption of this standard is not
expected to have a material impact on the Company's financial statements or
results of operations.
<PAGE>
BUSINESS
The Company
Ixion Biotechnology, Inc. ("Ixion" or the "Company"), is a development
stage, discovery research biotechnology company, with several product
candidates in development. The Company is the holder of world-wide exclusive
licenses to patents and pending patents in two key areas: diabetes and
oxalate-related disorders. Ixion has executive offices and development
laboratories at the Biotechnology Development Institute, a small
business incubator operated by the Biotechnology Program at the University of
Florida.
Ixion is developing diabetes products based on its Islet Progenitor/Stem
Cell ("IPSC") technology, including a proprietary line of in vitro (in test
tube) islet stem cells for use in islet transplantation therapy. This
development program is aimed at optimizing the growth of functioning islets or
islet progenitors in vitro from IPSCs which Ixion has established in cell
cultures. The transplantation of islets is the only known potential cure
for Type I diabetes. The Company believes that successful islet
transplantation therapy will provide better management of diabetes than
conventional treatment with insulin and other metabolic regulators.
Conventional treatment can result in hyper- and hypo-glycemic episodes which
are a major cause of diabetic complications. Ixion's technology is intended to
ameliorate this condition by implanting functional islets into the body in
order to materially improve control of blood glucose levels.
In addition to developing its cell transplantation therapy, Ixion has an
ongoing discovery program to identify and characterize IPSCs as well as novel
growth factors associated with them. The goal of this program is to discover
factors important in islet cell differentiation and to identify stem cell
markers to which the Company hopes to produce antibodies useful in stem cell
isolation. All of the Company's potential diabetes products are in the
discovery research stage.
Diabetes is a chronic, complex metabolic disease. Type I (often referred
to as Insulin Dependent Diabetes or IDD) is characterized by an inability to
produce insulin due to the destruction of the insulin-producing cells of the
pancreatic islets of Langerhans. Type I diabetes also leads to many serious
conditions ranging from death from diabetic coma or insulin shock, to end
stage renal disease, blindness, amputations, nerve damage, and cardiovascular
and periodontal disease. Over 16 million people in the United States have
diabetes, of whom five to ten percent (or about 800,000 patients) have
Type I, the most severe form of the disease, and must take insulin. An
additional one and one-half million Type II patients also take insulin.
Annual expenditures on all forms of diabetes are over $100 billion.
The Company is also developing products based on its oxalate technology
for the diagnosis and treatment of oxalate-related diseases. . The
Company's oxalate technology is based on genes from the anaerobic intestinal
bacteria, Oxalobacter formigenes, which produce enzymes responsible for oxalate
degradation in healthy people. Inadequate colonies of O. formigenes result in
reduced ability to degrade oxalate. Excess oxalate from dietary and
metabolic sources plays a role in a variety of disorders including kidney
stones, hyperoxaluria, cardiomyopathy, cardiac conductance disorders, cystic
fibrosis, Crohn's disease, renal failure and toxic death, and vulvodynia
There are approximately one million kidney stone incidents annually in
the United States. Annual expenditures on kidney stone incidents exceed $1.8
billion. There are approximately 25,000 cystic fibrosis patients in the
United States; these patients are at materially increased risk of kidney
stones as a result of excess oxalate. There are from 5,000 to 16,000 new
cases of Inflammatory Bowel Disease annually, resulting in 100,000
hospitalizations, 60% from Crohn's Disease which is associated with enteric
hyperoxaluria. Vulvodynia, a chronic multifactorial disorder, believed to
be in some degree oxalate-related, results in painful and debilitating symptoms
affecting the tissue surrounding the vagina and urethra. There are no
population studies of the incidence or prevalence of vulvodynia, but estimates
range as high as 150,000 to 200,000 U.S. women with this condition. Very few
effective treatments, if any, exist for these disorders.
The most developed product candidate in Ixion's development pipeline is a
combination diagnostic and therapy for the management of oxalate-related
disorders.
The diagnostic component of the Company's oxalate-related disease
management product is a DNA probe for the rapid and sensitive detection of
human O. formigenes (the "HOF Probe"). The current tests for O. formigenes
are laborious, time consuming, and unreliable, and are limited by (1) the
difficulties of anaerobic culture methods, (2) the inability to standardize
and accurately quantitate the presence of the bacteria, and (3) the fact that
the tests cannot be
<PAGE>
automated. In addition, the current tests are not sensitive and are poorly
suited to a clinical setting. The HOF Probe, on the other hand, can accurately
and reliably detect very small numbers of O. formigenes, is quantitative, and
is capable of automation.
The therapeutic component of the Company's oxalate-related disease
management product is an orally administered product consisting of a
recombinant form of two enzymes normally found in O. formigenes and
responsible for oxalate degradation ("IxC1-62/47"). The Company believes that
the administration of IxC1-62/47 will greatly diminish the recurrence of
calcium oxalate kidney stones and will have positive therapeutic effects on
other oxalate-related disorders.
The Company intends to file an Investigational New Drug application with
the Food and Drug Administration for its IxC1-62/47 enzyme therapy for
oxalate-related diseases and an application under Section 510(k) of the Food,
Drug, and Cosmetic Act for the HOF Probe, both within 12 months from the date
of this Prospectus. See "Business - Government Regulation."
Ixion is in the development stage, has earned only limited revenues, the
majority of which have been research and development payments, and has
incurred accumulated deficits of approximately $1,784,366 from its
inception through September 30, 1997. See "Risk Factors."
Industry Description and Outlook
In 1996, the U.S. biotechnology industry was composed of approximately
1,300 companies, public and private. Sales for the industry as a whole
increased by 16.0% to $10.8 billion. The public market for biotechnology
financing was robust during 1996 with the industry raising about $4.5 billion
compared to $2.2 billion in 1995. Total financings (excluding milestone
payments and equity purchases by corporate partners) amounted to $7.5 billion.
For the first nine months of 1997, financings have declined to about
half of the 1996 level. The biotechnology industry is part of the broader
health care industry in the United States, which accounts for approximately 14%
of the country's gross domestic product, or approximately $1 trillion.
Diabetes. Diabetes is the world's most common metabolic disease. In
1995, there were over 16 million diabetics in the United States.
There are 21 million diabetics in Europe and as many as 100 million
worldwide. Type I patients compose from 5% to 10% of the total number of
diabetics in the U.S., or approximately 800,000 patients. An additional
1.5 million Type II diabetics also take insulin. There are approximately
500,000 to 600,000 new patients annually in the U.S., of which 35,000 to 50,000
are Type I diabetics. Approximately 25 percent of the new Type II patients (or
approximately 110,000) will also take insulin.
In 1995, diabetes accounted for over 10% of total U.S. health
care expenditures, or approximately $100 billion. In 1992, the American
Diabetes Association estimated that another $47 billion was spent in indirect
costs, such as lost wages. Other sources have estimated that indirect costs
may actually exceed the direct costs. Complications of the disease include
amputations of toes and feet, blindness, ulcers, nerve damage and
cardiovascular, periodontal, and kidney disease. Approximately 30% to 40% of
people with Type I diabetes will develop diabetic nephropathy leading to
kidney dialysis and renal transplants. Overall, diabetes is the fourth
leading cause of death in the U.S.
Current therapies, including insulin shots, amylin therapy, or oral
hypoglycemic medication modulate blood glucose, but cannot consistently
maintain the diabetic's blood glucose at normal levels. The Diabetes Control
and Complications trial, a nine-year NIH study, demonstrated that maintaining
blood glucose at normal levels reduces by approximately 60% the risk of
development and progression of diabetes complications. However, there is no
therapy that supplies insulin in response to changes in blood glucose with the
speed and precision of functioning islets. The Company believes that
approximately 500,000 insulin dependent diabetics are candidates for islet
transplantation and that successful transplantation of islets capable of
providing constant glucose control will ameliorate the complications of the
disease. While islet transplantation is the only known potential cure for
Type I diabetes, transplant therapy is an early stage procedure and
results, as is common for early stage procedures, for the adult islet
transplants performed to date have been disappointing. Although there can be
no assurance, the Company believes that the success rate of transplant therapy
will improve over time.
Kidney stones. Kidney stones are a major health care problem in the
United States, and a worse one in other parts of the world. Nearly one in
every 1000 residents in the United States has been hospitalized for stones,
and autopsies have revealed that one in every 100 persons have observable
stone formation in their kidneys. Between seven
<PAGE>
and ten of every 1000 hospital admissions in the United States are for kidney
stones; this is approximately 248,000 hospital admissions annually. There are
approximately one million kidney stone incidents annually, the seventh leading
cause of physician visits. Nationwide, approximately 12% of the U.S.
population will develop stones in their lifetimes, but stones are particularly
common in the region from Virginia to New Mexico, commonly referred to as the
"stone belt." In other parts of the world, particularly the Middle-East, Asia,
and India, kidney stones are an even worse problem since hot climates seem to
favor stone formation.
If a stone cannot be passed, it is surgically removed or shattered by
extracorporeal shock-wave lithotripsy. Both treatments are expensive, with
the average lithotripsy costing $4,617 and surgery costing $8,308 (including
the hospital stay). Approximately 30% of patients with kidney stones are
hospitalized, the remainder pass the stone at home, which, while not
particularly expensive, is exceedingly painful. Based on 1993 data, the total
annual cost of kidney stones in the United States was conservatively estimated
at $1.83 billion annually.
Unfortunately, kidney stones usually recur; although for most patients,
the time between episodes can be years. The majority of kidney stones are
made of oxalate, which is an end product of metabolism in the body, and an
important component of a typical diet. The intestinal oxalate degrading
bacteria, Oxalobacter formigenes, plays an important role in oxalate
homeostasis, both by regulating intestinal absorption of dietary oxalate and
also its secretion into intestinal lumen from the blood by maintaining a
transepithelial gradient. Thus it may be clinically important to screen and
treat patients with oxalate-associated diseases like kidney stones, enteric
hyperoxaluria, cardiomyopathy, cardiac conductance disorders, cystic fibrosis,
Crohn's disease, renal failure and toxic death, and possibly vulvodynia for
the presence or absence of the bacterium. Indeed, recent research indicates
an increased risk of kidney stones in patient populations with significantly
decreased intestinal colonization by O. formigenes. This may be particularly
true of patients with cystic fibrosis, who are at materially increased risk of
kidney stones as a result of excess oxalate.
Inflammatory Bowel Disease. Inflammatory Bowel Disease ("IBD") is a
general term which covers two primary chronic disorders that cause
inflammation or ulceration in the small and large intestine: Crohn's disease
and ulcerative colitis. The cause of IBD is unknown, with many theories, none
proven. One theory is that an agent, like a virus or a bacterium, affects the
immune system, thus causing an inflammatory reaction in the intestinal wall.
While there is evidence that IBD is associated with abnormalities in the
immune system, it is not known whether they are cause or effect of the
disease. Many persons with IBD are also hyperoxaluric, suggesting that excess
oxalate may be a complicating factor in the disease, or may lead to increased
risk of kidney stones. In 1987, the latest data available, the number of new
cases of IBD in the United States annually ranged from two to six per 100,000
of population. There were about 100,000 hospitalizations annually,
approximately 64% for Crohn's.
Vulvodynia. Vulvar vestibulitis syndrome ("vulvodynia") is a complex,
multifactorial disorder with painful and debilitating symptoms affecting the
tissue surrounding the vagina and urethra, including intense burning, itching,
and inflammation. In chronic cases it is very disruptive of a person's life.
Recognition of this condition as a significant, physiological syndrome
appeared in medical journals only a decade ago. There are no population
studies of the incidence or prevalence of vulvodynia although the condition
may affect from 150,000 to 200,000 American women. Because the cause is often
unknown, treatments have been aimed at symptoms and include xylocaine,
acupuncture, hypnotherapy, interferon injections, and, as a last resort in
chronic cases, surgery. Recent research suggests that vulvodynia is
associated with oxalate, with some investigators reporting significant
improvement following control of dietary oxalate.
Other Oxalate Related Markets. Two additional products which could make
use of Ixion's oxalate technology include improved kidney dialysis devices and
an improved urological catheter. As of 1996, there were approximately
287,000 U.S. hemodialysis patients and approximately 300,000 more in
Europe and Japan. The use of the Ixion oxalate technology could significantly
reduce the time that patients spend in dialysis by increasing the efficiency
of oxalate removal during the process.
The world market for urological drains (catheters) was $675 million in
1995. Catheters often foster infection and account for the leading side effect
of an invasive hospital procedure. One major cause of catheter infection is
the build-up of oxalate crystals on the catheter. The Ixion oxalate technology
would allow an improved catheter which would inhibit or dissolve encrusted
oxalate crystals, thus reducing the potential for infection.
<PAGE>
Business Strategy
The Company intends to market its initial diagnostic products, while
working with strategic partners to take its planned therapeutic products
through clinical trials into the market.
Basic Research. Ixion has used and intends to continue to use
cooperative research and development agreements with the University of Florida
for basic discovery research. The University of Florida is the tenth
largest university in the nation and is the largest research institution in the
Southeast. In 1995, it ranked ninth in the United States in gross royalties
received from patent licenses, and sixteenth in the United States in the number
of U.S. patents obtained.
Technology Evaluation and Development. The Company plans to use its
affiliation with the University of Florida Biotechnology Program to seek
out, evaluate, license, and develop cutting-edge university based
biotechnology. The Company's scientific and business team will review early
stage academic inventions, identify discoveries which are scientifically
innovative and commercially promising, obtain licenses from the University, and
develop the discoveries to add value by confirming the initial observations.
Discoveries that support the Company's core technologies will be retained for
further development; the remainder will be licensed-out to generate immediate
royalty revenue.
The Company's relationship with the scientists at the University of Florida
is based upon personal relationships between Ixion's management and University
of Florida members of the Company's Scientific Advisory Board, on the one
hand, and other members of the University of Florida faculty on the other.
These relationships are facilitated by the Company's location at the
University of Florida's research park and by the business consulting provided
by Ixion management to University faculty at no cost, by arrangement with the
Biotechnology Program. The Company has no formal agreement providing general
access to rights to University research, nor to advance notice of disclosures
by University researchers.
The University's faculty has only recently begun to engage in commercial
collaborations in significant numbers, thus many promising commercial
discoveries have not been exploited, for example, the Company recently
licensed an anti-microbial patent from two members of the University of
Florida faculty. See "Business-Licensed Technology." In addition, academic
intellectual property is often embryonic and, therefore, too risky, expensive,
and time consuming for large pharmaceutical and biotechnology companies to
acquire and develop. Ixion, on the other hand, is in a position to perform
"applied basic" research inexpensively, either in its labs or through
cooperative research agreements, in order to add value to the technology such
that it is of greater interest to commercial licensees. By increasing the
maturity stage of the technology, Ixion hopes to capture an enhanced return
upon licensing-out for royalty and milestone payments. See Figure 1, below.
<PAGE>
Discovery supports core technology.
/ Ixion develops product.
/
/
/
University-Discovered Ixion / Substantial commercial potential,
Very Early Stage --------Evaluation----- but not within core focus.
Technology \ Ixion develops technology,
\ then licenses out.
\
\
\
Discovery lacks commercial
promise or no Ixion
capability for further
development.
Ixion declines license.
Figure 1 - Ixion Technology Opportunity Strategy
Ixion intends to continue to develop collaborative arrangements with
leading researchers at the University of Florida and at other research
institutions in its core oxalate and diabetes areas to diversify and
strengthen its intellectual property estate and to establish its reputation
and credibility in the scientific and medical communities.
Collaborative Product Development and Marketing with Established
Companies. Ixion plans to develop products in collaboration with other
companies. Collaborative agreements may call for Ixion's collaborative
partners to provide research funds as well as clinical and other support
during product development, although Ixion may develop and test ideas
independently before entering into a collaborative agreement. The Company
contemplates that its partners will provide an established and trained
marketing and sales force, as well as GMP manufacturing experience, clinical
trial expertise, support for patent prosecution, and other capabilities.
Independent Product Development. The quality of Ixion's scientific team
also permits independent product development. Independently developed
products will provide the Company with the flexibility either to market the
product directly or enter into agreements with pharmaceutical partners on
terms more favorable to the Company. While independent product development is
riskier than collaborative development, the Company may be able to retain a
higher proportion of any eventual product revenue stream. The Company's HOF
Probe is an example of independent product development.
Contract Clinical Trial and Manufacturing Services. Initially, the
Company has elected to retain contract vendors to support clinical studies
and product development. Moreover, it will not initially construct its
own good manufacturing practices ("GMP") manufacturing facilities. By
contracting with a qualified manufacturing company, Ixion will be able to
obtain immediate access to the necessary GMP and regulatory skill base at low
entry costs. The Company thus expects to minimize the time to market,
maintain control over development candidates, and reduce its financial risk
when product risk is the greatest.
Product Development
The Company's first target products for diabetes will be a population of
cultured islet or pancreatic cells for use in diabetes treatment, and its
first target products for oxalate-related diseases will be the HOF Probe and
the IxC1-62/47 enzymatic treatment for oxalate-related conditions. The
Company also plans other products that will detect and measure the presence of
oxalate in urine or blood. Certain of these products may be suitable for use
in research
<PAGE>
applications and, subject to certain limitations, would not require FDA
approval prior to use in that context. (See "Business - Government Regulation,
" below.)
Genetics Institute Sponsored Research Agreement. In connection with its
potential diabetes products, in June 1996, the Company entered into a
sponsored research agreement with Genetics Institute, Inc. ("GI"), a leading
biopharmaceutical firm. The sponsored research agreement related to the
Company's IPSC technology and granted GI an option to a right of first
negotiation for an exclusive world-wide license to the Company's IPSC
technology and any improvements or developments relating to IPSC technology
which arise during the term of the agreement. The Company expects this
agreement will expire in 1997, and that GI will not exercise its
option.
Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where Ixion's proprietary technology offers unique
solutions.
Islet transplantation to reverse diabetes or reduce insulin dependency
has been limited by, among other things, immunological attack resulting in
rapid rejection of transplanted tissue. In addition to the immunologic
difficulties, there are significant shortages of human islets suitable for
transplant or research, with only 4,000 or fewer pancreases available for
transplant annually. Xenotransplants using porcine islets face additional
difficulties, such as the possibility of cross-species viruses. To date,
efforts to propagate commercial quantities of human islets in vitro (in
the test tube) from either fetal or adult tissue has had minimal success. The
Company believes that a source of reproducible islet cells would significantly
improve the speed and results of research into transplanted islets.
Ixion's IPSC technology permits the successful growth of in vitro
pancreatic-derived, pluripotent (e.g., able to differentiate) islet-producing
cells from mice. When mouse cells were implanted into clinically prediabetic
mice, the implanted mice were successfully weaned from insulin until they were
sacrificed for histological studies. The Company has also been successful in
propagating human islet cells from children and adult donors as well, but has
not transplanted such islets at the date of this Prospectus.
The following table summarizes the current status of the Company's IPSC
research and development program for diabetes products.
<PAGE>
Product Development-Diabetes IPSC Technology
Product Planned Research Products Status (1)
Indications
Cultured IPSCs Implantation in vivo of encapsulated Research
or Islets cells for study of protected
implantations to reverse diabetes
Genetically Implantation in vivo without Research
Engineered IPSCs encapsulation for study of
unprotected implantations
to reverse diabetes
Islet Growth Promotion of cell growth Research
Factors and differentiation of
pancreatic explants
Nucleic Acid Genetic and phenotype analysis Concept
Probes
Surface Analysis of health or disease Concept
Antibodies of biopsy specimens
Identification of cells
Enrichment of specific cell types
Isolation and identification of
cells by stage of differentiation
Production of knock-out lines of
pancreatic cells
Planned Clinical Products
Cultured IPSCs Encapsulated implantation in vivo Concept
or Islets to reverse diabetes
Genetically Transplantation without Concept
Engineered encapsulation (or other
IPSCs means of immunologic protection) in
vivo to reverse diabetes
Islet Growth Correct disease deficiencies Concept
Factors
Promote greater efficiency
in culturing cells for transplantation
Elucidation of diabetes disease process
Monitor disease stages
(1) "Concept" includes feasibility, theoretical market, and product
design studies based on laboratory or other data. "Research" includes
discovery research, development of the product's physical form and
specifications, and its initial production. "Preclinical" denotes efficacy,
pharmacology, safety, or toxicology studies in animal models.
Descriptions of Planned Oxalate Products. At the present time, there is
no commercial method of rapidly and easily detecting the presence or absence
of O. formigenes in the body or of measuring oxalate levels in a patient's
blood. The current tests for O. formigenes are laborious, time consuming, and
unreliable, and are limited by (1) the difficulties of anaerobic culture
methods, (2) the inability to standardize and accurately quantitate the
presence of the bacteria, and (3) the fact that the tests cannot be automated.
In addition, the current tests are not sensitive and are poorly suited to a
clinical setting.
The only commercially available tests for levels of oxalate in the human
body are currently performed in clinical labs by measuring oxalate
concentrations in urine. Available assays for measuring oxalate levels in
urine also have major drawbacks: the samples require careful processing to
remove inhibitory substances, the tests are complex
<PAGE>
and cumbersome, and they often fail to provide consistent results.
Accordingly, such tests cannot be performed in many hospital labs or in a
doctor's office. Ixion's planned oxalate products are designed to address
these drawbacks.
The HOF Probe. Ixion's oxalate technology consists of cloned, sequenced,
and expressed genes encoding the oxalate degrading enzyme and formate
degrading enzyme from the intestine dwelling bacteria, Oxalobacter formigenes.
Ixion's Dr. Sidhu, in collaboration with Dr. Milton Allison, a member of
Ixion's Scientific Advisory Board and the discoverer of O. formigenes, has
used these genes to construct a DNA probe (the "HOF Probe") to detect the
presence of O. formigenes in easily-collectable stool samples. O. formigenes
is a gram negative anaerobe present in humans and other animals. The role of
this species in intestinal management of oxalate is supported by findings
showing significantly decreased intestinal colonization in patient populations
at increased risk of kidney stones. Research in this area has been inhibited
by the difficulty of culturing and detecting the anaerobe.
The HOF Probe developed by Ixion is a significant improvement over
current tests for O. formigenes and is an important potential addition to
routine diagnostic testing for several reasons.
Ixion's HOF Probe is much easier to perform and provides accurate
results in a fraction of the time required to culture and test for
O. formigenes using existing methods.
Ixion's DNA method relies upon standard DNA techniques and does
not require anaerobic cultures of the organisms since it provides
direct detection of DNA extracted from fecal samples and amplified
using polymerase chain reaction ("PCR").
Because it is based upon PCR and subsequent hybridization to
species-specific sequences, the HOF Probe is simple to perform and
provides the required level of sensitivity, accuracy, selectivity,
and throughput necessary for a commercial diagnostic test.
The HOF Probe is sensitive to the level of 1,000 to 10,000 colony
forming units/gram of fecal material. This is approximately 100-
fold lower than the number of colony forming units in fecal
material of normal, healthy adults.
Ongoing development of the HOF Probe is focused on the following areas:
Extended evaluation and enhancement of probe specificity with
respect to other intestinal organisms to assure the absence of
cross reactivity and misdiagnosis. Organisms currently being
evaluated include the following: Eschericia coli, Yersinia spp.,
Shigella spp., Salmonella spp., Vibrio colera, Helicobacter
pylori, Klebsiella, Giardia lamblia, and Campylobacter spp.
Development of probes against clinically important intestinal
organisms such as those listed above. These, coupled with the HOF
Probe, will provide for a panel of clinically important diagnostic
tests.
Development of quantitative capability for the HOF Probe.
The Company expects to file an application under Section 510(k) of the
Food, Drug, and Cosmetic Act for clearance to market its HOF Probe during
1997. There is no assurance that the HOF Probe will qualify for 510(k)
procedure, in which case the Company will have to file an application for
premarket approval ("PMA") with the FDA. If the Company must follow the PMA
approval route, the approval process may be lengthy.
IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease
In addition to the HOF Probe and other potential diagnostic products
described above, Ixion is developing IxC1-62/47, an orally administered
therapeutic product consisting of the recombinant form of two enzymes
normally found in O. formigenes: oxalyl-CoA decarboxylase ("oxc") and formyl-
CoA transferase ("frc"). The enzymatic therapy is based upon the re-
establishment of oxalate degrading mechanisms in the body. IxC1-62/47 is
targeted at oxalate-related disorders including kidney stones, enteric
hyperoxaluria, oxalosis, cardiomyopathy, cardio conductance disorders, cystic
fibrosis, Crohn's disease, and possibly vulvodynia. Very few satisfactory
treatments currently exist for these disorders.
<PAGE>
Both the oxc and frc genes have been successfully cloned into E.
coli and expressed in active form as verified using activity assays developed
by Ixion's scientists. Physicochemical analyses such as SDS-PAGE, IEF, and N-
terminal sequence analysis have been completed. Ixion has grown the
recombinant E. coli to 80 liter scale and has purified the oxc and frc enzymes
for use in a variety of preclinical studies including (1) additional
physicochemical characterization, (2) formulation and drug delivery, and (3)
animal studies. The Company is also purifying the native form of the oxc and
frc enzymes from O. formigenes, to provide comparative data to the recombinant
versions. The Company has not determined whether the recombinant or native
enzymes will be used therapeutically. The current intention is to file an IND
for the IxC1-62/47 enzymatic therapy for oxalate-related disorders in 1998.
The HOF Probe has been performed in preclinical studies by Ixion lab
personnel on over 300 human samples from varied populations in the Ukraine,
Germany, the United States, and India. The results of those studies include
the following:
Cystic Fibrosis. Oxalate kidney stones are a known complication of
cystic fibrosis. The incidence in cystic fibrosis populations over 12
years old approaches 3% to 4% as compared to 0.2% in normal
populations Renal autopsies show >90% nephrocalcinosis. In an Ixion
sponsored clinical study conducted in collaboration with collaborators
at Northwestern University, the University Children's' Hospital,
Cologne, Germany, and University Children's Hospital, Halle, Germany,
40 (18 male and 22 female) cystic fibrosis patients (aged three to 35
years) were examined for colonization with Oxalobacter formigenes. 33
of the 40 patients were non-colonized, and of these, 18 were
hyperoxaluric and eight had urinary oxalate levels in the upper normal
range. The seven patients who were colonized with O. formigenes all
showed normal levels of urinary oxalate.
Recurrent Stone Formers. In another currently ongoing study on O.
formigenes colonization in adult calcium oxalate stone formers,
preliminary data have revealed that the majority of recurrent stone
formers (five or more stone episodes) are non-colonized with this
bacteria. Studies in the literature suggesting a decrease in the
colony forming units of O. formigenes in patients with oxalate
calculi, rather than complete non-colonization, has led to the
development by Ixion of a Quantitative-PCR HOF Probe. The
Quantitative-PCR HOF Probe is now being used in additional preclinical
work to detect and quantitate O. formigenes in oxalate stone formers
to determine if the number of Colony Forming Units is a relevant risk
factor.
Vulvodynia. A new preclinical study is scheduled in
cooperation with the Diagnostic Reference Laboratory at the Shands
Hospital at the University of Florida to examine 25 to 40 vulvodynia
patients for colonization with Oxalobacter formigenes.
Over 65 percent of kidney stones are calcium-oxalate stones, and excess
oxalate is implicated in other diseases as set forth above. Oxalate is present
in many common foods, including tea, broccoli, and spinach. O. formigenes is
involved in degradation of dietary oxalate and its secretion from plasma into
the gut. The Company believes that a robust colony of O. formigenes prevents
recurrent calcium-oxalate kidney stone formation and may ameliorate other
disease states. Management believes that Ixion is the only company world-wide
which is examining the role of O. formigenes in human and animal disease
states.
Blood Oxalate Assay. The combination of the oxc and frc enzymes and
cofactors also serve as the basis for a planned blood oxalate assay. The
recurrence rate of calcium oxalate kidney stone formation is very high, with
hyperoxaluria as the major predisposing factor to stone formation. Accurate
measurements of blood oxalate levels, together with the presence or absence of
O. formigenes, are important requirements for predicting the risk of
calculogenesis in an individual and stratifying urological patients for
clinical intervention. Development is planned in 1998 on an additional
oxalate product: a blood oxalate assay, to be designed for clinical use by
hospitals, independent labs, and doctors.
The following table summarizes the current status of the Company's
oxalate product research and development program.
<PAGE>
Product Development-Oxalate Technology
Product Planned Research Products Status (1)
Indications
HOF Probe Detection of O. formigenes in stool Preclinical
stone research
Blood Oxalate Measurement of oxalate levels in blood Concept
Assay for research in kidney stone, hyperoxaluria,
cystic fibrosis, Crohn's disease, vulvodynia,
Planned Clinical Products
HOF Probe Detection of O. formigenes in stool for Preclinical
oxalate-related and other oxalate-related
diseases disorders
IxC1-62/47 Treatment of oxalate-related disorders: Preclinical
Enzyme Kidney Stones
Therapy Crohn's Disease
Cystic Fibrosis
Hyperoxaluria
Vulvodynia
Other oxalate-related diseases
Blood Oxalate Diagnostic oxalate detection kit for blood Concept
Assay
Dialysis Rapid removal of excess oxalate in blood Concept
Cartridge
Oxalate-Resistant Catheter coated to Concept
Catheter avoid oxalate encrustation
as a method to reduce
the incidence of infection
(1) "Concept" includes feasibility, theoretical market, and product
design studies based on laboratory or other data. "Research" includes
discovery research, development of the product's physical form and
specifications, and its initial production. "Preclinical" denotes efficacy,
pharmacology, safety, or toxicology studies in animal models. "Clinical"
denotes testing for safety and efficacy.
Licensed Technology
The Company has been licensed, on an exclusive world-wide basis,
commercial rights under one issued U.S. patent, issued February 1997, relating
to its oxalate technology, and one U.S. patent allowed June 1997, relating to
its IPSC technology, as well as several pending patent applications,
divisional applications, continuations, and continuations-in-part, held by the
University of Florida Research Foundation, Inc. ("UFRFI"), the technology
transfer organization of the University of Florida. The licensed technology
relates to two areas: in vitro grown Islet Progenitor/Stem Cells ("IPSCs")
for curing diabetes, and materials and methods for detection of oxalate and
Oxalobacter formigenes.
The license agreements pursuant to which the Company has the rights to
these patent applications require UFRFI to file and prosecute the patents
relating to the technology licensed to the Company, the costs of which are
required to be reimbursed by the Company, and to take all steps to defend such
patent rights. If UFRFI fails to take any such action, the Company has the
right to defend such rights at its own expense.
The Company and UFRFI entered into a Patent License Agreement relating to
materials and methods for detection of oxalate on January 11, 1996, and
another Patent License Agreement relating to in vitro grown IPSCs for curing
diabetes on February 17, 1995 (the "University Patent Licenses"). Except for
royalty rates and certain other immaterial differences, the terms of these
licenses are substantially identical. Pursuant to the University Patent
Licenses, UFRFI licensed its rights under patent applications on an exclusive,
worldwide basis to the Company for the
<PAGE>
life of the patents granted thereunder. The Company has rights under the
University Patent Licenses to all possible uses of the patent applications, any
patents issued from such applications, any divisionals and continuations of
such applications, and to any claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are directed to subject
matter specifically described in such applications. In order to maintain its
license, the Company is required to use its best efforts to bring one or more
licensed products or processes to market through a thorough, vigorous, and
diligent program for exploitation of the patent rights. In addition, it
must provide annual business plans to the University showing the plan for
product development regarding the commercialization of licensed products.
Under the University Patent Licenses, the Company paid a license issue
fee, is obligated to pay royalties on net sales by Ixion or its sublicensees
of licensed products or licensed processes, and must reimburse UFRFI for
patent costs incurred in prosecuting the patent applications. There are no
minimum annual royalties. The Company is also obliged to obtain product
liability insurance prior to the sale for commercial purposes of licensed
products. There is no assurance that the Company will be able to obtain such
insurance on reasonable terms. See "Risk Factors - Risk of Product Liability
Insurance."
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions, and individuals have filed patent
applications or received patents to technologies that are similar to the
technologies licensed by the Company. The Company is aware of certain patent
applications previously filed by and patents already issued to others that
could conflict with patents or patent applications licensed to the Company,
either by claiming the same methods or compounds or by claiming methods or
compounds that could dominate those licensed to the Company. In addition,
there can be no assurance that the Company is aware of all patents or patent
applications that may materially affect the Company's ability to make, use, or
sell any products. United States patent applications are confidential while
pending in the United States Patent and Trademark Office ("PTO"), and patent
applications filed in foreign countries are often first published six months
or more after filing. Any conflicts resulting from third party patent
applications and patents could significantly reduce the coverage of the
patents or patent applications licensed to the Company and limit the ability
of the Company to obtain meaningful patent protection. If patents are issued
to other companies that contain competitive or conflicting claims, the Company
may be required to obtain licenses to these patents or to develop or obtain
alternative technology. There can be no assurance that the Company will be
able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevented from
the development or commercialization of its product candidates, which would
have a material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the
patent rights licensed by the Company relating to Islet Progenitor/Stem Cells
and to its oxalate technology, particularly bacterial oxalyl-CoA
decarboxylase, an enzyme used in the Company's proposed oxalate-related
products including the HOF Probe and the IxC1-62/47 enzyme therapy. The
Company may not be able to commercialize its proposed diabetic products based
on its method of proliferating IPSCs in vitro or its proposed oxalate-related
disease management products, both due to patent rights held by third parties
other than the Company's licensors. As a result, the positions of the Company
and its licensors with respect to the use of IPSCs or products containing
oxalyl-CoA decarboxylase are uncertain and involve legal and factual questions
that are unknown or unresolved. Although management believes its patents and
patent applications provide a competitive advantage in its efforts to
discover, develop, and commercialize useful products, if any of these
questions is resolved in a manner that is not favorable to the Company's
licensors or the Company, the Company may not have the right to commercialize
products relating to certain aspects of IPSC technology or products containing
oxalyl-CoA decarboxylase in the absence of a license from one or more third
parties, which may not be available on acceptable terms or at all. The
Company's inability to commercialize any of these products would have a
material adverse effect on the Company.
As mentioned above, the Company obtained its rights to IPSCs under a
license from the University of Florida Research Foundation, Inc. ("UFRFI") in
February 1995. In 1994 and 1995, UFRFI filed in the United States and
thereafter in numerous foreign countries patent applications covering IPSCs.
In 1981, the Ontario Cancer Institute filed a patent application in the
United States and was issued a patent in 1984 covering a method for producing
pancreatic islet-like structures having histology and insulin-producing
properties corresponding to those of fetal pancreatic islets and islets from
adult animals maintained in culture, based on discoveries by Michael Archer
(the "Archer Patent"). The patented method is similar, but not identical, to
the Company's IPSC technology. The Archer Patent was licensed to
CytoTherapeutics, Inc. in 1991. CytoTherapeutics may have filed patent
applications in foreign countries based upon the Archer Patent and may have
additional patent applications on the same general subject matter pending in
the United States.
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The Company is also aware that in 1993, Human Cell Cultures, Inc., filed
a first U.S. patent application which was rapidly abandoned in favor of a
second U.S. continuation-in-part application, and that these U.S. applications
together were the basis of an international application which claimed a
cell culturing method and medium to form pancreatic "pseudotissues" composed of
"pseudoislets" to treat blood sugar disorders in mammals, based on discoveries
by Hayden Coon and others (the "Coon Patent Application").
Subsequently, on June 7, 1995, Human Cell Cultures filed in the U.S. a
continuation of its second (now abandoned) U.S. application, and in July 1997
was issued a United States patent (the "Coon Patent") claiming a somewhat
narrower scope of subject matter and methods as were claimed in the Coon Patent
Application. The Coon Patent Application and the Coon Patent claim a
method which is also similar, but not identical, to the Company's IPSC
technology. At the date of this Prospectus, the Company is not aware of any
U.S. or foreign patents which have issued relating to the Coon Patent
Application other than the Coon Patent. However, such patents may have
been issued and there may have been additional patent applications filed in the
United States or foreign countries based upon the Coon Patent Application.
In the United States, one must be the first to invent a subject matter in
order to be entitled to patent protection on that invention. With respect to
patent applications filed prior to January 1, 1996, United States patent law
provides that if a party invented a technology outside the United States, then
for purposes of determining the first to invent the technology, that party is
deemed to have invented the technology on the earlier of the date it
introduced the invention in the United States or the date it filed its patent
application. In foreign countries, the first party to file a patent
application on an invention, not the first to invent the subject matter, is
entitled to patent protection on that invention, assuming that the invention
meets the other requirements for patentability. There can be no assurance that
the owners of the Archer Patent nor the owners of the Coon Patent Application
will not make challenges to any UFRFI patents or patent applications relating
to IPSCs, or that UFRFI will succeed in defending any such challenges. There
can be no assurance that the sale of IPSC products by the Company would not be
held to infringe United States and foreign patent rights of the owners of the
Archer Patent, the Coon Patent, or the Coon Patent Application. Under
the patent laws of most countries, a product can be found to infringe a third
party patent either if the third party patent expressly covers the product or
method of treatment using the product, or in certain circumstances, if the
third party patent, while not expressly covering the product or method, covers
subject matter that is substantially equivalent in nature to the product or
method. If it is determined that products derived from the Company's IPSC
technology infringe the Archer Patent or the Coon Patent, or infringe a
patent, if any, issued pursuant to the Coon Patent Application, the Company
would not have the right to make, use, or sell its IPSC products in one or more
countries in the absence of a license from the owners of such patents. There
can be no assurance that the Company could obtain a license from such owners on
acceptable terms or at all.
As mentioned above, the Company obtained its rights to its oxalate
technology under a license from UFRFI in January 1995. In 1995, UFRFI filed
in the United States and thereafter in numerous foreign countries patent
applications covering its oxalate technology with claims which cover the
Company's HOF Probe and its IxC1-62/47 therapy for oxalate-related disorders,
both of which involve the use of an enzyme called oxalyl-CoA decarboxylase
derived from the anaerobic bacteria, Oxalobacter formigenes.
In June, 1995, Human Genome Sciences, Inc., filed a patent application in
the United States, and thereafter in foreign countries, relating to a claimed
human oxalyl-CoA decarboxylase and the DNA(RNA) encoding such polypeptide, as
well as a procedure for producing such polypeptide and for producing an
antibody relating to such polypeptide for use in the treatment of calcium
oxalate kidney stones and hyperoxaluria. A U.S. Patent was issued on June 3,
1997 (the "HGS Patent"). The HGS Patent purports to relate to a human version
of oxalyl-CoA decarboxylase which is stated to be 50% to 60% homologous to the
oxalyl-CoA decarboxylase from the anaerobic bacteria, Oxalobacter formigenes.
If the use of the Company's bacterial oxalyl-CoA decarboxylase is found to
infringe the patent owned by Human Genome Sciences, then the Company would not
have the right to sell such products in one or more countries without a
license from Human Genome Sciences. There can be no assurance that the
Company would be able to obtain a license from Human Genome Sciences on
acceptable terms or at all.
Litigation, which could result in substantial cost to the Company, may
also be necessary to enforce any patents to which the Company has rights or to
determine the scope, validity, and enforceability of other parties'
proprietary rights, which may affect the Company's product candidates and
technology. United States patents carry a presumption of validity and
generally can be invalidated only through clear and convincing evidence. The
Company's licensors may also have to participate in interference proceedings
declared by the PTO to determine the priority of an invention, which could
result in substantial cost to the Company. There can be no assurance that
the Company's licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further,
<PAGE>
with respect to the technology licensed by the Company from UFRFI, UFRFI is
primarily responsible for any litigation, interference, opposition, or other
action pertaining to patents or patent applications related to the licensed
technology, and the Company is required to reimburse it for the costs it incurs
in interference or opposition. As a result, the Company generally does not
have the ability to institute or determine the conduct of any such patent
proceedings unless UFRFI does not elect to institute or elects to abandon such
proceedings. In cases where UFRFI elects to institute and prosecute patent
proceedings, the Company's rights will be dependent in part upon the manner in
which UFRFI conducts the proceedings. UFRFI could, in any of these proceedings
that it elects to initiate and maintain, elect not to vigorously pursue or
defend or to settle such proceedings on terms that are not favorable to the
Company. An adverse outcome in any patent litigation or interference
proceeding could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties, or
require the Company to cease using such technology, any of which could have a
material adverse effect on the Company.
No assurance can be given that any existing patent application, or any
future patent application will issue or that any patents, if issued, will
provide the Company with adequate patent protection with respect to the
covered products, their uses, technology, or processes. In addition, under
its licenses with UFRFI, the Company is required to meet specified diligence
requirements to retain its license of these patents. No assurance can be
given that the Company will satisfy any of these requirements. See "Risk
Factors - Uncertainty Regarding Patents and Proprietary Rights."
In January 1997, Ixion entered into a patent license agreement obtaining
exclusive rights to the issued patent of Dr. Randy S. Fischer and Dr. Roy A.
Jensen, faculty members at the University of Florida, for identifying a
difference which exists between the metabolic pathway of a microbial or plant
target organism and a non-target host specie and then preparing a control
agent which perturbs the metabolic pathway of the target without significantly
perturbing the metabolic pathway of the host. This patent may be useful in
the development of microbicides for drug resistant pathogens such as
staphyloccus, enterococcus, and neisseria. Under the Fischer/Jensen license
agreement, the Company paid a license issue fee of 1,000 shares of its
Common Stock and is obligated to pay royalties of 2% on net sales by
Ixion or its sublicensees. There are no minimum annual royalties or due
diligence milestones. The Fischer/Jensen license is for the remainder of the
legal life of the patent (or over 12 years).
Because the inventions covered by the University Patent Licenses and the
Fischer/Jensen license were inventions made with federal assistance (which is
typical of university-based discoveries), they are subject to certain rights
of the federal government under 35 USC Title 18, "Patent Rights in Inventions
Made with Federal Assistance." These rights (the "Government Rights") include
"march in" rights under which the government has the right to require the
Company to grant an exclusive license under any of such inventions to a third
party if the government determines that (i) adequate steps have not been taken
to commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs, or (iii) such action is necessary to meet requirement
for public use under federal regulations. The Government Rights include a non-
exclusive, paid-up, worldwide license under such inventions for any
governmental purpose. The law also requires any licensor of an invention
that was partially funded by federal grants to obtain a covenant from its
exclusive licensee to substantially manufacture products using the invention
in the United States, although this covenant is subject to a discretionary
waiver by the government.
Patents and Trade Secrets
Dr. Peck, as an employee of the University of Florida, is bound by the
terms of the University's patent policy, which requires that any invention
conceived of or developed in the area in which he is employed belongs to the
University (subject to the Government Rights described above, and to
Ixion's rights under the consulting agreement it has with him). See
"Management - Consulting Agreement With Dr. Peck" and "Business - Government
Regulation - Florida Conflicts of Interest."
It is the Company's policy to require its directors, material investors,
employees, consultants, outside scientific collaborators, and sponsored
researchers, and other advisors to execute confidentiality agreements upon
investment or upon the commencement of employment or consulting relationships
with the Company. These agreements provide that all confidential information
developed or made known to the individual during the course of his or her
relationship with the Company is to be kept confidential and not disclosed to
third parties. Ixion also requires signed confidentiality or material
transfer agreements from any company that is to receive confidential data or
proprietary compounds. In the case of employees and consultants, the
confidentiality agreements also generally provide that all inventions
conceived by the individual while rendering services to the Company shall be
assigned to Ixion as the exclusive property of Ixion (subject, in the case of
Dr. Peck, to the prior rights of the University of Florida). There can be no
assurance, however,
<PAGE>
that these agreements will provide meaningful protection or adequate remedies
for the Company's trade secrets or other proprietary information in the event
of an unauthorized disclosure or will be effective to assign inventions.
Certain of the Company's research has been funded in part by Small
Business Innovation Research grants ("SBIRs") and may be funded in the
future by such grants and by Small Business Technology Transfer Research
grants ("STTRs"). In connection with any such funding, the U.S. Government
will have the "Government Rights" described above.
In order to produce or use the HOF Probe in its current formulation or to
produce the Blood Oxalate Assay (and other immunodiagnostic products) in
commercial quantities for resale, it may be necessary to license certain
rights from Roche Molecular Systems, Inc., the holder of patents on a nucleic
acid amplification process known as the polymerase chain reaction ("PCR")
process. If Ixion finds it necessary to use PCR to produce commercial
products, it will enter into such a license with Roche, which makes non-
exclusive licenses generally available. The Company does not anticipate that
the terms of such license will have a materially adverse effect on the
Company.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's
competitors include major pharmaceutical, chemical, and specialized
biotechnology companies, many of which have larger R&D budgets, as well as
substantially greater experience in developing products, in obtaining
regulatory approvals, and in manufacturing and marketing diagnostic and
pharmaceutical products. In addition, many biotechnology companies have
formed collaborations with large, established companies to support research,
development, and commercialization of products that may be competitive with
those of the Company. Academic institutions, governmental agencies, and other
public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on
their own or through joint ventures.
The Company's products under development are expected to address a broad
range of markets. The Company's competition will be determined in part by the
potential indications for which the Company's products are developed and
ultimately approved by regulatory authorities. See "Business - Government
Regulation." In addition, the first pharmaceutical product to reach the
market in a therapeutic or preventive area is often at a significant
competitive advantage relative to later entrants to the market. Accordingly,
the relative speed with which Ixion or its future corporate partners can
develop products, complete the preclinical and clinical trials and approval
processes, and supply commercial quantities of the products to the market are
expected to be important competitive factors. The Company's competitive
position will also depend on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
develop and implement production and marketing plans, contract for and manage
third-party service providers, obtain and maintain patent protection, and
secure adequate capital resources. The Company expects its products, if
approved for sale, to compete primarily on the basis of product efficacy,
safety, patient convenience, reliability, value, and scope of patent rights.
See "Risk Factors - Intense Competition."
Government Regulation
In the United States, the Food and Drug Administration ("FDA") regulates
distribution, manufacture, labeling, and promotion of drugs, medical devices,
and biologics. In addition, manufacturers of these products are subject to
other federal, state, and local environmental and safety laws and regulations.
Governments in other countries may impose additional requirements.
FDA Authorization to Market. Drugs, medical devices, or biologics may
not be manufactured for commercial use in the United States unless they have
FDA authorization. Obtaining FDA authorization to market a regulated product
generally involves the submission of preclinical, product characterization,
clinical, and manufacturing information. The process can take a number of
years and the expenditure of significant resources, and there is no guarantee
that the FDA will ever authorize marketing of the product.
Drugs and Biologics. Some of the Company's planned products, such as the
diabetes treatment products, will be considered drugs, devices, biologics or a
combination of these designations. The Food, Drug, and Cosmetic Act ("FDCA")
and the Public Health Service Act ("PHSA") provide that drugs and biologics
may not be commercially distributed within the United States unless they have
been approved by the FDA. The process required by the FDA before drugs and
biologics may be marketed in the United States generally involves five steps:
(1) preclinical laboratory
<PAGE>
and animal testing, (2) submission to the FDA of an Investigational New Drug
("IND") application which must be effective prior to the initiation of human
clinical studies, (3) adequate and well-controlled clinical trials to establish
safety and efficacy for its intended use, (4) submission to the FDA of an New
Drug Application ("NDA"), Biologics License Application, ("BLA"), or Product
License Application ("PLA")/ Establishment License Application ("ELA"), and (5)
review and approval of the NDA, BLA, or PLA/ELA by the FDA.
Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety, pharmacology,
toxicology, and efficacy of the product. The results of these tests are
submitted to the FDA as part of the IND. If a company is not notified by the
FDA within 30 days of submission of the IND, Phase I clinical trials may be
initiated. Clinical trials are typically conducted in three sequential
phases, although the phases may overlap. Phase I represents the initial
administration of the drug or biologic to a small group of humans, healthy
volunteers, to test for safety, dosage tolerance, absorption, distribution,
metabolism, excretion, and clinical pharmacology. Phase II involves studies
in a small number of patients to assess the efficacy of the product, to
ascertain dose tolerance and the optimal dose range, and to gather additional
data relating to safety and potential adverse effects. Once an
investigational drug is found to have some efficacy and an acceptable safety
profile in the targeted patient population, Phase III studies are initiated to
establish safety and efficacy in an expanded patient population and multiple
clinical study sites. The FDA reviews both the clinical plans and the results
of the trials and may request that the Company discontinue or expand the
trials at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials of drugs and
biologics are submitted to the FDA in the form of an application for an NDA
(in the case of a drug), BLA, or PLA (in the case of a biologic). Additional
information, including additional animal studies or clinical trials, may be
requested during the FDA review period that may extend the review process and
delay marketing approval. There can be no assurance that the FDA will
authorize marketing of the product, or that it will do so in a timely manner.
For certain biologics, the manufacturer must also apply for and obtain an
establishment license (ELA), which may be granted following a review and
inspection of the manufacturing procedures, equipment, and facilities involved
in manufacturing the product. For drugs and biologics reviewed via a BLA, the
manufacturer must also pass a premarket inspection of its compliance with good
manufacturing practices. After FDA approval of the NDA, BLA, or PLA for the
initial indications, further clinical trials may be necessary to gain approval
for the labeling of the product for additional indications.
Medical Devices. Many of the Company's planned products (e.g., the in
vitro diagnostic products such as the HOF Probe, or the populations of in
vitro grown islets for transplantation therapy) will be considered medical
devices or a combination of devices and biologics. Pursuant to the FDCA, the
FDA regulates the clinical testing, manufacture, labeling, distribution, and
promotion of medical devices. The FDCA further provides that, unless
exempted by regulation, medical devices may not be commercially distributed in
the United States unless they have been approved or cleared by the FDA.
In the United States, medical devices are classified into one of three
classes (class I, II, or III), on the basis of the controls deemed necessary
by the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, class I devices are subject to general controls (for example,
labeling, premarket notification, and adherence to GMPs), and class II devices
are subject to general and specific controls (for example, performance
standards, postmarket surveillance, patient registries and FDA guidelines).
Generally, class III devices are those which must receive a PMA by the FDA to
ensure their safety and effectiveness (for example, life sustaining, life-
supporting, and implantable devices, or new devices which have not been found
substantially equivalent to legally marketed devices).
There are two review procedures by which medical devices can receive such
approval or clearance. Some products may qualify for clearance under a
Section 510(k) ("510(k)") procedure, in which the manufacturer provides a
premarket notification that it intends to begin marketing the product, and
shows that the product is substantially equivalent to another legally marketed
product (i.e., that it has the same intended use and is as safe and effective
as a legally marketed device and does not raise different questions of safety
and effectiveness than does a legally marketed device). In some cases, the
submission must include data from human clinical studies. Marketing may
commence when the FDA issues a clearance letter finding such substantial
equivalence.
If the medical device does not qualify for the 510(k) procedure (either
because it is not substantially equivalent to a legally marketed device or
because it is a Class III device required by the statute and implementing
regulations to have an approved application for premarket approval), the FDA
must approve a premarket approval ("PMA") application before marketing can
begin. PMA applications must demonstrate, among other matters, that the
medical device is safe and effective. A PMA application is typically a
complex submission, usually including the results of
<PAGE>
preclinical and clinical studies, and preparing an application is a detailed
and time-consuming process. Once a PMA application has been submitted, the
FDA's review may be lengthy and may include requests for additional data.
The manufacturer must also pass a premarket inspection of its compliance with
good manufacturing practices. There can be no assurances that the FDA will
authorize marketing of the product under a 510(k) or a PMA, or that it will do
so in a timely manner. After FDA approval of the initial indication, further
clinical trials may be necessary to gain approval of the product for
additional indications.
Clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, which usually involve
FDA review of the investigation before it may begin. Clinical investigations
of many in vitro diagnostic ("IVDs") tests are exempt from the IDE
requirements, provided the testing meets certain exemption criteria, including
labeling as an Investigational Use Only ("IUO") product. In addition, IVDs
may be distributed for research use only ("RUO"), provided they are intended
for laboratory research and labeled for research use. Pursuant to current FDA
policy, manufacturers of IVDs for IUO or RUO are encouraged by the FDA to
establish a certification program under which these IVDs are distributed to or
utilized only by individuals, laboratories, or health care facilities that
have provided the manufacturer with a written certification of compliance
indicating that the IUO or RUO product will be restricted in use and will,
among other things, meet institutional review board and informed consent
requirements.
The Company's Products. The Company's HOF Probe and Blood Oxalate Assays
will be distributed initially for research use and will not require FDA review
prior to distribution for those uses. To market these products for diagnostic
use, the Company intends to request authorization under the 510(k) procedure
for the HOF Probe and perhaps the Blood Oxalate Assay. PMAs may, however, be
required for each of these products. The Company's diabetes treatment
products will require a BLA or PLA/ELA before they may be commercially
distributed, and these products may be clinically tested only after the FDA
has been provided an IND which may be reviewed within the FDA by the Center
for Biologics and Research (CBER) and the Center for Drug Evaluation and
Research (CDER). Additionally the Company may be required to register its
diabetes treatment products as a prerequisite to commercial distribution.
There can be no assurance that the FDA will accept the Company's views on the
regulatory status of its products, or that the FDA will authorize marketing or
clinical investigation of any product, or that it will do so in a timely
manner. Additional studies or other information may be requested during the
FDA review period that may delay marketing authorization. Marketing
authorizations, if granted, may include significant limitations on the uses
for which a product can be marketed. The law or government regulations may
change in ways that could prevent or delay marketing authorization for the
Company's products. Delays in receipt of, failure to receive, or loss of
previously received approvals could have a material adverse effect on the
Company's business, financial condition, and results of operations.
Other FDA Obligations. Each manufacturing facility for drugs, medical
devices, or biologics, must be registered with the FDA, and the products
manufactured at that facility must be listed with the FDA. A manufacturer's
quality control and manufacturing procedures must conform on an ongoing basis
with good manufacturing practices. Certain adverse effects and product
malfunctions must be reported to the FDA. Product labeling and advertising
must comply with FDA requirements. In some cases, postmarket testing may be
required, or other requirements imposed. Complying with these requirements
requires substantial time, money, and effort. The Company intends to rely on
its strategic partners for assistance with these matters.
FDA Enforcement. The FDA inspects manufacturers of drugs, medical
devices, and biologics on a regular basis. Failure to comply with applicable
requirements can, among other consequences, result in civil penalties,
injunctions, suspensions, and losses of regulatory approvals, product recalls,
seizure of products, refusal to allow the Company to enter into supply
contracts with the government, and criminal prosecution. The Company intends
to rely on its strategic partners for assistance with these matters.
Non-U.S. Marketing. For marketing outside the United States, the Company
is also subject to foreign regulatory requirements. Requirements governing
the conduct of clinical trials, product licensing, pricing, and reimbursement
vary widely from country to country. The time required to obtain approvals by
foreign countries may be longer or shorter than that required for FDA
approval, and regulatory requirements for foreign countries may differ
significantly from those of the FDA. In some cases, products may not be
exported until FDA approval is obtained. The Company intends to rely on its
strategic partners both in the United States and abroad for assistance with
these matters.
Florida Conflicts of Interest. Because Dr. Peck, the Company's Chief
Scientist, and Dr. Schuster and Dr. Khan, members of the Company's Scientific
Advisory Board, are employees of the Florida State University System,
<PAGE>
they, and consequently the Company, are subject to Florida statutes relating
to conflicts of interest. In order for Ixion to conduct business with the
University (including licensing University technology or entering into
CRADAs), it is necessary to obtain and maintain an exemption for Dr. Peck from
the application of the Florida conflict of interest statutes, and to obtain
approvals for outside activities for Dr. Schuster and Dr. Khan.
Exemptions for Dr. Peck are issued pursuant to a monitoring plan which
requires the Company, among other things, to promptly disclose every material
transaction between the Company and any employee of the University. Dr. Peck
obtained his initial exemption from the Florida conflict of interest statutes
on January 5, 1995, relating to the academic year ended June 30, 1995.
Exemptions must be renewed annually at the beginning of each academic year (or
upon material alterations in the terms of the relations between the Company
and Dr. Peck). The approval of the request for renewal for the academic year
ended June 30, 1997 was received on September 29, 1997. The request to renew
Dr. Peck's exemption for the current academic year ended June 30, 1998 has
been filed and is pending. The approval process can take six or more months.
While the Company has no reason to believe that Dr. Peck's request for renewal
will not be approved, there is no assurance that the exemption will be
renewed, or, if renewed, that it will be renewed on reasonable terms.
Manufacturing and Marketing
The Company has no experience in manufacturing or marketing products on a
commercial scale. Marketing rights for products may be licensed to corporate
partners. Co-marketing arrangements may also be feasible for some products.
Ixion intends to seek distribution arrangements for its products in other
countries outside of the United States. While using third parties for
distribution or marketing permits the Company to avoid the costs of
establishing a distribution or marketing network in a particular area, this
strategy also makes the Company more dependent on the efforts of third
parties, involves a potential reduction in profit margins, and may complicate
negotiations and other matters associated with technology licenses.
Target Markets. Management believes there will be substantial demand for
the HOF Probe in the research market and, upon acceptance by urologists and
nephrologists as a clinically useful test, by certain specialized kidney,
nephrogenic, and urologic reference labs. The target markets for a new blood
oxalate assay include approximately 5,000 hospital labs, the several major
independent labs, and the same specialized kidney, nephrogenic, and urologic
reference labs as for the HOF Probe.
For the use of the HOF Probe, the blood oxalate assay, and its IxC1-62/47
enzyme therapy in the management of kidney stones, the Company plans to target
the country's approximately 7,300 in-office urologists. For the use of the
HOF Probe and IxC1-62/47 enzyme therapy for managing kidney stone risk in
cystic fibrosis patients, the Company plans to target the cystic fibrosis
treatment centers in the United States. For the use of the HOF Probe and
IxC1-62/47 enzyme therapy in the diagnosis and treatment of vulvodynia, the
Company intends to approach the market through the 35,000 gynecologists
practicing in the United States.
Marketing Strategy. The strategy for marketing IPSC-related products
will depend on collaborations with third parties with greater marketing
resources than the Company.
The marketing strategy for the HOF Probe depends upon educating
urologists and nephrologists of the clinical usefulness of the Probe.
Over 65% of all kidney stones are composed predominantly of calcium
oxalate. Oxalate plays a crucial role in the formation of renal stones and in
this respect hyperoxaluria constitutes a special problem in management of
kidney stones. The HOF Probe would be used to screen and manage known stone
formers in order to assist the urologist in stratifying and treating
kidney stone patients. The use of the HOF Probe will allow the urologist to
make a determination of which of his or her hyperoxaluric patients have an
exogenous hyperoxaluria caused by hyperabsorption from the diet, resulting
from diminished or decimated populations of O. formigenes. The clinical
relevance of the resulting data is the urologist's capability to identify a
specific cause of urolithiasis and to treat it effectively. HOF Probe data
will be more meaningful than 24 hour urinary oxalate data alone in that
it accurately identifies and quantifies the high-risk population of kidney
stone formers and stratifies them with respect to cause.
Kidney stones, while prevalent, are not generally recognized as
predictable or avoidable by many physicians and their patients. Consequently,
the promotional task will be difficult. To meet this challenge, the Company
intends to invest in both physician education programs, and, assuming funds
are available, consumer awareness campaigns. The Company can reach the
country's over 7,300 in-office urologists through a direct mail campaign. In
addition, working with specialized companies in the urology market, the
Company proposes to inform urologists about the Company's
<PAGE>
planned new kidney stone disease management products. In addition, the
Scientific Advisory Board members and other recognized scientists will be
encouraged to write articles for peer review scientific journals to stimulate
interest and establish further credibility in the scientific and medical
communities.
A similar approach will be used to approach the gynecological market for
the Company's vulvodynia products and the cystic fibrosis market for the
management of kidney stone risk.
In each case, the Company intends to participate in urology, nephrology,
gynecology, and other industry trade meetings and to exploit on-line medical
databases and its own web site. Finally, as stated above, the Company intends
to use third-party sales forces to amplify its efforts. See "Business -
Business Strategy."
Facilities
As an affiliate of the University of Florida's Biotechnology Program, the
Company has leased approximately 1,900 square feet of equipped laboratory
space and approximately 500 square feet of administrative office space in the
business incubator at Progress Park (the University of Florida biotechnology
industrial park), called the Biotechnology Development Institute. As a
resident, the Company shares (at no additional cost) specialized facilities
such as animal rooms, small-scale fermentation capabilities, and glass washing
and autoclaving facilities. Further, the Company uses (again at no
additional cost) expensive and specialized equipment located in the
centralized instrument lab. Finally, the Company has available the services
of the University Biotechnology Core Laboratories including the Recombinant
Protein Expression Core, the DNA Synthesis Core, the Flow Cytometry Core, the
Protein Chemistry Core, and the Electron Microscopy Core.
The Company is developing a small scale facility in its BDI lab suite to
produce preclinical quantities of its HOF Probe as well as IxC1-62/47.
Commercial scale production, if any, will be subcontracted to third party
contract manufacturers. See "Business - Business Strategy." The facilities
license agreement for the Company's laboratory and administrative offices at
the BDI has one year remaining of its three-year term expiring July 31, 1998
at which time the Company may be required to relocate. Annual payments
(including utilities) are approximately $43,200, $14,000 of which is deferred
under the agreement with the University. The deferred amount bears non-cash
interest at 12% on the year-end outstanding balance, compounded annually. The
Company will repay the liability, if at all, only through a 1% royalty on net
sales of any products developed during its tenancy at the BDI, such royalty
not to exceed the outstanding balance.
If the Company must relocate, comparable rental facilities are available
near its present location at the BDI at rents which are not materially more
than the rent at the BDI. As an incubator graduate, the Company would
continue to have access to the Biotechnology Program's specialized facilities,
centralized equipment, and core laboratories. Relocation will not materially
affect the Company's research and development operations.
Contract Suppliers and Manufacturers. It is the Company's present
intention to enter into agreements with contract testing and manufacturing
entities to test and manufacture commercial quantities of the Company's planned
products in order to avoid the expenditure of significant funds to hire and
train personnel and comply with the extensive regulations, including "good
manufacturing practice" ("GMP") requirements applicable to such a facility.
Legal Proceedings
The Company is not a party to any legal proceedings and is not aware of
any threatened litigation or regulatory action that could have a material
adverse effect on the Company's business, financial condition, or results of
operations.
Employees
The Company has five full time employees and six part time employees,
including Dr. Peck, who is an exclusive consultant, Mr. Peck, President and
Chief Financial Officer, Mr. Tedesco, Vice President - Operations and
Regulatory Affairs, and Ms. Ramsey, Controller. The Company is not subject to
any collective bargaining agreements and believes that its relationship with
its employees is good.
<PAGE>
Scientific Advisory Board
None of the members of the Scientific Advisory Board (the "Scientific
Advisors") are employees of the Company. Members devote only a small portion
of their time to the Company and have commitments to other institutions that
may conflict or compete with their obligations to the Company. Scientific
Advisors review and evaluate the Company's research programs, advise the
Company with respect to technical matters in fields in which the Company is
involved, consult on aspects of product planning and feasibility studies,
assist in establishing research priorities, provide guidance on clinical
evaluation programs, alert the Company to potential collaborators, advise the
Company on new developments, and recommend personnel to the Company.
The Scientific Advisory Board meets periodically as a group. In
addition, certain members may meet in smaller groups or individually with
Company scientists. Ixion has confidentiality agreements with each
Scientific Advisor providing that all confidential information shall be the
exclusive property of the Company. Scientific Advisors receive no cash
compensation, but are reimbursed expenses, and, pursuant to the 1994 Board
Retainer Plan, 5,000 restricted shares of the Company's Common Stock upon
joining, and 1,000 restricted shares annually thereafter. They also receive
stock options for 2,500 shares annually after their initial year.
The current members of the Scientific Advisory Board, in chronological
order of their appointment, are the following:
Hans Wigzell, M.D., D.Sc., Dr. Wigzell is presently the Rector of
Stockholm's famed Karolinska Institute. He
received his M.D. and D.Sc. from Karolinska in
1967. From 1982 onwards, he has been Chairman of
the Department of Immunology at Karolinska. Among
his many honors was his service as Chairman of the
Nobel Committee of Karolinska from 1990 to 1992.
Milton J. Allison, Ph.D. Dr. Allison has long been a pioneer in
oxalate research, having discovered and named
Oxalobacter formigenes. He is presently Professor
of Microbiology, Immunology, and Preventive
Medicine, Iowa State University and Microbiologist
Emeritus of the National Animal Disease Center,
USDA, Ames, Iowa. He earned his Ph.D. from the
University of Maryland in 1961.
Saeedur R. Khan, Ph.D. Dr. Khan is Associate Professor of Pathology
at the University of Florida College of Medicine
and a leader in the field of oxalate research and
molecular/microscopy. His current and previous
committee memberships include the NIH Ad hoc
Reviewer on Urinary Stone Grants; member, Center
for the Study of Lithiasis and Pathological
Calcification; and member of the Shands Stone
Center Committee. He earned his B.Sc. in 1962
from Agra University in Agra, India, his M.Sc. in
1964 from the Peshawar University, Peshawar,
Pakistan, and his Ph.D. from the University of
Florida in 1973.
Sheldon M. Schuster, Ph.D. Dr. Schuster is Biotechnology Program Director for
the University of Florida's biotechnology program
and Associate Director for Research for the
University of Florida Cancer Center. He is a
member of the American Association for the
Advancement of Science and the American Society of
Biological Chemistry and Molecular Biology. He
was a co-founder of BioNebraska, Inc., and is a
Director and Senior Vice President and Chief
Scientist of AquaGene, Inc. He received his B.S.
in biochemistry from the University of California,
Davis and his Ph.D. in biochemistry and
pharmacology from the University of Arizona.
Marguerite Hatch, Ph.D. Dr. Hatch is a Professor in the College of
Medicine, Nephrology Division, and Director of
the Kidney Stone Center at the University of
California, Irvine College of Medicine since 1990.
Previously she was Director of the New York Kidney
Stone Center, SUNY Health Science Center. She
earned her B.Sc. with Honors in 1974 from the
University College, Dublin, Ireland and her Ph.D.
in 1978 from Trinity College, Dublin, Ireland.
<PAGE>
MANAGEMENT
Officers, Directors, and Key Employees
The following table sets forth certain information with respect to
officers, directors, and significant employees and consultants of the Company.
Name Age Position
Weaver H. Gaines (1) 54 Chairman and Chief Executive Officer
David C. Peck (1)(2) 50 President, Chief Financial Officer,
and Director
Ammon B. Peck, Ph.D. 52 Senior Vice President and Chief
Scientific Officer and Chairman of
the Scientific Advisory Board
David M. Margulies, M.D. (2) 46 Director
Vincent P. Mihalik (2) 47 Director
John L. Tedesco 42 Vice President - Operations and
Regulatory Affairs
Harmeet Sidhu, Ph.D. 40 Director of Research, Oxalate Division
Janet Cornelius, MS 58 Associate Director of Research,
Diabetes Division
Kimberly A. Ramsey 40 Controller
(1) Member of Executive Committee
(2) Member of Audit and Benefits Committee
Certain of the Company's key personnel are part-time employees or
consultants who, at the Company's present stage of development are not
required full time. Mr. Peck, the Company's President and Chief Financial
Officer devotes time to the Company's affairs as needed (on the average
approximately 10 days per month). Dr. Peck, Senior Vice President, Chief
Scientist, and Chairman of the Scientific Advisory Board, devotes four days
per month (see "Peck Consulting Agreement"). Mr. Tedesco, Vice President -
Operations and Regulatory Affairs devotes ten to 11 days per month, Janet
Cornelius, Associate Director of Research, Diabetes Division is half-time (the
other half time is in Dr. Peck's laboratory at the University) and Ms. Ramsey,
the Controller, approximately one day per week. With the exception of Dr.
Peck (whose availability to the Company is limited by the University of
Florida to not more than 48 days per year), each other officer is available
when required and is not limited as to the time spent on Company affairs.
Mr. Gaines is a co-founder of the Company and has been its Chairman and
Chief Executive Officer and a Director since April, 1993. He is the Company's
only full-time officer. He was also the President of the Company from April,
1993 to April, 1994. From April to November 1992, he was a Senior Advisor on
the Washington campaign staff of Bush/Quayle 92. From 1985 to 1992, he held
various executive positions with The Mutual Life Insurance Company of New York
and its operating subsidiaries, including Executive Vice President and General
Counsel of MONY and President of Unified Management, a broker/dealer in
Indianapolis. He is also a director of AquaGene, Inc., and Chairman of the
Board of BIO+Florida, the Florida biotechnology trade association. Mr.
Gaines is a graduate of Dartmouth College and the University of Virginia
School of Law.
Mr. David Peck is a co-founder of Ixion, its President since April, 1994,
Chief Financial Officer since May, 1995, and a Director since March 1993.
From September 1995, Mr. Peck has also been Chief Executive Officer of
BACOMPT, a printing company located in Carmel, Indiana. From 1992 until April
1994, he was the Chief Operating Officer of NEXCOM, the Navy Exchange Service
Command, a multi-billion dollar retail operation. He has a long history of
executive positions in management, marketing, and planning with prominent
financial firms including Merrill Lynch, Citicorp, Bank of America, and
Chemical Bank. Mr. Peck has served with several national consulting firms
(including Arthur D. Little, Inc. and the Naisbitt Group) in the areas of
operations, systems, planning, marketing, and technology (clients included
Hoffman-LaRoche, Bristol-Myers, Johnson & Johnson, and Merck) and has held
faculty positions with eight universities, including Syracuse, Rutgers, Pace,
and Fordham. He is the author of two books on financial services and
investments. Mr. Peck earned his BA and MBA degrees from Syracuse University.
Mr. Peck is Dr. Peck's brother. He is employed as a consultant.
Dr. Ammon Peck is the scientific founder of the Company and has been its
Senior Vice President and Chief Scientist and Chairman of the Scientific
Advisory Board since April, 1993. He was a director from March, 1993, to May,
1995. Dr. Peck has been at the University of Florida since 1979 and is
presently Professor of Pathology and Laboratory Medicine at Florida's College
of Medicine and former President of the medical faculty. (See "Management -
Consulting Agreement with Dr. Peck.") He received a B.S. in Bacteriology &
Russian Studies and an additional B.S. in
<PAGE>
Computer Science from Syracuse University. His Ph.D. in Medical Microbiology
was received from the University of Wisconsin. He is a member of the American
Association of Immunologists, the American Association for the Advancement of
Science, the American Diabetes Association, the Juvenile Diabetes Foundation,
and the New York Academy of Sciences. Dr. Peck is Mr. Peck's brother. He is
employed as a consultant.
Dr. Margulies, a Director since 1994, is currently Executive Vice
President and Chief Scientist as well as a director-nominee of Synetic, Inc.,
a publicly-held company in two principal lines of business: plastics
technologies and healthcare communications. From July 1996 to January 1997,
Dr. Margulies was a founder and Chairman and CEO of CareAgents, Inc., a
developer of Internet-based clinical commerce applications, which was acquired
by Synetic in January 1997. From 1991 to July 1996, Dr. Margulies was a
Director, an Executive Vice President, and Chief Scientist of Cerner
Corporation, a publicly-held company that supplies enterprise-level clinical
applications. He received his B.A. from Amherst College and M.D. from
Harvard Medical School.
Mr. Mihalik, a Director since 1995, is presently Executive Vice
President, Group Personnel, Corange International Holding BV, the parent
company of Boehringer Mannheim Corporation. Until November of 1996, he was
Senior Vice President Global Marketing for the Diabetes Care Business Unit of
Boehringer Mannheim Corporation. From August 1994 to November 1995, Mr.
Mihalik was Senior Vice President, Strategic Business Development/Commercial
Operations for Diabetes Care - Americas. He joined Boehringer Mannheim in
1990 and held the position of President, Patient Care Systems Division. He is
a member of the International Diabetes Federation, the American Diabetes
Association, the American Association of Clinical Chemistry, and the Clinical
Laboratory Management Association. He earned his B.S. in Biology from
Pennsylvania State University and his M.B.A. from the Kellogg Graduate School
of Management.
Mr. Tedesco joined Ixion in December 1996 as Vice President - Operations
and Regulatory Affairs. He is also currently President of Brandywine
Consulting, Inc., a consulting company specializing in product development,
regulatory affairs, quality control, and protein purification, a position he
has held since 1996. From 1994 to 1996, Mr. Tedesco was Vice President,
Analytical and Development Services at Tektagen, Inc., and from 1992 to 1994,
Director of Process Development and Manufacturing at Amylin Pharmaceuticals,
Inc. Mr. Tedesco is a member of the Regulatory Affairs Professional Society,
the International Society of Pharmaceutical Engineering (ISPE), and the
Parenteral Drug Association. He earned a B.S. degree in biology at
Pennsylvania State University, and a M.S. degree in biology at the University
of Wisconsin. He did post graduate work at Marquette University where he also
taught for two years. He is employed as a consultant.
Dr. Harmeet Sidhu joined the Company as a full-time consultant in May of
1995 and became a full-time employee in January of 1997. From May 1995 to
January 1997, Dr. Sidhu held the position of postgraduate fellow and visiting
scientist at the University of Florida on a fellowship funded entirely by
Ixion. From 1992 to May 1995, she was an Assistant Professor in the
Biochemistry Department at the Postgraduate Institute of Medical Education and
Research ("P.G.I.M.E.R.") in Chandigarh, India. She has been actively
involved in the area of biochemical mechanisms and medical management of
hyperoxaluria for many years. She is a graduate of Delhi University with a
B.Sc. in Chemistry and received her M.Sc. and a Ph.D. in biochemistry from
P.G.I.M.E.R.
Ms. Janet C. Cornelius joined the Company on July 1, 1997. Previously,
since 1995, she was Scientific Research Manager in Dr. Peck's laboratory in
the Department of Pathology, University of Florida Medical School, where she
was responsible for Islet Progenitor/Stem Cell (IPSC) work in collaboration
with Dr. Peck. She is a co-inventor of the IPSC technology for developing a
cure for diabetes. From 1975 to 1995 she held the title of Biological
Scientist in the same department. Ms. Cornelius received her B.S. in Biology
from Dalhousie University, Halifax, Nova Scotia, and her Masters Degree in
Medical Science from the University of Florida.
Kimberly A. Ramsey joined the Company in June 1995. From September 1993
to date, she has been a supervisory accountant at Environmental Consulting &
Technology in Gainesville, Florida. From 1992 to 1993 she was a staff
accountant with the Jaymark Companies of Orlando, Florida. She is a member of
the Institute of Management Accountants. She received her B.S. in Accounting
from the University of Florida.
All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are
elected annually to serve, subject to the discretion of the Board of
Directors, until their successors are elected or appointed. The Company's
Bylaws authorize the Board of Directors from time to time to determine the
number of its members. The Board currently consists of four members whose
terms expire in 1998. Successors to those directors whose terms have expired
are required to be elected by stockholder vote; vacancies in
<PAGE>
unexpired terms and any additional positions created by board action are
filed by action of the existing Board of Directors.
The Executive Committee, consisting of Messrs. Peck and Gaines, is
responsible for all matters which arise between meetings of the Board to the
extent permitted by Delaware law. The Audit and Benefits Committee, composed
of Messrs. Peck and Mihalik and Dr. Margulies, recommends to the Board of
Directors the appointment of the Company's independent auditors, reviews the
compensation of such auditors, and reviews with them the plans for and results
and scope of their auditing engagement. It also determines the salaries and
incentive compensation of the officers, key employees, and key consultants of
the Company and administers the Company's 1994 Stock Option Plan and 1994
Board Retainer Plan. A majority of its members must be outside directors.
The following table summarizes the compensation of those persons who
were, at December 31, 1996, the Company's Chairman and Chief Executive
Officer, its President, and its Senior Vice President and Chief Scientist for
the years ended December 31, 1994, 1995, and 1996.
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
Restricted Securities
Name Deferred Cash All Other Stock Awards Underlying
Year Salary Salary Compensation Options/SAR
Weaver H. Gaines 1994 $75,000 $ 0 $0 $0 0
(1) 1995 $31,250 $43,750 $0 $0 0
Chairman and CEO 1996 $25,000 $60,000 $0 $0 0
David C. Peck(2) 1994 $45,000 $ 0 $0 $0 0
President & CFO 1995 $35,000 $25,000 $0 $0 0
1996 $25,000 $35,000 $0 $0 0
Ammon B. Peck 1994 $17,500 $ 0 $0 $0 0
(3) 1995 $ 7,500 $22,500 $0 $0 0
Sr. V.P. & 1996 $ 5,000 $35,000 $0 $0 0
Chief Scientist
(1) Mr. Gaines joined the Company at its inception in March 1993.
(2) Mr. Peck joined the Company in April 1994. He is paid a consulting fee
rather than a salary.
(3) Dr. Peck began consulting for the Company in June 1994. He is paid a
consulting fee rather than a salary.
There have been no stock option grants to the Company's executive officers to
date.
Annual Bonus Plan
In August, 1994, the Board of Directors adopted an annual incentive
compensation plan (the "Annual Bonus Plan"), administered by the Audit and
Benefits Committee, pursuant to which officers, employees, and key consultants
may be awarded cash bonuses (if the Company has sufficient cash to pay such
bonuses prudently) or deferred bonuses, based on the financial performance of
the Company. For 1997, the Audit and Benefits Committee determined that
awards could range up to 50% of a participant's base salary or consulting fee.
Awards under the Annual Bonus Plan may be made during the first quarter of
each year at the discretion of the Committee, based on achievement of goals
set by the Committee. For each participant, the award ranges from the maximum
award if the Company achieves its approved goals, to no award if the Company
achieves less than 70% of its approved goals. No awards were made relating to
1996.
Deferred Compensation Plan
In January, 1994, the Board of Directors adopted a Deferred Compensation
Plan for officers, key employees, and consultants of the Company, permitting
such persons to defer the receipt of all or a portion of their compensation.
Under the Deferred Compensation Plan, an unfunded deferred compensation
account is established for each participant. The only obligation of the
Company regarding such account is to make the payments when they become
payable. Any amount credited to such account is solely for record-keeping,
and is not considered to be held in trust or in escrow or in any way vested in
the participant. Payments under the Deferred Compensation Plan are to be made
only upon termination of employment (which may be by death, disability,
retirement, or otherwise) and may be in a lump sum or as an annuity. In the
case of certain senior participants, if termination is by death or dismissal
without cause, at the election of the participant, the balance in his account
may be converted into Common Stock of the Company at a price
<PAGE>
per share not greater than the lowest price per share (adjusted for stock
splits, stock dividends, the issuance of convertible securities, warrants, or
options, or other dilution) at which shares of the Company's Common Stock have
been issued (or agreed to be issued) at any time in the 365 days preceding the
date of termination. A termination is deemed without cause for substantially
the same occurrences described under "Employment Agreements," below. Amounts
in the account bear interest, compounded annually, at a rate established by the
Board of Directors, currently 8.0%.
At December 31, 1996, balances in the deferred accounts for the Company's
executive officers and key consultant were as follows:
Name Capacities in Which Served Deferred Compensation
Balance <F1>
Weaver H. Gaines Chairman and Chief $199,655
Executive Officer
David C. Peck President and Chief $119,630
Financial Officer
Ammon B. Peck, Ph.D. Senior Vice President, $ 35,141
Chief Scientist, and
Chairman, Scientific
Advisory Board
[FN]
<F1> Includes accrued interest.
Employment Agreements
The Company has entered into written agreements (the "Employment
Agreements") with two of its executive officers, Messrs. Gaines and D. Peck,
which currently provide for annual base compensation of $95,000 and $60,000,
respectively. Base compensation levels are to be reviewed at least annually.
Upon a determination by the Board that the Company has obtained adequate
financing, base compensation may be increased to not less than the average
cash base compensation reported by an appropriate salary survey (as determined
by the Board) for executive officers at biotechnology companies of equivalent
size and status. The effective date of the Employment Agreements is August
31, 1994, and the current term of each expires December 31, 1999. The
Employment Agreements are renewable automatically for one-year terms unless
either party gives written notice of termination at least 92 days before the
end of the then current term. Annual bonus compensation, if any, shall be
determined by the Board of Directors.
The Employment Agreements provide that either the Company or the
executive has the right to terminate the agreement at any time upon 60
days' notice. A termination by the Company "for cause" or by the executive
not for "Good Reason" is effective without further benefits, upon a finding
by the Board of Directors. Termination without cause (as defined in the
Employment Agreements), or termination by the executive for "Good Reason" (as
defined in the Employment Agreements) requires the Company to pay severance
benefits equal to the aggregate base salary at the then current rate payable
through the end of the then current term, but not less than two times the
executive's base compensation. In addition, the employee is eligible for
annual bonus compensation calculated in accordance with the Annual Bonus Plan.
Finally, all restricted stock is immediately vested, all outstanding stock
options are immediately vested and accelerated, and the executives have the
right to purchase Common Stock of the Company pursuant to the terms of the
Deferred Compensation Plan. Termination is deemed without cause or for "Good
Reason" if (i) there is a reduction in the executive's annual aggregate
compensation or benefits, (ii) there is a diminution in the executive's
position, powers, authority, duties, or responsibilities, or (iii) there is a
material breach of the Employment Agreement by the Company.
The Employment Agreements contain covenants that an executive must
refrain from engaging in any business competitive with the Company during the
period of his employment and for six months after termination or resignation
and must not use, disclose or make accessible to any third party any
proprietary information of the Company during the period of his employment, or
thereafter. All inventions relating to biotechnology generally conceived
while rendering services to the Company must be assigned to the Company.
Consulting Agreement with Dr. Peck
The Company has an exclusive consulting agreement expiring on December
31, 1999, with Dr. Ammon B. Peck for consulting services relating to the
Company's business and technology. The fee is $50,000 per year. Dr. Peck is
obligated to devote 48 days of service per year to the Company, including
travel time, and has agreed not to engage in competitive activities with Ixion
during the term of the agreement, or for two years thereafter. Generally,
under the terms of Dr. Peck's employment by the University of Florida, the
latter has a right of first refusal to any intellectual property and must
approve waivers by Dr. Peck of the University's intellectual property rights
in any consulting agreement. Dr. Peck has agreed to assign to the Company
any inventions or intellectual property rights developed by
<PAGE>
him while performing services under the consulting agreement in any
inventions or intellectual property rights waived by the University. See
"Government Regulation - Florida Conflicts of Interest." The consulting
agreement may be canceled by either party on 30 days' written notice. The
Company has a life insurance policy on the life of Dr. Peck in the amount of
$500,000 payable to the Company.
Consulting Agreement with Brandywine Consultants, Inc.
In December of 1996, Company entered into a consulting agreement,
terminable on 90 days' notice by either party, with Brandywine Consultants,
Inc. (the "Brandywine Consulting Agreement"), of which John L. Tedesco is
President. Under the Brandywine Consulting Agreement, Mr. Tedesco was elected
to the office of the Company's Vice President - Operations and Regulatory
Affairs, and he and other Brandywine consultants will provide consulting
services in connection with the strategic planning and execution of the
Company's drug and device development efforts, as well as services in the area
of corporate development and financing. Brandywine must devote not less than
80 hours per month to the Company's affairs, for which it is paid $5,000
monthly. In addition, upon the achievement of certain milestones, Brandywine
will be issued warrants for up to 20,000 shares of Ixion Common Stock,
expiring five years from the date of issue, and exercisable at a price of
$5.00 per share. Warrants for 3,000 shares, expiring in February 2002, were
issued on June 23, 1997 upon the approval of the Product Development Plan
prepared by Brandywine. Additional warrants for 3,000 shares, expiring in
October 2002, were issued on October 24, 1997 upon acceptance of the Master
Plan for Regulatory Compliance, also prepared by Brandywine. Brandywine will
receive warrants for 4,000 shares upon the Company's filing for an IND and
warrants for 10,000 shares upon the approval of an IND. Finally, the Company
will pay Brandywine a fee on any capital raised through private investors or
corporate collaborators introduced by a Brandywine consultant.
1994 Stock Option Plan
In August 1994, the Board of Directors adopted and the shareholders
approved the 1994 Stock Option Plan (the "Plan"). The Plan was amended in
June 1997. The purpose of the Plan is to provide incentive to officers,
directors, consultants, members of the Scientific Advisory Board, and key
employees who are, or will be given responsibility for the management or
administration of the Company's business and the growth of the Company, and to
provide those personnel with an opportunity to participate in the growth,
development, and financial success of the Company.
The Plan reserves an aggregate of 250,000 shares (approximately 6.0% of
the 4.0 million authorized shares) of the Company's authorized but unissued
Common Stock for grants of options to employees and an additional 75,000
shares for grants of options to members of the Board of Directors and members
of the Scientific Advisory Board under the Board Retainer Plan. At September
30, 1997, options to purchase 43,900 shares were outstanding, and 281,100
shares remained reserved for grants of options under the Plan.
The Plan permits the grant of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code (the "Code") and
nonqualified stock options. The Committee, in its discretion, may grant
options to the Company's employees, consultants, non-employee directors, and
members of the Scientific Advisory Board; provided, however, that only
employees may be granted incentive stock options. The Committee must be
composed of at least two outside directors (if there are two outside
Directors, otherwise such number of outside directors as are available for
service) and has complete discretion to select the eligible individuals who
are to receive option grants. Outside directors who are members of the
Committee may not be awarded discretionary grants, but are awarded options for
2,000 shares upon election to the Committee and options for 2,500 shares, all
exercisable at the then fair market value, annually thereafter.
Generally, options become exercisable as to 20% of the shares subject to
option after the optionee's first full year of continuous service with the
Company and as to 1/12 of 20% of the shares at the end of each additional full
month of continuous service thereafter. Options granted to members of the
Scientific Advisory Board generally vest at the rate of 25% at the end of each
three-month period following the grant.
No incentive stock option may be exercised more than ten years after its
grant date, or in the case of nonqualified stock options, ten years and one
day after the date of its grant. No option is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by the optionee, his or
her guardian, or legal representative. Subject to certain exceptions, vested
incentive stock options expire one year after the optionee's death or
disability. Vested nonqualified options expire one year after termination of
employment for any reason including death.
<PAGE>
The exercise price of incentive stock options may not be less than the
fair market value of the shares on the date of grant (or 110% of the fair
market value for incentive stock options granted to holders of 10% or more of
the stock of the Company or any subsidiary of the Company). The price may be
paid in cash, by promissory note, or previously owned shares of the Company.
1994 Board Retainer Plan
The Company does not pay cash compensation to outside members of the
Board of Directors or to members of the Scientific Advisory Board, but does
reimburse expenses incurred in connection with meetings. Accordingly, the
Board of Directors adopted the 1994 Board Retainer Plan (amended June 1997) to
grant shares of Common Stock to such members as well as to permit grants of
stock as hiring bonuses for key employees. Members of both boards are also
eligible for grants under the 1994 Stock Option Plan.
Unvested shares granted are subject to reacquisition by the Company at no
cost if the grantee ceases to be a director. With respect to directors, the
reacquisition option will typically lapse as to 20% of the shares granted
after the grantee's first full year of continuous service with the Company and
as to 1/12 of 20% of the granted shares at the end of each additional full
month of continuous service thereafter. Scientific Advisors' shares are not
subject to reacquisition by the Company after a year.
New outside members of the Board or the Scientific Advisory Board
receive 5,000 shares upon joining, and each will receive 1,000 shares annually
thereafter during the pendency of the Board Retainer Plan. The Audit and
Benefits Committee of the Board may change the amount granted each eligible
person at any time in its complete discretion. 75,000 shares were reserved by
the Board for award to Directors of Members of the Scientific Advisory Board
under the Board Retainer Plan, of which 57,000 shares have been issued.
No specific number of shares have been reserved for grants to key employees
in connection with the commencement of employment. 27,000 shares have been
issued to employees as hiring bonuses
CERTAIN TRANSACTIONS
The following is a summary of certain transactions among the Company and
related persons.
Commencing with the founding of the Company, Messrs. Gaines and D. Peck
made loans to the Company pursuant to the terms of a convertible promissory
note (the "Subordinated Notes"). The amount outstanding varied from month to
month. On June 30, 1996, $16,159.04 (the entire outstanding balance
including accrued interest) of the Subordinated Notes were converted into
21,544 shares of Common Stock (17,560 shares to Mr. Gaines and 3,984 shares to
Mr. D. Peck). The Subordinated notes were converted pursuant to their terms
at a price per share not greater than the lowest price per share (adjusted for
stock splits, stock dividends, or other dilution) at which shares of Ixion's
Common Stock had been issued during the 12 month period immediately prior to
the notice of election to convert, in this case at a price of $.75 per share.
Prior to their conversion, the loans bore interest at 8.0%, compounded monthly
by additions to principal. No cash interest was ever paid on the Subordinated
Notes.
On August 31, 1994, Messrs. Gaines and D. Peck each converted $9,000 of
principal amount of Subordinated Notes into an aggregate of 900,000 shares of
the Company's Common Stock, at a price of $0.02 per share. That price was
determined by the Board of Directors to be the fair market value of such stock
on such date.
On August 31, 1994, the Board of Directors accepted Dr. Ammon B. Peck's
offer to assign to the Company all his interest in oxalate technology (subject
to prior rights of the University of Florida under the University's patent
policy) and to agree to execute an exclusive consulting agreement with the
Company in exchange for an aggregate of 650,000 shares of Common Stock at a
price of $0.02 per share. The Board of Directors valued the assignment of
such rights at not less than $13,000, and determined that amount to be the
fair market value of the shares on such date. This transaction was
consummated on October 17, 1994.
As of October 10, 1994, members of the immediate families of the founders
of the Company, including a partnership in which Mr. Gaines has an undivided
25% interest, purchased an aggregate of 140,000 shares of the Company's
Common Stock pursuant to an Agreement to Purchase Shares dated as of such
date, for a price of $0.10 per share, or $14,000 in the aggregate.
<PAGE>
As of January 1, 1996, the Company purchased used laboratory equipment
with a replacement value in excess of $60,000 from Carl Therapeutic, Inc.
(controlled by a vice president of the Company), pursuant to a chattel
mortgage agreement in the amount of $32,309. None of this equipment had been
acquired by Carl Therapeutic within the previous two years. The agreement
calls for monthly payments of $897.47 commencing August 1, 1996. There is no
interest on the outstanding balance. The loan is secured by a security
interest in the laboratory equipment.
On April 16, 1996, the Chairman and Chief Executive Officer and the
President of the Company each entered into a revolving agreement to
extend the Company up to $25,000 in the form of bridge loans. Under these
agreements, the Company borrowed a total of $32,099.56, all of which was repaid
in cash by the Company on June 14, 1996. Outstanding loans bear cash
interest at the rate 8% (subject to adjustment as to outstanding balances
each January 1), paid monthly and upon repayment of the principal. In
addition, the Chairman, on June 21, 1996, agreed to increase his bridge
loan commitment to an amount up to $150,000. The Company may borrow from
these revolving facilities from time to time for working capital purposes.
On October 24, 1997, the Board of Directors approved a competitive bid by
BACOMPT, a printer in Carmel, Indiana, of which Mr. Peck is a part owner and
the chief executive officer, to provide prospectus printing and fulfillment
services in connection with the Offering, for an amount not to exceed $25,000.
The Company believes that the terms of the BACOMPT transaction are at least as
fair to the Company as could have been obtained from unaffiliated third
parties.
Because of their managerial positions and stock holdings in the Company,
and their activities related to the organization of the Company, Messrs.
Gaines and Peck, and Dr. Peck may be deemed to be "promoters" as that term is
used under the Securities Act.
It is the Company's policy that any material transactions or loans, and
any forgiveness of loans, between officers, directors, or material shareholders
and the Company must be approved by a majority of the Company's independent
directors, if any, who do not have an interest in the transaction.
Furthermore, all such transactions or loans must be entered into on terms
that are no less favorable to the Company than those that can be obtained from
unaffiliated third parties. All of the above transactions were entered into in
compliance with the Company's policy.
PRINCIPAL SHAREHOLDERS
The table below sets forth information as of the date of this
Prospectus and, as adjusted, assumes the sale of all of the Common Stock
offered pursuant to this Prospectus. The table also assumes, with respect to
each individual stockholder, the exercise of all warrants, options or
conversion of all convertible securities held by such stockholder, and
exercisable within 60 days of the date of this Prospectus. It does not assume
the exercise or conversion of securities held by any other holder of
securities. The table is based on information obtained from the persons named
below with respect to the beneficial ownership of shares of Common Stock by
(i) each person known by the Company to be the owner of more than 5% of the
aggregate outstanding shares of Common Stock, (ii) each officer and director
and (iii) all officers and directors as a group.
Amount and Nature of
Beneficial Ownership
Name and Address of Number of Percentage of
Beneficial Owners (1) Shares Shares Owned
Prior to After
Offering Offering (2)
Ammon B. Peck, Ph.D. 655,000(3) 26% 23%
David C. Peck 415,984(4) 17% 14%
Weaver H. Gaines 553,512(5) 22% 19%
David M. Margulies 18,667(6) (7) (7)
Vincent P. Mihalik 12,567(8) (7) (7)
All officers and 1,661,730 66% 57%
directors as a group
(6 persons)
(1) Address is 12085 Research Drive, Alachua, FL 32615 unless otherwise
indicated.
(2) Assumes sale of all Units offered hereby, but does not assume exercise or
conversion of other securities held by anyone other than the named
persons.
(3) Includes 50,000 shares held by Dr. Peck's wife in trust for her brothers
as to which Dr. Peck disclaims beneficial ownership, and 5,000 shares issuable
upon conversion of Unsecured Convertible Notes held by members of Dr. Peck's
immediate family sharing his household as to which Dr. Peck disclaims
beneficial ownership.
(4) Includes 12,000 shares issuable upon conversion of Unsecured Convertible
Notes held by members of Mr. Peck's immediate family sharing his household as
to which Mr. Peck disclaims beneficial ownership.
<PAGE>
(5) Includes 40,000 shares held by WABS Associates, a general partnership
composed of Mr. Gaines and his three siblings. Mr. Gaines disclaims beneficial
ownership of 30,000 of such shares, and 5,952 shares issuable upon conversion
of
Unsecured Convertible Notes held by Mr. Gaines.
(6) Includes 2,667 shares issuable upon exercise of currently
exercisable options, but excludes 4,833 shares issued under options not
currently exercisable.
(7) Less than 1.0%.
(8) Includes 1,567 shares issuable upon exercise of currently
exercisable options but excludes 4,433 shares issuable under
options not currently exercisable.
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and .25 Charitable
Benefit Warrant to purchase an additional share of Common Stock. The Common
Stock will be immediately separated from the Charitable Benefit Warrants, and
will be immediately transferable.
Common Stock
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 4,000,000 shares of Common Stock, $0.01 par value. As of
September 30, 1997, there were 2,464,544 shares of Common Stock outstanding,
held of record by approximately 60 shareholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and have no cumulative voting
rights. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of liquidation, dissolution, or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock offered hereby will also be fully paid and nonassessable.
Charitable Benefit Warrants Included in the Units
Each whole Charitable Benefit Warrant entitles the holder to purchase one
share of Common Stock at a price of $20.00 per share. Four Units are
required to acquire one whole Charitable Benefit Warrant.
Approved qualified charitable organizations may exercise Charitable Benefit
Warrants at any time until the expiration date (December 9, 2007,
unless extended) (the Warrant Expiration Date"); holders other than approved
qualified charitable organizations may not exercise except between December
9,2006, and the Warrant Expiration Date. The Charitable Benefit Warrants
will be detached from the Common Stock immediately on purchase.
The Charitable Benefit Warrant included in the Units will be issued
pursuant to a Warrant Agreement among the Company and SunTrust Bank, Atlanta,
as warrant agent (the "Warrant Agent"), and will be in registered form. The
Registered Holder is the person in whose name any certificate representing the
Charitable Benefit Warrants shall be registered on the books maintained by the
Warrant Agent. Charitable Benefit Warrants may not be resold and may only be
transferred to an approved qualified charitable organization; provided,
however, that transfer to a testamentary trust, legatee, or heir by will or by
descent upon the death of a Registered Holder, will be permitted upon
proper proof as decided by the Company in its absolute discretion. A
Registered Holder may transfer Charitable Benefit Warrants to an approved
qualified charitable organization at any time from the time of issuance and
prior to the close of business on the Warrant Expiration Date.
The Charitable Benefit Warrant has been designed to permit purchasers of
Units in the Offering to make tax deductible contributions of the value of the
Charitable Benefit Warrant to an approved qualified charitable organization as
a new modality for channeling funds to medical research. An approved
qualified charitable organization means a charitable organization,
institution, foundation, or research institute described in Section 501(c)(3)
of the Internal Revenue Code (the "Code"), which is excluded from the
definition of a private foundation as referred to in Section 509(a) of the
Code, which is eligible to receive tax-deductible contributions under Section
170 of the Code, and which has been approved by the Company as described
below.
The following are the approved qualified charitable organizations
as of the date of this Prospectus.
<PAGE>
Juvenile Diabetes Foundation
Joslin Diabetes Center, Inc.
American Kidney Fund
National Vulvodynia Association
Crohn's & Colitis Foundation of America
Cystic Fibrosis Foundation
Oxalosis and Hyperoxaluria Foundation
Mycological Society of America
Intestinal Disease Foundation
National Kidney Foundation
National Institute of Diabetes and Digestive and
Kidney Diseases
North American Mycological Society
University of Florida Research Foundation, Inc.
Florida Cystic Fibrosis, Inc.
Qualified charitable organizations may be added to the approved list by
the Company, in its absolute discretion, from time to time until the Warrant
Expiration Date. In order to be added to the approved list, a charitable
organization must be tax exempt, and it must be eligible to receive tax
deductible contributions in accordance with Section 170 of the Code.
Charitable organizations may be added at the election of the Company, or they
may be nominated by a Registered Holder. Registered Holders wishing to
nominate a charitable organization must send their nomination in writing to
the Company, together with proof of such charitable organization's status as
an organization described in Section 501(c)(3) of the Code which is excluded
from the definition of a private foundation as referred to in Section 509(a)
of the Code and which is eligible to receive tax deductible contributions in
accordance with Section 170 of the Code. Charitable organizations that fall
into the excluded categories are generally those that either have broad public
support or actively function in a supporting relationship to such
organizations.
In order to be tax-exempt, an organization must be organized and operated
exclusively for one or more of the purposes set forth in Section 501(c)(3),
and none of the earnings of the organization may inure to any private
shareholder or individual. In addition, the organization may not attempt to
influence legislation as a substantial part of its activities, nor may it
participate at all in campaign activities for or against political candidates.
The Company will favor charitable organizations that dedicate a material
portion of their assets or revenue to research activities connected with the
cure and treatment of diabetes and oxalate-related diseases.
Each of the Warrants will entitle the holder to purchase one share of
Common Stock at a price of $20.00 per share. An approved qualified charitable
organization may exercise at any time from the date of issuance and prior to
the close of business on the Warrant Expiration Date. A holder who is not an
approved qualified charitable organization may not exercise during the first
nine years. Such holder may only exercise during the period commencing
December 9, 2006, and ending at the close of business on the Warrant
Expiration Date. No fractional shares will be issued upon the exercise of the
Charitable Benefit Warrants. The exercise price of the Charitable Benefit
Warrants bears no relationship to any objective criteria and should in no
event be regarded as an indication of any future market price of the
securities offered hereby.
The exercise price of the Charitable Benefit Warrants, and the number
and kind of shares of Common Stock or other securities and property issuable
upon exercise of the Warrants are subject to adjustment in certain
circumstances, including a stock dividend or a subdivision or combination of
the Common Stock. Additionally, an adjustment will be made upon a
reclassification or in case of a consolidation or merger of the Company with or
into another company or the sale of all or substantially all of the assets of
the Company, in order to enable approved qualified charitable organization
holders of Charitable Benefit Warrants to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
in such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of the Charitable Benefit Warrant.
No adjustment for previously paid cash dividends, if any, will be made upon
exercise of the Charitable Benefit Warrant.
Charitable Benefit Warrants do not confer upon the holder any voting or
any other rights of a stockholder of the Company. Upon notice to the Warrant
holders, the Company has the right to reduce the exercise price or extend the
expiration date of the Charitable Benefit Warrants.
<PAGE>
The Charitable Benefit Warrants may be exercised only upon surrender of
the Charitable Benefit Warrant certificate on or prior to the expiration date
of such Warrant at the offices of the Warrant Agent, with the form of
"Subscription Form" on the reverse side of the Charitable Benefit Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check payable to the order of the Warrant
Agent) for the number of Charitable Benefit Warrants being exercised.
Unsecured Convertible Notes
In 1996 the Company issued $787,270 total principal amount, composed of
$215,600 in 10% Unsecured Convertible Notes (the "10% Notes") and $571,670 in
Variable Conversion Rate Unsecured Convertible Notes (the "Variable Notes")
due 2001 (in the aggregate hereafter called the "Notes"), which were issued
under a Note Purchase Agreement (the "Note Purchase Agreement"), dated as of
September 13, 1996, between the Company and the initial purchasers of the
Notes. The 10% Notes accrue interest at the stated rate until maturity, or
conversion, and pay interest quarterly. The 10% Notes are convertible into
shares of the Company's Common Stock at any time prior to maturity at a
conversion price of $4.20 per share. The Variable Notes are non-interest
bearing and are convertible into shares of the Company's Common Stock, at any
time prior to maturity, at variable conversion prices ranging from $4.20 to
$2.10. The variable conversion prices are based on the length of time the
investor holds the Variable Notes prior to conversion, as shown in the table
below:
Conversion Date Conversion Price
End of Year 1 Year 2 Year 3 Year 4 Year 5
November $4.10 $3.70 $3.30 $2.90 $2.50
February $4.00 $3.60 $3.20 $2.80 $2.40
May $3.90 $3.50 $3.10 $2.70 $2.30
August $3.80 $3.40 $3.00 $2.60 $2.10
Outstanding Common Stock Purchase Warrants
As of October 31, 1997, there were outstanding warrants to purchase
23,630 shares of Common Stock. Warrants for 17,630 shares entitle the
registered holder to purchase Common Stock at a price of $2.00 per share
through August 31, 2000. Warrants for 6,000 shares entitle the registered
holder to purchase 3,000 shares of Common Stock at a price of $5.00 per share
through February 2002 and 3,000 shares at the same price through October 2002.
The exercise price of the warrants and the number of shares of Common
Stock to be obtained upon exercise of the warrants are subject to adjustment in
certain circumstances, including a stock dividend to holders of Common Stock,
a subdivision or combination of outstanding shares of Common Stock, or the
issuance of capital stock in a reclassification or reorganization of Common
Stock. The exercise price of the warrants is subject to adjustment in the
event that the Company (i) issues, sells, or otherwise distributes Common
Stock at a price which is less than the then current market price of the
Common Stock, (ii) issues options (other than options issued under the 1994
Stock Option Plan or the 1994 Board Retainer Plan) whose exercise price is
less than the then current market price of the Common Stock, (iii) issues
convertible securities whose conversion price is less than the then current
market price of the Common Stock, or (iv) pays a dividend of cash or other
property in any one year greater than 10% of the then current market price of
the Common Stock. The Company must give advance notice to warrant holders of
any of the above events as well as any merger, sale, transfer, dissolution, or
winding up.
The warrants do not confer upon the holder any voting or other rights of
a shareholder of the Company. Upon notice to the holders of the warrants, the
Company has the right to reduce the exercise price or extend the expiration
date of the warrants. See "Shares Eligible for Future Sale - Registration
Rights" for a description of the registration rights of holders of certain of
the warrants.
Limitation of Liability
As permitted by Delaware law, the Certificate of Incorporation provides
that no director of the Company will be liable for monetary damages for breach
of fiduciary duty as a director, except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or involving intentional misconduct or a knowing violation
of law, (iii) for approval of certain unlawful dividends or stock purchases or
redemptions, and (iv) for any transaction from which the director derived an
improper personal benefit. In appropriate
<PAGE>
circumstances, equitable remedies such as an injunction or other forms of non-
monetary relief would remain available under Delaware law.
The Company intends to purchase and maintain directors' and officers'
insurance as soon as the Board of Directors determines practicable, in amounts
which they consider appropriate, insuring the directors against any liability
arising out of the director's status as a director of the Company regardless
of whether the Company has the power to indemnify the director against such
liability under applicable law.
The Company has been advised that it is the opinion of the Commission
that insofar as the foregoing provisions may be invoked to disclaim liability
for damages arising under the Securities Act, or to claim indemnification for
such liability, such provisions are against public policy as expressed in the
Securities Act and are, therefore, unenforceable.
Transfer Agent and Registrar and Warrant Agent
The Transfer Agent and Registrar for the Common Stock and the Warrant
Agent for the Charitable Benefit Warrants is SunTrust Bank, Atlanta.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax considerations
relevant to the acquisition, holding, and disposition of Units, Common Stock,
and Charitable Benefit Warrants pursuant to this Offering. This discussion is
not a complete analysis of all potential tax considerations to prospective
purchasers. The discussion is limited solely to U.S. federal income tax
matters and is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, administrative rulings, and pronouncements of
the Internal Revenue Service ("IRS"), and judicial decisions, all as of the
date hereof and all of which are subject to change at any time, possibly with
retroactive effect.
This discussion is limited to those initial purchasers of Units who would
hold the Common Stock and Charitable Benefit Warrants as "capital assets" for
U.S. federal income tax purposes. This discussion does not address U.S.
federal income tax consequences that may be applicable to particular
categories of Unit holders, including insurance companies, tax-exempt persons,
financial institutions, dealers in securities, persons with significant
holdings of Company stock, and non-United States persons, including foreign
corporations, foreign partnerships, and nonresident alien individuals. This
discussion does not address any tax considerations under the laws of any
state, locality, or jurisdiction, or foreign country.
The Company will not seek a ruling from the IRS as to any of the matters
covered by this discussion, and there can be no assurance that the IRS will
not successfully challenge the conclusions reached in this discussion.
BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW DEPEND UPON
EACH HOLDER'S PARTICULAR TAX STATUS, PROSPECTIVE INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE TAX CONSIDERATIONS
DISCUSSED BELOW TO THEIR PARTICULAR SITUATIONS, AS WELL AS THE APPLICATION OF
ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS.
The Units
Because the original purchasers of Common Stock also will acquire
Charitable Benefit Warrants, each share of Common Stock likely will be treated
for federal income tax purposes as having been issued as part of an
"investment unit" consisting of the Common Stock and associated Charitable
Benefit Warrants. The purchase price of an investment unit is allocated
between its component parts based on their relative fair market values at the
time of purchase. The portion of the purchase price allocable to the Common
Stock and Charitable Benefit Warrants, respectively, will be the holder's
initial tax basis in the Common Stock and Charitable Benefit Warrants,
respectively.
The Common Stock
Dividends. The Company does not currently intend to make distributions
with respect to the Common Stock. However, any distributions that are made by
the Company with respect to the Common Stock will be characterized as
dividends and, therefore, will be includable in the recipient's gross income
to the extent of the Company's current or
<PAGE>
accumulated earnings and profits, if any, as determined for U.S. federal
income tax purposes. To the extent that a distribution on the Common Stock
exceeds the holder's allocable share of the Company's current or accumulated
earnings and profits, such distribution first will be treated as a return of
capital that will reduce the holder's adjusted tax basis in such Common Stock,
and the excess will be treated as taxable gain. The availability of current or
accumulated earnings and profits, if any, in future years will depend on future
profits and losses which cannot be accurately predicted. Thus, there can be no
assurance that all or any portion of a distribution on the Common Stock will be
characterized as a dividend for U.S. federal income tax purposes. Corporate
stockholders will not be entitled to claim the dividends received deduction
with respect to distributions that are not characterized as dividends. See
the discussion regarding the dividends received deduction below.
Subject to important restrictions, dividends received by a corporate
holder of Common Stock generally will qualify for the 70 percent dividends
received deduction provided by Section 243(a)(1) of the Code. Under certain
circumstances, a corporate holder may be subject to the alternative minimum
tax with respect to the amount of its dividends received deduction. Also,
under certain circumstances, a corporation that receives an "extraordinary
dividend," as defined in Section 1059(c) of the Code, is required to reduce
its stock basis by the nontaxed portion of such dividend. Corporate holders
are advised to consult their tax advisors concerning possible limitations on
the availability of the dividends received deduction, as well as the potential
application of Section 1059 of the Code with respect to dividends received
from the Company.
Sale or other Taxable Disposition of Common Stock. Upon a sale or other
taxable disposition (other than a redemption) of Common Stock, a holder
generally will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash plus the fair
market value of any property received upon such sale or disposition and (ii)
the holder's adjusted tax basis in the Common Stock being sold. The holder's
adjusted tax basis in the Common Stock will be that amount of the purchase
price of a Unit allocated to the Common Stock as described above.
Redemption of Common Stock. The Company has no plans to redeem Common
Stock. A redemption of Common Stock generally will be a taxable event to the
redeemed stockholder. The amount received in the redemption will be treated
as a distribution taxable as a dividend to the redeemed stockholder (and may
constitute an extraordinary dividend under Section 1059) unless the
redemption: (a) is treated as a distribution "not essentially equivalent to a
dividend" with respect to the stockholder; (b) is "substantially
disproportionate" with respect to the stockholder; (c) "completely terminates"
the stockholder's equity interest in the Company; or (d) is of stock held by a
noncorporate stockholder and is in partial liquidation of the Company. In
determining whether any of those tests has been met, there generally must be
taken into account Common Stock actually owned and certain Common Stock
constructively owned by the stockholder. If any of those tests is met as to a
stockholder, the redemption of the Common Stock generally would be treated as
to that stockholder as an exchange giving rise to capital gain or loss
(measured by the difference between the amount received and the holder's tax
basis in the redeemed Common Stock). Even in such a case, however, payments
received upon redemption which represent accrued but unpaid dividends may be
taxed as ordinary income dividends, and the extraordinary dividend rule
discussed above could apply. Prospective purchasers should consult their own
tax advisors as to the application of the foregoing rules.
The Charitable Benefit Warrants
Exercise of the Charitable Benefit Warrants. The exercise of a
Charitable Benefit Warrant will not result in a taxable event to the holder.
Upon exercise of a Charitable Benefit Warrant, the holder's aggregate basis in
the Common Stock received upon exercise (the "Warrant Shares") will be the sum
of (a) its basis in the Charitable Benefit Warrant and (b) the cash paid upon
exercise of the Charitable Benefit Warrant. The holding period for capital
gain and loss purposes for the Warrant Shares will not include the period
during which the Charitable Benefit Warrant was held by such holder.
Expiration of the Charitable Benefit Warrants. Upon the expiration of an
unexercised Charitable Benefit Warrant, the holder will recognize a loss equal
to the adjusted tax basis of the Charitable Benefit Warrant in the hands of
the holder. Such loss will be a capital loss, provided the Warrant Shares
would have been a capital asset in the hands of the Charitable Benefit
Warrant holder had the Charitable Benefit Warrant been exercised, and will be
long-term capital loss with respect to Charitable Benefit Warrants held for
more than one year at the time of the expiration.
Adjustments Under the Charitable Benefit Warrants. Pursuant to the terms
of the Charitable Benefit Warrants, the number of shares that may be purchased
upon exercise of the Charitable Benefit Warrants is subject to adjustment
<PAGE>
from time to time upon the occurrence of certain events. Under Section 305
of the Code, a change in conversion ratio or any transaction having a similar
effect on the interest of a Charitable Benefit Warrant holder may be treated
as a distribution with respect to any holder whose proportionate interest in
the
assets or earnings and profits of the Company is increased by such change or
transaction. Thus, under certain future circumstances which may or may not
occur, such an adjustment pursuant to the terms of the Charitable Benefit
Warrants may be treated as a taxable distribution to the Charitable Benefit
Warrant holders to the extent of the Company's current or accumulated earnings
and profits, without regard to whether such holders receive any cash or other
property. If the Charitable Benefit Warrant holders receive such a taxable
distribution, their bases in the Charitable Benefit Warrants will be increased
by an amount equal to the taxable distribution.
The rules with respect to adjustments are complex and Charitable Benefit
Warrant holders should consult their own tax advisors in the event of an
adjustment.
Charitable Contribution of Charitable Benefit Warrants. Upon charitable
contribution of a Charitable Benefit Warrant to an approved qualified
charitable organization, the transferor will be entitled to a deduction in
respect of a charitable contribution in an amount equal to the fair market
value of the Charitable Benefit Warrant to such transferor at the time of such
contribution, subject to the usual requirements for deductions in respect of
charitable contributions, including, without limitation, certain annual
limitations on deductions based on adjusted gross income and other
requirements referred to below.
The fair market value of the Charitable Benefit Warrant at the time of
any such contribution will be based on the value of the Charitable Benefit
Warrant in the hands of the transferor at that time. That is, the Charitable
Benefit Warrant will be valued as a warrant that may be exercised only during
the period commencing December 9, 2006 and ending on the Warrant
Expiration Date, notwithstanding that an approved qualified charitable
organization may exercise the Charitable Benefit Warrant at any time after
issuance. The holder shall value the Charitable Benefit Warrant at the price
at which it would change hands between a buyer and seller, neither able to
exercise the warrant outside of the one-year period commencing December
9, 2006 and ending on the Warrant Expiration Date, neither under any
compulsion to buy or sell, and both with reasonable knowledge of the relevant
facts. The holder shall consider all relevant facts as of the applicable
valuation date in valuing the Charitable Benefit Warrant, including the history
and prospects of the Company, its publicly available financial data, the market
price of the Common Stock, the size of the Charitable Benefit Warrant block to
be valued, and the nature of the restrictions upon the Charitable Benefit
Warrant. Individuals and certain other transferors are required to obtain an
appraisal of the fair market value of property contributed if the deduction
claimed for the contribution of such property and all similar property exceeds
$5,000 in any one taxable year (including donations to different donees).
Certain other substantiation requirements apply as well.
The amount of any deduction in respect of a charitable contribution of
appreciated property is reduced by, among other things, the amount of gain
which would not have been long-term capital gain if the property contributed
had been sold by the taxpayer at its fair market value (determined at the time
of such contribution). To avoid that reduction, a holder must hold the
property for a period of time such that its disposition would result in long-
term capital gain, which currently is any period longer than one year.
The substantiation and other requirements for a deduction in respect of
charitable contribution are, in part, highly technical. Accordingly, a holder
of Charitable Benefit Warrants who is planning to contribute Charitable
Benefit Warrants to an approved qualified charitable organization is urged to
consult his or her own tax advisor with respect to those requirements.
Backup Withholding
Federal income tax backup withholding at a rate of 31% on dividends and
proceeds from a sale, exchange, or redemption of Common Stock will apply
unless the holder (i) is a corporation or comes within certain other exempt
categories (and, when required, demonstrates that fact) or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. The amount of any backup withholding from a payment
to a holder will be allowed as a credit against the holder's federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
At the completion of this Offering, there will be 2,864,544 shares of
Common Stock outstanding if all Units are sold. There will be 43,900 shares
of Common Stock issuable upon the exercise of outstanding options, 23,630
issuable upon the exercise of outstanding warrants, and up to 323,557
shares of Common Stock issuable upon conversion of the Company's Unsecured
Convertible Notes. There is no current market for the Company's securities,
and it is unlikely there will be one at the conclusion of this Offering.
Should the Company elect to register its securities in the future, it
cannot predict whether a market for its securities will develop, or, if one
develops, the effect, if any, that market sales of restricted shares of Common
Stock (described below) or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the public
market would likely adversely affect any prevailing market price for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
Sales of Restricted Securities
All 2,464,544 shares of Common Stock outstanding prior to the Offering,
all outstanding warrants and options, and all Unsecured Convertible Notes, as
well as the shares of Common Stock issuable upon exercise of such warrants and
options or conversion of the Unsecured Convertible Notes were or will be
issued and sold by the Company in private transactions not involving a public
offering in reliance upon exemptions under the Securities Act. These
securities are treated as "restricted securities" and may not be resold except
in compliance with the registration requirements of the Securities Act or
pursuant to an exemption therefrom.
Registration Rights
Pursuant to the Agreement to Purchase Shares dated as of October 10,
1994, the holders of 140,000 shares of Common Stock ("Contingently
Registerable Securities") are entitled to certain contingent piggyback
registration rights, subject to the terms and conditions of the Agreement to
Purchase Shares. Under such Agreement, if at any time during the period
ending October 9, 2004, Ixion registers any shares of Common Stock under the
Act on certain SEC forms, one or more holders of the Contingently Registerable
Securities may request that all or a part of their securities be included in
the registration statement. The Company is required to bear all registration
and selling expenses (other than underwriter's fees, discounts, or
commissions) in connection with the registration of Contingently Registerable
Securities. See "Certain Relationships and Related Transactions."
Pursuant to the Employment Agreements, Messrs. D. Peck and Gaines,
holders of record of an aggregate of 911,544 shares of the Company's Common
Stock as of September 30, 1996 (the "Registerable Securities") are
entitled to certain demand registration rights, subject to the terms and
conditions of such Employment Agreements. Subject to certain exceptions, if
the Company is then a public company, at any time during the contract term (and
until the third anniversary of termination), either or both of Messrs. D. Peck
and Gaines may demand that the Company register at least 100,000 shares under
the Act on an appropriate SEC form. Each executive is entitled to only one
demand registration under his Employment Agreement. Each executive may also
request inclusion of all or a portion of his Registerable Securities in any
registration by the Company under the Act. The Company is required to bear
all registration and selling expenses (other than underwriter's fees,
discounts, or commissions) in connection with the registration of Registerable
Securities. See "Management - Employment Agreements."
Holders of 17,630 outstanding warrants have certain piggyback
registration rights for the Common Stock issuable upon exercise of such
warrants, subject to the terms and conditions of the warrants. Pursuant to
the terms of such warrants, until June 30, 2001, if the Company registers any
sales of Common Stock under the Securities Act, it must notify the warrant
holders in order that they may request inclusion in such registrations
statement. The expenses of the registration (other than transfer taxes,
underwriting commissions, and fees of warrant holders' counsel) shall be paid
by the Company.
Pursuant to the Note Purchase Agreement relating to the Unsecured
Convertible Notes, until August 31, 2006, Note holders who convert their
Unsecured Convertible Notes into shares of Common Stock are also entitled to
certain contingent piggyback registration rights. The expenses of the
registration (other than transfer taxes, underwriting commissions, and fees of
the converting Note holders' counsel) shall be paid by the Company.
<PAGE>
PLAN OF DISTRIBUTION
The Company proposes to sell up to 400,000 Units composed of 400,000
newly issued shares of Common Stock and 100,000 newly issued Charitable
Benefit Warrants at a price of $10.00 per Unit directly to members of the
public residing in selected states. Announcements of this Offering, in the
form prescribed by Rule 134 of the Securities Act, will be communicated to
selected persons. There is no required minimum number of Units to be sold,
and all funds received will go immediately to the Company. If only a few
Units are sold, the result could be that all the proceeds will be used to pay
the expenses of the Offering. The Offering will begin on the date of this
Prospectus and continue for up to twelve months (unless extended) or until all
of the Units offered are sold or such earlier date as the Company may close or
terminate the Offering. All Units will be sold at the public offering price
of $10.00 per share and a minimum purchase of 100 Units ($1,000.00) is
required. Since there is no minimum number of Units to be sold, there is no
escrow account for the deposit of subscribers' funds and no arrangements to
return the funds if all of the Units offered are not sold.
The Company plans to offer and sell the Units directly to investors and
has not retained any underwriters, brokers, dealers, or placement agents in
connection with the Offering, except in Florida as described below .
However, the Company reserves the right to use
brokers, dealers, or placement agents, particularly when the securities laws
of a state require sales to be made through a broker-dealer qualified in such
state. The Company could pay commissions equal to as much as 10 percent of
the gross proceeds although the Company does not currently intend to pay more
than $200,000 in aggregate commissions. The Company will effect offers and
sales of Units through printed copies of this Prospectus delivered by mail and
electronically, by contacting prospective investors by publicizing the Offering
through a posting on the Company's World Wide Web site (which was first
established in July of 1996), by publicizing the Offering through newspaper
advertisements, and by contacting additional potential investors by direct
e-mail and regular mail solicitation. Any voice or other communications will
be conducted in certain states through the Company's executive officers, and in
other states, where required, through a designated sales agent, licensed in
those states. Under Rule 3a4-1 of the Exchange Act, none of these employees of
the Company will be deemed a "broker," as defined in the Exchange Act, solely
by reason of participation in this Offering, because (1) none is subject to any
of the statutory disqualifications in Section 3(a)(39) of the Exchange Act, (2)
in connection with the sale of the Units offered, none will receive, directly
or indirectly, any commissions or other remuneration based either directly or
indirectly on transactions in securities, (3) none is an associated person
(partner, officer, director, or employee) of a broker or dealer, and (4) each
meets all of the following conditions: (a) primarily performs substantial
duties for the issuer otherwise than in connection with transactions in
securities; (b) was not a broker or dealer, or an associated person of a broker
or dealer, within the preceding 12 months; and (c) will not participate in
selling an offering of securities for any issuer more than once every 12
months.
The Company intends to register the Units, and where required, itself as a
broker/dealer under the securities laws of some, but not all states. At
present, the Company does not intend to offer Units or to qualify as a
broker/dealer in the following states: Arizona, Hawaii, Kentucky ,
Louisiana, Nebraska, North Carolina, North Dakota, Oregon, and Vermont, because
qualification in those states is unduly difficult or expensive under their
respective securities laws. The Company reserves the right to seek
qualification in such states at any time prior to the termination of the
Offering. The Company plans to seek to qualify the Units for sale in
California, the District of Columbia, Florida, Georgia, Indiana, Illinois,
Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Tennessee,
Texas, Virginia, and other states, if qualification can, in the opinion of
management, be obtained for reasonable cost or on reasonable terms. No sales
will be made to residents of any states where the Offering is not approved.
Residents of Florida must purchase Units through a broker/dealer
registered in Florida. The Company has made arrangements with Unified
Management Corporation ("Unified"), whose address is 429 N. Pennsylvania St.,
Indianapolis, IN 46204, phone 317-634-3300 or 800-862-7283 to sell Units to
Florida residents. Unified has no commitment to purchase Units from the
Company for resell or to otherwise sell Units, on a firm commitment basis, on a
best efforts basis, or any other basis, but will be paid a commission of 2.0%
of the gross proceeds of all sales of Units to residents of Florida resulting
from the Offering, and will be reimbursed by the Company for reasonable
expenses, if any. The Company has agreed to indemnify Unified against certain
liabilities, including liabilities under the Securities Act. Mr. Gaines,
Chairman of the Company is a member of the Board of Directors of Unified
Financial Services, Inc., the parent of Unified, and Mr. Peck, the President of
the Company, is the holder of all of the Series A non-voting Preferred Stock of
Unified Financial Services, Inc. Neither Mr. Gaines, nor Mr. Peck will
benefit, directly, or indirectly, from the commissions, if any, to be paid to
Unified.
Residents of California purchasing Units must meet one of the following
suitability requirements: an investor must (1) be an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933; or (2) a
person who (a) has an income of $65,000 and a net worth of $250,000 or (b) has
a net worth of $500,000 (in each case excluding home, home furnishings, and
personal automobiles; or (3) a bank, savings and loan association, trust
company registered under the investment company act of 1940, pension or profit-
sharing trust, corporation, or other entity which, together with the
corporation's or other entity's affiliates, have a net worth on a consolidated
basis according to the most recent regularly prepared financial statement
(which shall have been reviewed but not necessarily audited, by outside
accountants of not less than $14,000,000 and subsidiaries of the foregoing; or
(4) a person (other than a person formed for the sole purpose of purchasing the
Units offered hereby) who is purchasing at least $1,000,000 in aggregate amount
of the Units.
Residents of Virginia purchasing Units must have a net worth
of at least $225,000 or a net worth of at least $60,000 and an annual income
of at least $60,000. Net worth in all cases is calculated exclusive of home,
furnishings and automobiles. Virginia residents may not invest more than 10%
of their readily marketable assets in the offering.
To subscribe for Units, each prospective investor must complete, date,
execute and deliver to the Company a Unit Purchase Agreement and have paid the
purchase price of the Units subscribed for by check payable to Ixion
Biotechnology, Inc. A copy of the Unit Purchase Agreement is included with
this Prospectus and is available on line at the Company's web site.
The Company reserves the right to reject any Unit Purchase Agreement in
its entirety or to allocate Units among prospective investors. If any Unit
Purchase Agreement is rejected, funds received by the Company for such
subscription will be returned to the subscriber without interest or deduction.
<PAGE>
Within five days of its receipt of a Unit Purchase Agreement accompanied
by a check for the purchase price, the Company will send by first class mail a
written confirmation to notify the subscriber of the extent, if any, to which
such subscription has been accepted by the Company. Not more than thirty days
following the mailing of its written confirmation, a subscriber's Common Stock
and Charitable Benefit Warrant certificates will be mailed by first class
mail. The Company shall not use the proceeds paid by any investor until the
Common Stock and Charitable Benefit Warrant certificates evidencing such
investment have been mailed.
There is no public market for the Common Stock, and it is unlikely that
any such market will develop after the Offering. The Company does not
currently meet the requirements for listing on an organized stock exchange or
quotation of over-the-counter market maker trades on the NASDAQ market. After
completion of the Offering, the Company may apply for a listing on a United
States regional exchange, if the Company meets certain numerical listing
requirements. However, there can be no assurance that the Company will be
listed or that a market will develop or be sustained. If it does not, the
Company has been advised that a registered securities broker-dealer may
provide an order matching service for persons wishing to buy or sell shares,
upon completion of the Offering. However, there is currently no agreement
between the Company and such a registered securities broker-dealer. The
Company may in the future also seek to provide a passive, bulletin board
system on the Internet providing information to buyers and sellers of the
Company's Common Stock to facilitate trading. The System would not affect
transactions and would be obliged to meet the requirements of the Commission.
The Company has not constructed such a system at the date of this Prospectus.
In the absence of a public trading market, purchasers may be unable to resell
the Common Stock for an extended period of time, if at all.
Determination of Offering Price
The Company has arbitrarily determined the offering price of the Units.
Among the factors considered in determining such price were offering prices of
recent biotechnology initial public offerings, the Company's capital
requirements, the percentage of ownership to be held by investors following
the Offering, the prospects for the Company's business and the biotechnology
industry, the assessment of the present early stage of the Company's
development, the prospects for initiation or growth of the Company's revenues,
and the current state of the economy in the United States. The offering price
does not necessarily bear any relationship to the Company's assets, book
value, earnings history, or other investment criteria and should not be
considered an indication of the actual value of the Company's securities.
LEGAL MATTERS
Certain legal matters in connection with validity of the Units offered
hereby will be passed upon for the Company by Bruce Brashear, Esq.,
Gainesville, Florida. Certain tax matters in connection with the investment in
Charitable Benefit Warrants will be passed on for the Company by Thacher
Proffitt & Wood, New York, New York. James R. Shorter, Jr., a partner in
Thacher, Proffitt & Wood is the beneficial owner of approximately 1.2% of the
Common Stock of the Company.
EXPERTS
The balance sheet as of December 31, 1996 and the statements of
operations, capital deficiency and cash flows for the years ended December 31,
1996 and 1995, and for the period March 25, 1993 (date of inception) to
December 31, 1996 included in this Prospectus have been so included in
reliance on the report, which includes an explanatory paragraph indicating
substantial doubt as to the Company's ability to continue as a going concern,
of Coopers & Lybrand, L.L.P., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
<PAGE>
UNIT PURCHASE AGREEMENT
[To purchase any of the Units, you must be a resident of a state where the
sale of Units is permitted under the state's securities laws.]
To: Ixion Biotechnology, Inc., 12085 Research Drive, Alachua, FL 32615 USA
Phone: 904-418-1428 - - -Fax: 904-462-0875 - - - Email: [email protected]
Florida Subscribers Only:
To: Ixion Biotechnology, Inc., c/o Unified Management Corporation -
429 Pacific Street, Indianapolis, IN 46204.
Phone: 800-862-7283 Fax: 317-632-7805
I have received and had an opportunity to read the Prospectus by which the
Units are offered.
Enclosed is payment for____________ Units (minimum 100), at $10.00 per unit,
totaling $____________.
Make check payable to Ixion Biotechnology, Inc.
Signature(s)___________________________________________ Date
_____________________
Register the Units in the following name(s) and amount(s):
Name(s)___________________________________________ Number of Units
____________
As (check one):
Individual _______ Joint Tenants _______ Trust _______ IRA ______
Tenants in Common _______ Corporation _______ Keogh _______
Other ______
For the person(s) who will be registered owners(s):
Mailing
Address:__________________________________________________________________
City, State & Zip Code:
_____________________________________________________________
Business Phone: (_____)___________________ Home Phone:
(_____)_____________________
Social Security or Taxpayer ID Number:
________________________________________________
CALIFORNIA AND VIRGINIA SUBSCRIBERS - SEE REVERSE OF THIS
AGREEMENT
(Please attach any special mailing instructions other than shown above)
NO UNIT PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE
(You will be mailed a signed copy of this Agreement to retain for your
records.)
Subscription accepted by Ixion Biotechnology, Inc.
________________________________________
_____________________________________
Authorized Officer Date
<PAGE>
CALIFORNIA SUBSCRIBERS
California subscribers must meet one of the following suitability
requirements:
I certify that I am (initial one)
an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933; or
a person who (a) has an income of $65,000 and a net
worth of $250,000 or (b) has a net worth of $500,000 (in each case excluding
home, home furnishings, and personal automobiles; or
a bank, savings and loan association, trust company
registered under the investment company act of 1940, pension or profit-sharing
trust, corporation, or other entity which, together with the corporation's or
other entity's affiliates, have a net worth on a consolidated basis according
to the most recent regularly prepared financial statement (which shall have
been reviewed but not necessarily audited, by outside accountants of not less
than $14,000,000 and subsidiaries of the foregoing; or
a person (other than a person formed for the sole
purpose of purchasing the Units offered hereby) who is purchasing at least
$1,000,000 in aggregate amount of the Units.
VIRGINIA SUBSCRIBERS
Virginia subscribers must meet the following suitability requirement:
I certify that I am (initial blank)
a person who (a) has an annual income of $60,000 and a
net worth of at least $60,000 or (b) has a net worth of at least $225,000 (in
each case excluding home, home furnishings, and personal automobiles and that I
am not investing not more than 10% of my readily marketable assets in this
Offering.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements
Report of Independent
Accountants................................................................F-2
Balance Sheet as of December 31,
1996.......................................................................F-3
Statements of Operations for the years ended December 31, 1995 and 1996
and for the period March 25, 1993 (date of inception) through December
31, 1996...................................................................F-4
Statements of Capital Deficiency for the period March 25, 1993
(date of inception) through December 31, 1996........................F-5
Statements of Cash Flows for the years ended December 31, 1995 and 1996
and for the period March 25, 1993 (date of inception) through December
31, 1996...................................................................F-6
Notes to Financial
Statements.................................................................F-8
Condensed Unaudited Financial Statements
Balance Sheet as of September 30, 1997.....................................F-17
Statements of Operations for the nine month periods ended September 30,
1996 and 1997 and for the period March 25, 1993 (date of inception)
through September 30, 1997.................................................F-18
Statements of Cash Flows for the nine month periods ended September 30,
1996 and 1997 and for the period March 25, 1997 (date of inception)
through September 30, 1997.................................................F-19
Notes to Condensed Financial Statements....................................F-20
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Report of Independent Accountants
The Board of Directors
Ixion Biotechnology, Inc.
We have audited the balance sheet of Ixion Biotechnology, Inc. (A Development
Stage Company) as of December 31, 1996, and the related statements of
operations, capital deficiency and cash flows for the years ended December 31,
1996 and 1995 and for the period March 25, 1993 (date of inception) through
December 31, 1996. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ixion Biotechnology, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995 and for the period March 25, 1993
(date of inception) through December 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company requires additional financing to continue
its development stage activities which raises substantial doubt about its
ability to continue as a going concern. management's plans in regard to these
matters are also described in Note 10. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/S/ Coopers & Lybrand L.L.P.
Orlando, Florida
February 4, 1997, except
for Note 12, for which the
date is June 27, 1997
F-2
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets:
Cash and cash equivalents $ 611,539
Accounts receivable 8,159
Prepaid expenses 7,778
Other current assets 500
----------
Total current assets 627,976
Property and Equipment, net 41,409
Patents Pending 118,137
Other 10,341
----------
$ 797,863
-----------
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Capital Deficiency
<S> <C>
Current Liabilities:
Accounts payable $ 46,252
Current portion of notes payable 10,769
Accrued expenses 18,717
-----------
Total current liabilities 75,738
-----------
Long-Term Liabilities:
Notes payable and accrued interest 539,540
Deferred revenue 100,000
Deferred fees and salaries, including accrued
interest, payable to related parties 385,038
-----------
Total long-term liabilities 1,024,578
-----------
Total liabilities 1,100,316
-----------
Capital Deficiency:
Common stock, $.01 par value; authorized
4,000,000, issued and outstanding
2,443,544 shares 24,435
Additional paid-in capital 989,223
Deficit accumulated during the development stage (1,197,405)
Note receivable from shareholder (6,000)
Less unearned compensation (112,706)
-----------
Total capital deficiency (302,453)
-----------
Total Liabilities and Capital Deficiency $ 797,863
-----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
Statements of Operations
For the Period
March 25,
1993 (Date of
Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ------- ------------
<S> <C> <C> <C>
Revenues:
Income under research agreement $ 139,079 $ - $ 139,079
Income from SBIR grant 20,000 - 20,000
Interest income 7,760 5,060 12,820
Other income 4,366 3,062 10,815
----------- ------- -------
Total revenues 171,205 8,122 182,714
----------- -------- -------
Expenses:
Operating, general and
administrative 276,642 230,423 761,538
Research and development 392,010 130,984 531,380
Interest 56,192 20,927 87201
----------- -------- -------
Total expenses 724,844 382,334 1,380,119
Net Loss $(553,639) $(374,212) $(1,197,405)
----------- -------- ---------
Net Loss per Share $ (0.23) $ (0.18)
----------- ---------
Weighted Average Common Shares 2,411,275 2,025,975
----------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
<TABLE>
<CAPTION>
For the Period March 25, 1993 (Date of Inception) through December 31, 1996
Deficit
Accumulated
Additional During the Unearned
Common Stock Paid-In Development Note Compen-
Shares Amount Capital Stage Receivable sation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Initial sale of common
stock, $.01 per share 100,000 $ 1,000 $ - $ - $ - $ - $ 1,000
Sale of common stock,
$.01 per share 50,000 500 - - - - 500
Net loss for the period March 25,
1993 (date of inception) through
December 31, 1993 - - - (54,268) - - (54,268)
-------- -------- -------- -------- -------- -------- ---------
Balance, December 31, 1993 150,000 1,500 - (54,268) - - (52,768)
Conversion of subordinated
notes payable, $0.02 per share 900,000 9,000 9,000 - - - 18,000
Issuance of stock under Board
Retainer Plan,$0.02 per share 5,000 50 50 - - - 100
Sale of stock, $0.02 per share 5,000 50 50 - - - 100
Issuance of stock in exchange
for certain intellectual
property, $0.02 per share 650,000 6,500 6,500 - - - 13,000
Conversion of deferred consulting
fees, $0.10 per share 10,000 100 900 - - - 1,000
Sale of stock, $0.10 per share 140,000 1,400 12,600 - - - 14,000
Net loss - - - (215,286) - - (215,286)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1994 1,860,000 18,600 29,100 (269,554) - - (221,854)
Sale of stock, $0.75 per share 500,000 5,000 370,000 - - - 375,000
Issuance of stock under Board
Retainer Plan, $0.75 per share 10,000 100 7,400 - - - 7,500
Issuance of 9,608 common stock
warrants - - 9,608 - - - 9,608
Sale of stock, $3.00 per share 3,000 30 8,970 - - - 9,000
Note received from shareholder
for common stock and warrants - - - - (6,000) - (6,000)
Net loss - - - (374,212) - - (374,212)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 2,373,000 23,730 425,078 (643,766) (6,000) - (200,958)
Issuance of stock under Board
Retainer Plan, $3.00 per share 20,000 200 59,800 - - (26,166) 33,834
Issuance of stock, $3.00 per share 14,000 140 41,860 - - (36,540) 5,460
Issuance of stock under Board
Retainer Plan, $10.00 per share 15,000 150 149,850 - - (50,000) 100,000
Issuance of 8,022 common stock
warrants - - 10,857 - - - 10,857
Conversion of subordinated notes
payable to related parties,
$0.75 per share 21,544 215 15,943 - - - 16,158
Issuance of Variable Notes with
..beneficial conversion feature - - 285,835 - - - 285,835
Net loss - - - (553,639) - - (553,639)
-------- -------- -------- -------- -------- -------- ---------
Balance, December 31, 1996 2,443,544 $24,435 $ 989,223 $(1,197,405) $ (6,000) $(112,706) $ (302,453)
--------- ------- --------- ------------ -------- ---------- -----------
--------- ------- --------- ------------ -------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Period
March 25,
1993 (Date
of Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (553,639) $(374,212) $(1,178,349)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 8,546 2,107 12,929
Amortization 738 87 825
Amortization of debt discount 19,056 - 19,056
Stock warrants issued under license agreement 10,857 9,608 20,465
Stock compensation 139,295 7,500 146,795
Decrease (increase) in employee advance 900 300 -
Decrease (increase) in prepaid expenses
and other current assets 7,932 (16,035) (8,103)
Decrease (increase) in accounts receivable (8,159) - (8,159)
Increase in deferred revenue 100,000 - 100,000
Increase in accounts payable and
accrued expenses 24,869 29,128 66,312
Increase in deferred fees and salaries 83,256 74,846 358,486
Increase in interest payable 2,325 20,831 33,198
---------- ---------- -------------
Net cash used in operating activities (164,024) (245,840) (455,601)
---------- ---------- -------------
Cash Flows from Investing Activities:
Purchase of property and equipment (13,993) (3,736) (26,140)
Organization costs - - (436)
Payments for patents pending (67,053) (52,428) (119,481)
---------- ---------- -------------
Net cash used in investing activities (81,046) (56,164) (146,057)
---------- ---------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of subordinated
notes payable to related parties - - 30,307
Proceeds from issuance of convertible notes payable 787,270 - 787,270
Proceeds from issuance of common stock - 378,000 406,700
Payment of loan costs (11,080) - (11,080)
---------- ---------- -------------
Net cash provided by financing activities 776,190 378,000 1,213,197
---------- ---------- -------------
Net Increase in Cash and Cash Equivalents 531,120 75,996 611,539
Cash and Cash Equivalents at Beginning of Period 80,419 4,423 -
---------- ---------- -------------
Cash and Cash Equivalents at End of Period $ 611,539 $ 80,419 $ 611,539
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows - Continued
For the Period
March 25,
1993 (Date
of Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ---------- --------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 5,761 $ 55 $ 6,269
---------- ---------- --------------
---------- ---------- --------------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued for subordinated notes payable $ 16,158 $ - $ 34,158
---------- ---------- --------------
---------- ---------- --------------
Common stock and stock warrants issued for
services or technology $ 10,857 $ 7,608 $ 19,457
---------- ---------- --------------
---------- ---------- --------------
Common stock issued for note receivable $ - $ (6,000) $ (6,000)
---------- ---------- --------------
---------- ---------- --------------
Equipment purchased under an installment
note arrangement $ 28,022 $ - $ -
---------- ---------- --------------
---------- ---------- --------------
Common stock issued under Board Retainer Plans $ 210,000 $ 7,500 $ 217,500
---------- ---------- --------------
---------- ---------- --------------
Other common stock issued as compensation $ 42,000 $ - $ 42,000
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1996 and 1995 and the Period March 25, 1993 (Date of
Inception) through December 31, 1996
1. Significant Accounting Policies:
Organization - Ixion Biotechnology, Inc., a Delaware corporation (the
"Company"), was incorporated on March 25, 1993 and has been in the
development stage since its formation. The Company is in business to
develop pharmaceutical products and medical devices to detect, diagnose,
treat or prevent diabetes and oxalate-induced diseases. The Company has
not generated significant revenues to date and has experienced operating
losses since its inception. The Company expects to incur additional
operating losses for the next several years as the Company expands its
research and development and regulatory activities and prepares for the
manufacturing and marketing of its products.
Basis of Presentation - The Company is in the development stage since it
is devoting substantially all of its efforts to establishing its business
and its planned principal operations have not commenced. Successful
completion of the Company's development program, and its transition to
profitable operations, is dependent upon obtaining approval to market its
products from the United States Food and Drug Administration and
achieving revenues from the commercial development of its products.
Cash and Cash Equivalents - The Company considers all highly liquid
instruments with a maturity of three months or less at time of purchase
to be cash equivalents.
Income Taxes - Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Property and Equipment - Property and equipment are stated at cost.
Gains and losses on disposition are recognized in the year of the
disposal. Expenditures for maintenance and repairs are expensed as
incurred.
Depreciation is computed using the straight-line method over the
estimated lives of the assets (5 years).
Patents Pending - Patents pending consist of direct costs incurred in
connection with the applications for patents. No patents have received
final approvals at December 31, 1996. Amortization of these costs over
the estimated life will begin upon final approvals or expensed
immediately if rejected. The Company periodically evaluates the recoverability
of intangibles and measures any impairment by comparison to estimated
undiscounted cash flows from future operations. The factors considered by
management in performing this assessment include current operating results,
trends and prospects as well as the effects of obsolescence, demand,
competition and other economic factors.
F-8
<PAGE>
1. Significant Accounting Policies - Continued:
Research and Development - Research and development costs are charged to
expense as incurred.
Other Assets - Other assets consists of organizational costs and loan
costs associated with convertible notes. The organizational costs are
being amortized on a straight-line basis over five years. Loan costs are
being amortized over the term of the notes payable.
Net Loss Per Common Share - Except as noted below, historical net loss
per share is computed using the weighted average number of common shares
outstanding for the period. Common equivalent shares from stock options,
warrants and convertible notes payable are excluded from the computation
as their effect is antidilutive. However, pursuant to an SEC Staff
Accounting Bulletin, common and common equivalent shares issued during
the period beginning 12 months prior to the initial filing of the
proposed public offering, at prices substantially below the assumed
public offering price, have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock
method and the assumed public offering price).
Reclassifications - For comparability purposes, certain reclassifications
have been made to the 1995 financial statements to conform with the 1996
financial statement presentation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Recently Issued Accounting Standards - The Financial Accounting Standards
Board recently issued Statement No. 128, Earnings Per Share. This
statement is effective for the year ending December 31, 1997 and
establishes standards for computing and presenting earnings per share.
Applying the provisions of this pronouncement, the Company would have
reported Basic Net Loss Per Share and Diluted Net Loss Per Share of
approximately $(.23) per sharej for 1996.
F-9
<PAGE>
2. Property and Equipment:
Property and equipment consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Computers and equipment $ 51,525
Computer software 1,357
Library 1,281
-------
54,163
Less accumulated depreciation (12,754)
-------
$ 41,409
-------
-------
</TABLE>
3. Notes Payable:
On March 15, 1996, the Company entered into a written agreement to
purchase certain laboratory equipment for a sales price of $32,309,
payable in 36 monthly installments of $897, including interest, beginning
August 1, 1996. As of December 31, 1996, $28,022 in principal remains
outstanding under this agreement.
In September, 1996, the Company completed the private placement of
$787,270 in Convertible Unsecured Notes due 2001. The private placement
provided investors with the option of either 10% Convertible Unsecured
Notes ("10% Notes") or Variable Conversion Rate Convertible Unsecured
Notes ("Variable Notes"). The 10% Notes accrue interest at the stated
rate until maturity, or conversion, and pay interest quarterly commencing
on November 30, 1996. The 10% Notes are convertible into shares of the
Company's common stock, at any time prior to maturity, at a conversion
price of $4.20 per share. The Variable Notes are non-interest bearing
and are convertible into shares of the Company's common stock, at any
time prior to maturity, at variable conversion prices ranging from $4.20
to $2.10. The variable conversion prices are based on the length of time
the investor holds the notes prior to conversion, declining at the rate of $.10
per quarter commencing November, 1996 from the initial conversion price of
$4.20. The fair value of the beneficial conversion feature of $285,835 at
September 1996 has been recorded as debt discount, reducing notes payable and
increasing additional paid in capital. The debt discount is being amortized
using the effective interest method over the term of the Variable Notes and to
the date of the deepest discount. As of December 31, 1996, there were $215,600
of 10% Notes and $571,670 ($304,891 net of unamortized debt discount of
$266,779) of Variable Notes outstanding. Accrued interest on the 10% Notes
totaled $1,796 as of December 31, 1996.
Future principal maturities of notes payable for each of the five years
subsequent to December 31, 1996 are as follows:
<TABLE>
Year Ending
<S> <C>
1997 $ 10,769
1998 10,769
1999 6,484
2000 -
2001 789,066
----------
Total $ 817,088
----------
----------
</TABLE>
F-10
<PAGE>
4. Income Taxes:
The components of the Company's net deferred tax asset and the tax
effects of the primary temporary differences giving rise to the Company's
deferred tax asset are as follows as of December 31, 1996:
<TABLE>
<S> <C>
Deferred compensation $ 152,000
Net operating loss carryforward 327,000
----------
Deferred tax asset 479,000
Valuation allowance (479,000)
----------
Net deferred tax asset $ 0
----------
----------
</TABLE>
Any tax benefits for the years ended December 31, 1996 and 1995 and the
period March 25, 1993 (date of inception) through December 31, 1996
computed based on statutory federal and state rates are completely offset
by valuation allowances established since realization of the deferred tax
benefits are not considered more likely than not.
5. Common Stock Warrants:
During 1996 and 1995, the Company issued warrants to purchase 8,022 and
7,608 shares, respectively, of common stock to the University of Florida
Research Foundation ("UFRFI"). The warrants were issued as part of a
license agreement with UFRFI whereby Ixion is authorized to occupy space
at a UFRFI facility. The agreement calls for the Company to pay $18 per
square foot annually for the space that the Company currently occupies,
payable at $11 per square foot in cash and $7 per square foot through
issuance of common stock warrants.
For the 7,608 warrants issued in 1995, the value assigned was $1.00 per
warrant and rent (prepaid or expense) was charged $7,608 related to this
grant. The value assigned to these warrants was based on the Company's
assessment of fair value at the time of issuance.
The 8,022 warrants issued in connection with the UFRFI license agreement
in 1996 are accounted for under the provisions of Statement of Financial
Accounting Standards Board No. 123, Accounting for Stock Based
Compensation. This standard requires equity instruments issued in
exchange for goods or services to be accounted for at the fair value of
goods or services received or equity investments issued, whichever is
more measurable. In connection with the issuance of the 1996 warrants,
the Company received cash license payment reductions of $10,857, the
value assigned to the warrants, or $1.35 per warrant, which was charged
to rent (prepaid or expense).
F-11
<PAGE>
5. Common Stock Warrants - Continued:
In addition, during 1995, the Company issued warrants to purchase 2,000
shares of common stock to an investor. These warrants were issued under
a subscription agreement for the purchase of 3,000 shares of common stock
at $3.00 per share and warrants to purchase 2,000 shares of common stock
at an exercise price of $2.00 per share. The value assigned to the
warrants, $1 per warrant, was based on the Company's assessment of fair
value at the time of issuance. The purchaser paid $5,000 in cash, and
$6,000 in the form of a promissory note.
All common stock warrants outstanding as of December 31, 1996 are
exercisable at a price of $2.00 per share and expire on August 31, 2000.
6. Stock Option Plan:
In August, 1994, the Board of Directors adopted the 1994 Stock Option
Plan, under which 250,000 shares of common stock were reserved for
issuance upon exercise of options granted to non-employee directors,
officers, employees, members of the Scientific Advisory Board and
consultants of the Company. Options vest at the rate of 20% per year and
are exercisable generally within ten years after date of grant. Activity
under the Company's stock option plan is set forth below:
<TABLE>
<CAPTION>
Exercise
Shares Price
-------- ----------
<S> <C> <C>
Outstanding at January 1, 1994 - -
Granted 2,000 $0.02
Exercised - -
--------
Outstanding at December 31, 1994 2,000 $0.02
Granted 3,500 $0.75
Exercised - -
--------
Outstanding at December 31, 1995 5,500 $0.02 - $0.75
Granted 13,000 $3.00
Exercised - -
--------
Outstanding at December 31, 1996 18,500 $0.02 - $3.00
--------
--------
</TABLE>
F-12
<PAGE>
6. Stock Option Plan - Continued:
The status of options outstanding at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
-------- ------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$.02 2,000 7.5 years $.02 933
$.075 3,500 8.5 years $.075 1,108
$3.00 20,000 9.5 years $3.00 -
------ -----------
18,500 2,041
------ -----------
------ -----------
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for stock issued to employees under this plan. Compensation
expense resulting from stock options is measured at the grant date based
upon the difference between the exercise price and the market value of
the common stock. All stock options were granted at an exercise price
equal to the market value at the date of grant. Had compensation cost
for the Company's stock-based compensation plan been determined based on
the fair value at the grant dates for awards consistent with the method
of FASB Statement No. 123, the Company's reported net loss and loss per
share would not have been materially different.
7. Board Retainer Plan:
The Company does not pay cash compensation to outside members of the
Board of Directors or to members of the Company's Scientific Advisory
Board. Accordingly, in August, 1994, the Board of Directors adopted the
1994 Board Retainer Plan, under which 75,000 shares of common stock were
reserved for non-employee directors and members of the Scientific
Advisory Board.
New outside members of the Board or the Scientific Advisory Board receive
5,000 shares upon joining, and all will receive 5,000 shares annually
during the pendency of the Board Retainer Plan. Shares either vest upon
delivery or time of service. For the shares which vest over time of
service, unearned compensation equivalent to the fair value at the date
of grant is charged to capital deficiency and amortized over the service
period to compensation expense. Shares which vest upon delivery are
recorded as compensation expense upon issuance. At December 31, 1996, a
total of 50,000 shares had been granted under this Plan. Compensation
expense recognized in connection with such awards for the years ending
December 31, 1996 and 1995 was $139,295 and $7,500, respectively.
Unearned compensation of $112,706 remains to be recognized as expense
over future periods of service.
F-13
<PAGE>
8. Related-Party Transactions:
Commencing with the founding of the Company, two executives, the
Chairman/Chief Executive Officer and the President, made loans to the
Company pursuant to the terms of a convertible promissory note (the
"Subordinated Note Agreement"). Under the terms of the Subordinated
Notes, principal amounts were convertible into common stock at a price
per share not greater than the lowest price per share (adjusted for stock
splits, stock dividends, or other dilution) at which shares of the
Company's common stock have been issued during the 12-month period
immediately prior to the notice of election to convert.
On September 30, 1994, these officers each converted $9,000 of
Subordinated Notes into an aggregate of 900,000 shares of the Company's
common stock, at a price of $0.02 per share. On June 30, 1996, the
remaining obligation on these notes was converted by the officers into a
total of 21,544 shares of the Company's common stock, at a price of $0.75
per share.
In addition, the Company has agreed to defer the 1993, 1994 and part of
the 1995 and 1996 salaries of the Chairman/Chief Executive Officer and
the President pursuant to agreements between the Company and such
executives. Similar agreements are in effect with the Company's Senior
Vice President and Chief Scientist. Payments are to be made only upon
termination of employment (which may be by death, disability, retirement,
or otherwise) and may be in a lump sum or as an annuity. Amounts bear
interest, compounded annually, at a rate established by the Board of
Directors, currently 8.0%. These obligations are unfunded recorded
liabilities of the Company.
On October 10, 1994, Dr. A.B. Peck, who is an executive officer and
consultant, assigned to the Company all his interest in certain oxalate
technology (subject to prior rights of the University of Florida) and
agreed to an exclusive consulting agreement with the Company in exchange
for an aggregate of 650,000 shares of common stock at a price of $0.02
per share.
On November 10, 1994, members of the immediate families of the founders
of the Company, including a partnership in which the Chairman/Chief
Executive Officer has an undivided 25% interest, purchased an aggregate
of 140,000 shares of the Company's common stock pursuant to an Agreement
to Purchase Shares dated as of such date, for a price of $0.10 per share,
or $14,000 in the aggregate.
On April 16, 1996, the Chairman/Chief Executive Officer and the President
of the Company each entered into an agreement to extend the Company up to
$25,000 in the form of a bridge loan. Interest on the notes is at 8%,
but can be reset annually, at the election of either party, to prime rate
in effect on January 1 of any given year, plus 3%. In addition, on June
21, 1996, the Chairman/Chief Executive Officer agreed to increase his
loan commitment to an amount up to $150,000, if necessary, to enable the
Company to continue operations. During 1996, no amounts are outstanding
against either of these loan agreements as of December 31, 1996.
F-14
<PAGE>
9. Sponsored Research Agreement:
On June 5, 1996, the Company entered into an agreement with Genetics
Institute, Inc. ("GI") relating to Islet Producing Stem Cells Technology.
Under the agreement, GI will sponsor certain research by the Company and
will provide funding of $275,000 over a 12-month period, plus patent
expenses of approximately $35,000. The agreement may be extended, at
GI's option, for up to two additional six-month periods. GI will provide
funding of $50,000 for each six-month extension. The revenue under this
contract is being recognized on a pro rata basis consistent with the
period over which the research will be conducted as well as upon delivery
of certain research reports. As of December 31, 1996, the Company has
recognized approximately $139,000 under the terms of this agreement, of
which $14,000 represents reimbursable patent expenses incurred for the
period. In addition, as of December 31, 1996, the Company has recorded
deferred revenue of $100,000 in connection with this agreement.
10. Management's Plans:
The Company's financial statements for the year ended December 31, 1996
have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments
in the normal course of business. The Company incurred a net loss of
$553,639 for the year ended December 31, 1996 and, as of December 31,
1996, had a total capital deficiency of $302,453.
Management recognizes that the Company must generate additional resources
or reduce operating costs to enable it to continue operations.
Management's plans to secure other financing include a private placement,
a public offering, bridge financing or corporate collaboration. If none
of these financing possibilities are concluded, then the Company would
reduce ongoing operating expenses and seek loans from its officers in
amounts that the Company considers necessary to sustain operations for
the next year.
There can be no assurance that the Company will be successful in obtaining the
Required financing. Under current circumstances, the Company's ability to
Continue as a going concern depends upon obtaining additional financing.
11. Risks and Uncertainties:
Approximately 80% of 1996 revenues consisted of revenues related to a
single sponsored research agreement which expires in 1997 unless
otherwise renewed.
The Company's product candidates are in an early stage of development.
The Company has not completed the development of any products and,
accordingly, has not received any regulatory approvals or commenced
marketing activities. No revenues have been generated from the sale of
its products.
F-15
<PAGE>
11. Risks and Uncertainties - Continued:
The Company's development and commercialization rights for its proposed
products are derived from its license agreements with the University of
Florida and others. To date, the Company owns no patents outright. A
deterioration in the relationship between the Company and the University
of Florida could have a material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the
patent rights licensed by the Company relating to Islet Progenitor/Stem
Cells and to its oxalate technology. The Company may not be able to
commercialize its proposed diabetic products due to patent rights held by
third parties other than the Company's licensors.
12. Subsequent Events:
In February, 1997, the Company issued 1,000 shares of restricted common
stock in exchange for a patent with a remaining legal life of 13 years.
The patent was valued based on the Company's determination of the fair
market value of the stock of $7.50 per share. In addition to the
issuance of stock, the Company will be required to pay royalties of 2% of
net sales generated from the patented technology.
In February, 1997, the Company issued 10,000 shares of restricted common
stock to an employee in exchange for entering into an employment
agreement for future services.
In June, 1997, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in
an initial public offering (the "IPO").
In April through June, 1997, the Board of Directors granted 25,400 options to
purchase shares of the Company's common stock at exercise prices ranging from
$6.00 to $10.00 per share.
In June, 1997, the Board of Directors issued an additional 7,000 shares of
stock under the Company's Board Retainer Plan. Shares vest over periods
ranging from one to five years.
F-16
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 1997
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 88,103
Accounts receivable 4,522
Prepaid expenses 112
Other current assets 500
Total current assets 93,237
Property and Equipment, net 38,625
Other Assets:
Patents pending, less accumulated amortization of $568 202,245
Other, less accumulated amortization of $2,404 50,725
Total other assets 252,970
Total Assets $ 384,832
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 46,937
Current portion of notes payable 10,570
Accrued expenses 30,353
Interest payable 3,593
Total current liabilities 91,454
Long-Term Liabilities:
Notes payable 572,452
Liability under research agreement 42,317
Deferred rent, including accrued interest 2,425
Deferred fees and salaries, including accrued interest 407,866
Total long-term liabilities 1,025,150
Total liabilities 1,116,604
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000,
issued and outstanding 2,464,544 shares 24,645
Common stock warrants outstanding 20,494
Additional paid-in capital 1,198,520
Deficit accumulated during the development stage (1,784,366)
Less unearned compensation (191,065)
Total capital deficiency $ (731,772)
Total Liabilities and Capital Deficiency $ 384,832
See accompanying notes to financial statements.
F-17
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
For the Period
March 25,
Statements of Operations 1993 (Date
of inception)
Nine Months Ended through
September 30, September 30,
1997 1996 1997
Unaudited Unaudited
Revenues:
Income under research
agreement $ 135,922 $ 133,333 $ 275,000
Income from SBIR grant 71,650 0 91,650
Interest income 9,223 1,451 22,043
Other income 2,752 3,467 13,567
Total revenues 219,547 138,251 402,260
Expenses:
Operating, general and
administrative 290,271 247,060 1,051,809
Research and development 432,378 275,906 963,758
Interest 83,858 23,473 171,059
Total expenses 806,507 546,439 2,186,626
Net Loss $ (586,960) $ (408,188) $ (1,784,366)
Net Loss per Share $ (0.24) $ (0.17)
Weighted Average Common
Shares 2,456,412 2,438,544
See accompanying notes to financial statements.
F-18
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company) For the Period
March 25,
Statements of Cash Flows 1993 (Date
of inception)
through
Nine Months Ended June 30,
1997 1996 1997
Unaudited Unaudited
Cash Flows from Operating Activities:
Net loss $ (586,960) $ (408,188) $(1,784,366)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 8,542 6,409 21,471
Amortization 2,233 196 3,058
Amortization of debt discount......42,875 - 61,931
Stock warrants issued
under license agreement 0 6,657 20,465
Stock compensation 121,640 79,550 268,435
Decrease (increase) in
employee advance 0 900 0
Decrease (increase) in
prepaid expenses and
other current assets 7,666 5,285 (437)
Decrease (increase) in
accounts receivable 3,637 (664) (4,522)
Increase (decrease) in
deferred revenue (100,000) 133,333 0
Increase (decrease) in
liab. under research
agreement 42,317 0 42,317
Increase (decrease) in
accounts payable and
accrued expenses 12,322 65,365 78,634
Increase in deferred fees
and salaries 22,828 9,162 381,314
Increase in interest
payable 1,593 1,797 34,791
--------- ---------- ---------
Net cash used in
operating activities (421,305) (100,198) (876,907)
Cash Flows from Investing Activities:
Purchase of property and
equipment (5,758) (270) (31,898)
Payments for patents pending (50,450) (25,617) (169,931)
Net cash used in investing
activities (56,208) (25,887) (201,829)
Cash Flows from Financing Activities:
Proceeds from issuance of
subordinated notes payable
to related parties 0 0 30,307
Deferred registration
costs - IPO (42,049) 0 (42,485)
Proceeds from issuance of
convertible notes payable 0 537,530 787,270
Proceeds from issuance of
common stock 0 0 406,700
Decrease in notes payable (9,874) 0 (9,874)
Decrease in note receivable
from shareholder 6,000 0 6,000
Payment of loan costs 0 0 (11,080)
Net cash provided by
(used in) financing
activities (3,048) 537,530 1,228,769
Net Increase (Decrease) In Cash and
Cash Equivalents (523,436) 411,446 88,103
Cash and Cash Equivalents at
Beginning of Period 611,539 80,419
Cash and Cash Equivalents at
End of Period $ 88,103 $ 491,865 $ 88,103
See accompanying notes to financial statements.
F-19
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
Nine Month Periods Ended September 30, 1997
1. Significant Accounting Policies:
Basis of Presentation
The accompanying unaudited condensed financial statements for the
nine months ended September 30, 1997 and 1996 and for the period March 25,
1993 (date of inception) through September 30, 1997 have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of the Company, the
accompanying unaudited condensed financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary to
present fairly the Company's financial position, results of operations, and
cash flows for the periods presented. The results of operations for the
interim period ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
Deferred Registration Costs-The Company deferred certain costs related to
its planned initial public offering. These costs will be offset against the
proceeds from the offering or expensed should the offering be abandoned.
Deferred Rent - Deferred rent represents a portion of the rent payable
under the Company's facilities license with the Biotechnology Development
Institute (BDI) and accrued interest thereon. The deferred amount bears non-
cash interest at 12% on the outstanding balance, compounded annually. The
Company will repay the liability, if at all, only through a 1% royalty on net
sales of any products developed during its tenancy at the BDI, such royalty not
to exceed the outstanding balance.
The condensed financial statements should be read in conjunction with the
Company's annual financial statements for the year ended December 31, 1996.
2. Recent Accounting Pronouncements:
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share. This statement, which is effective for
the Company's annual report for the year ended December 31, 1997, establishes
new requirements for the calculation, presentation and disclosure of earnings
per share. The Company estimates that Basic Earnings Per Share presented in
accordance with Statement No 128 would not differ from what is currently
presented. Diluted Earnings Per Share under Statement No. 128 would not be
required since the Company is reporting losses and effects of additional shares
would be anti-dilutive.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. This statement, which is effective for the Company's annual report
for the year ended December 31, 1998, establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Adoption of this standard is not
expected to have a material impact on the Company's financial statements or
results of operations.
3. Income Taxes:
The components of the Company's net deferred tax asset and the tax
effects of the primary temporary differences giving rise to the Company's
deferred tax asset are as follows as of September 30, 1997:
Deferred compensation $155,000
Net operating loss carryforward 392,000
F-20
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
Nine Month Periods Ended September 30, 1997
3. Income Taxes (continued):
Deferred tax asset 547,000
Valuation allowance (547,000)
Net deferred tax asset $ 0
4. Stock Options:
The status of options granted since December 31, 1996 is as follows:
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
$6.00 3,000 9.5 years $6.00 0
$7.50 2,000 9.6 years $7.50 0
$10.00 19,400 9.75 years $10.00 3,125
5. Sponsored Research Agreement
On June 5, 1996, the Company entered into an agreement with Genetics
Institute, Inc. ("GI") relating to Islet Producing Stem Cells ("IPSC")
technology. Under the agreement, GI sponsored certain research by the
Company plus reimbursed patent expenses in the amount of $42,317 relating to
IPSC patent applications. Under the terms of the sponsored research
agreement, such reimbursed patent expenses must be repaid to GI over a 36-
month period, commencing at a date still to be determined.
6. Risks and Uncertainties:
Approximately 62% of revenues for the nine months ended September 30, 1997
consisted of revenues related to a singled sponsored research agreement which
expires in 1997, and an addition 33% of such revenues consisted of revenues
related to a single grant under the Small Business Innovation Research
program which likewise expires in 1997.
The Company's product candidates are in an early stage of development. The
Company has not completed the development of any products and, accordingly,
has not received any regulatory approvals or commenced marketing activities.
No revenues have been generated from the sale of its products.
The Company's development and commercialization rights for its proposed
products are derived from its license agreements with the University of
Florida and others. To date, the Company owns no patents outright. A
deterioration in the relationship between the Company and the University of
Florida could have a material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the patent
rights licensed by the Company relating to Islet Progenitor Stem Cells and to
its oxalate technology. Although the Company
F-21
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
6. Risks and Uncertainties (continued):
believes its patents and patent applications are valid, there is no assurance
that it will be able to commercialize its proposed diabetic products due to
patent rights held by third parties other than the Company's licensors.
F-22
<PAGE>
No other person has been authorized to give any information or to make
any representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or the solicitation of any offer to buy any securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the Units
offered hereby. Neither the delivery of this Prospectus, nor any sale made
pursuant hereto shall, under any circumstances, create any impression that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
TABLE OF CONTENTS
Page
Available Information 2
Summary 3
Risk Factors 6
Special Note Regarding
Forward-Looking Statements 14
Use of Proceeds 15
Dilution 16
Dividend Policy 16
Capitalization 17
Selected Financial Data 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
Business 23
Management 42
Certain Transactions 47
Principal Shareholders 48
Description of Securities 49
Certain Federal Income Tax Consequences 52
Shares Eligible for Future Sale 55
Plan of Distribution 56
Legal Matters 57
Experts 57
Unit Purchase Agreement 58
Index to Financial Statements F-1
Until , 1998 (90 days after the date of this
Prospectus) all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver
a Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
400,000 Units
Minimum Purchase100 Units
IXION
Each Unit Consisting of
One Share of Common Stock and
.25 Charitable Benefit Warrant
PROSPECTUS
January 23, 1998
<PAGE>
Item 27. Exhibits
Exhibit
Number Description
+1.1 Agreement with Unified Management Corporation, dated January,1998
*3.1 Certificate of Incorporation of Registrant
*3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant
*3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant
+3.4 Bylaws of Registrant, as amended and restated
**4.1 Form of Registrant's Common Stock Certificate
+4.2 Form of Registrant's Charitable Benefit Warrant Certificate
+4.3 Charitable Benefit Warrant Agreement
*4.4 Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995
*4.5 Warrant Agreement with the University of Florida Research
Foundation, Inc., dated November 7, 1995
*4.6 Warrant Agreement with the University of Florida Research
Foundation, Inc., dated August 1, 1996
*4.7 Warrant Agreement with the University of Florida Research
Foundation, Inc., dated October 1, 1996
*4.8 Warrant Agreement with the University of Florida Research
Foundation, Inc., dated November 7, 1996
**4.9 Warrant Agreement with Brandywine Consultants, Inc., dated June 23,
1997
**4.10 Warrant Agreement with Brandywine Consultants, Inc., dated October
24, 1997
+5.1 Opinion of Bruce Brashear, Esq. regarding legality
**5.2 Opinion of Thacher Proffitt & Wood regarding certain tax matters
*10.1 Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of
January 1, 1996
*10.2 Consulting Agreement with Brandywine Consultants, Inc., dated
December 12, 1996
*10.3 Consulting Agreement with Ammon B. Peck, dated February 21, 1997
*10.4 Consulting Agreement with David C. Peck, dated July 1, 1996
*10.5 Convertible Promissory Note with Weaver H. Gaines, dated March 31,
1993
*10.6 Convertible Promissory Note with David C. Peck, dated October 15,
1993
*10.7 Demand Promissory Note, Bridge Loan with Weaver H. Gaines, dated
April 15, 1996
*10.8 Demand Promissory Note, Bridge Loan with David C. Peck, dated April
15, 1996
*10.9 Deferred Compensation Plan Agreement with Weaver H. Gaines, dated
January 1, 1994
*10.10 Deferred Compensation Plan Agreement with Ammon B. Peck, dated June
1, 1994
*10.11 Deferred Compensation Plan Agreement with David C. Peck, dated
April 1, 1994
*10.12 Agreement to Purchase Shares, dated as of October 10, 1994
*10.13 Note Purchase Agreement, dated as of September 13, 1996
*10.14 Incubator License Agreement with the University of Florida Research
Foundation, Inc., dated June 26, 1995
*10.15 Amendment No. 1, dated July 31, 1996 to Incubator License Agreement
with the University of Florida Research Foundation, Inc.
*10.16 Amendment No. 2, dated October 1, 1996 to Incubator License
Agreement with the University of Florida Research Foundation, Inc.
*10.17 Amendment No. 3, dated November 7, 1996 to Incubator License
Agreement with the University of Florida Research Foundation, Inc.
*10.18 Amendment No. 4, dated January 21, 1997 to Incubator License
Agreement with the University of Florida Research Foundation, Inc.
*10.19 Patent License Agreement with Randy S. Fischer and Roy A. Jensen
for U.S. Patent No. 5,187,071, "Method for the Selective Control of
Weeds, Pests, and Microbes," dated February 11, 1997
****10.20 Patent License Agreement with Research Component with the
University of Florida Research Foundation, Inc. relating to
Oxalobacter formigenes, dated January 11, 1995 (1)
****10.21 Amendment No. 1 to Patent License Agreement with Research
Component with the University of Florida Research Foundation, Inc.
relating to Oxalobacter formigenes, dated December 20, 1995
****10.22 Amendment No. 2 to Patent License Agreement with Research
Component with the University of Florida Research Foundation, Inc.
relating to Oxalobacter formigenes, dated October 9, 1996 (1)
****10.23 Patent License Agreement with Research Component with the
University of Florida Research Foundation, Inc. relating to
Pancreatic Stem Cells, dated February 17, 1995 (1)
****10.24 Amendment No. 1 to Patent License Agreement with Research
Component with the University of Florida Research Foundation, Inc.
relating to Pancreatic Stem Cells, dated October 9, 1996 (1)
****10.25 Patent License Agreement with Milton J. Allison, dated June 23,
1997. (1)
****10.26 Sponsored Research Agreement with Genetics Institute, Inc., dated
June 5, 1996 (1)
*10.27 Employment Agreement with Weaver H. Gaines, dated August 31, 1994
*10.28 Employment Agreement with David C. Peck, dated August 31, 1994
*10.29 1994 Stock Option Plan, as amended
**10.30 1994 Board Retainer Plan, as amended
*10.31 Consulting Agreement with Ammon Peck, dated October 6, 1994
*10.32 Amendment No. 5 to Incubator License Agreement
*11.1 Statement regarding computation of earnings per share (included as
Note 3 in Prospectus)
+24.1 Consent of Independent Accountants.
+24.2 Consent of Bruce Brashear, Esq. (included in Exhibit 5.1).
** 24.3 Consent of Thacher Proffitt & Wood (included in Exhibit 5.2).
*25. Power of Attorney (included with the signature page to the
registration statement)
***27. Financial Data Schedule
(1) Confidential information has been omitted from these document and filed
separately with the Commission pursuant to a request for Confidential
Treatment.
+ Filed herewith.
* Previously filed with Form SB-2 on August 29, 1997.
** Previously filed with Amendment 1 to Form SB-2 on November 7, 1997.
*** Previously filed with Amendment 2 to Form SB-2 on December 2, 1997.
****Previously filed with Amendment 3 to Form SB-2 on December 9, 1997.
SIGNATURES
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Post Effective Amendment to be signed on its behalf by the undersigned, in the
city of Alachua, state of Florida, on the 21st day of January, 1998.
IXION BIOTECHNOLOGY, INC.
By: /S/
Weaver H. Gaines,
Chairman of the Board and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Post Effective Amendment has been signed by the following persons in the
Capacities indicated on January 21, 1998.
SIGNATURE TITLE
/S/ Chairman of the Board, Chief Executive Officer,
Weaver H. Gaines and Director
*
* President, Chief Financial Officer and Director
David C. Peck
/S/
Controller
Kimberly A. Ramsey
*
* Director
David M. Margulies
*
* Director
Vincent P. Mihalik
/S/
* (attorney in fact)
Weaver H. Gaines,
Draft of 1/7/98
400,000 UNITS
IXION BIOTECHNOLOGY, INC.
AGREEMENT
January , 1998
Mr. Lynn E. Wood
President
Unified Management Corporation
429 N. Pacific Street
Indianapolis, IN 46204-1897
Dear Mr. Wood:
Ixion Biotechnology, Inc., a Delaware corporation (the "Company"),
proposes to sell directly an aggregate of up to 400,000 Units (the
"Units") in a registered public offering. Each Unit will consist of one
share of the Company's Common Stock, $.01 par value ("Common Stock"), and
.25 Charitable Benefit Warrant, substantially in the form filed as
exhibits to the Registration Statement (hereinafter defined) (the
"Charitable Benefit Warrants"). There is no required minimum number of
Units to be sold, and all funds received will go immediately to the
Company. The Company will effect offers and sales of Units through
printed copies of the Prospectus (defined below) delivered by mail and
electronically, by contacting prospective investors by publication
through a posting on the Company's web site, through newspaper
advertisements, direct email, and direct mail. The offer and sale of the
Units are referred to as the "Offering."
The Company proposes to offer the Units directly to investors
through certain executive officers of the Company in various states where
it is qualified to do so, except in Florida, where sales must be made
through a registered broker/dealer under Florida's securities statutes.
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Unified Management
Corporation ("you" or "Unified Management") as follows:
<PAGE>
(a) A registration statement on Form SB-2 (File No.
333-34765) with respect to the Units has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the Rules and Regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. Copies
of such registration statement, including any amendments thereto
(including one post-effective amendment relating to this Agreement), the
preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein, and the exhibits, financial statements
and schedules, as finally amended and revised, have heretofore been
delivered or made available by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and
no additional post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. "Prospectus" means (a) the
form of prospectus filed with the Commission pursuant to Rule 424(b) or
(b) the form of prospectus included in Post-Effective Amendment no. 1 to
the Registration Statement filed prior to the time it becomes effective
or filed pursuant to Rule 424(a) under the Act that is delivered by the
Company to Unified Management for delivery to Florida purchasers of the
Units. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as
a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Company does not own and never has owned a controlling
interest in any corporation or other business entity. The Company is
duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification.
(c) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable and have been issued and sold by the Company in compliance
in all material respects with applicable securities laws; the Common
Stock and Charitable Benefit Warrants to be included in the Units have
been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any security of the Company
or the issue and sale thereof. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any shares of
Common Stock or other securities of the Company.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. The Common Stock
and the Charitable Benefit Warrants conform to the description thereof
contained in the Registration Statement. The forms of certificates for
the Common Stock and Charitable Benefit Warrants conform to the corporate
law of Delaware, the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Units and has not instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all statements which are required to be
stated therein by, and will conform, to the requirements of the Act and
the Rules and Regulations. The Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue statement of a
material fact and do not omit, and will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment
or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by Unified Management specifically
for use in the preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement,
present fairly the financial position and the results of operations and
cash flows of the Company at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results
for such periods have been made. The summary financial and statistical
data of the Company included in the Registration Statement present fairly
the information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books
and records of the Company.
(g) Coopers & Lybrand LLP, who have audited certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
<PAGE>(h) There is no action, suit, claim, or proceeding
pending or, to the knowledge of the Company, threatened against the
Company before any court or administrative agency or otherwise which if
determined adversely to the Company might result in any material adverse
change in the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise), or prospects of the
Company or might prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as
described in the Registration Statement), subject to no lien, mortgage,
pledge, charge, or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased
properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration
Statement.
(j) The Company has filed all federal, state, local and
foreign income tax returns which have been required to be filed and has
paid all taxes indicated by said returns and all assessments received by
it to the extent that such taxes have become due and are not being
contested in good faith. All tax liabilities have been adequately
provided for in the financial statements of the Company.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise), or prospects of the
Company, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company, other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent
obligations which are not disclosed in the Company's financial statements
included in the Registration Statement or elsewhere in the Prospectus.
(l) The Company is not, nor, with the giving of notice or
lapse of time or both, will it be, in violation of or in default under
its articles of incorporation or bylaws or under any agreement, lease,
contract, indenture, or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition,
financial or otherwise of the Company or the business, management,
properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company. The execution and delivery of
this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party, or of the
articles of incorporation or bylaws of the Company or any order, rule, or
regulation applicable to the Company of any court or of any regulatory
body or administrative agency or other governmental body having
jurisdiction.
(m) Each approval, consent, order, authorization,
designation, declaration, or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Units for public offering under
state securities or Blue Sky laws) has been obtained or made and is in
full force and effect.
<PAGE>(n) The Company holds all material patents, patent
rights trademarks, trade names, copyrights, trade secrets, and licenses
of any of the foregoing (collectively, "Intellectual Property Rights")
that are necessary to the conduct of its business; there is no claim
pending or, to the best knowledge of the Company, threatened against the
Company alleging any infringement of Intellectual Property Rights, or any
violation of the terms of any license relating to Intellectual Property
Rights, nor does the Company know of any basis for any such claim other
than as described in the Prospectus. The Company knows of no material
infringement by others of Intellectual Property Rights owned by or
licensed to the Company. The Company has obtained, is in compliance in
all material respects with, and maintains in full force and effect all
material licenses, certificates, permits, orders, or other, similar
authorizations granted or issued by any governmental agency
(collectively, "Government Permits") required to conduct its business as
it is presently conducted. All applications for additional Government
Permits described in the Prospectus as having been made by the Company
have been properly and effectively made in accordance with the applicable
laws and regulations with respect thereto and such applications
constitute, in the best judgment of the Company's management, those
reasonably required to have been made in order to carry out the Company's
business plan as described in the Prospectus. No proceeding to revoke,
limit or otherwise materially change any Government Permit has been
commenced or, to the Company's best knowledge, is threatened against the
Company or any supplier to the Company with respect to materials supplied
to the Company, and the Company has no reason to anticipate that any such
proceeding will be commenced against the Company or any such supplier.
Except as disclosed or contemplated in the Prospectus, the Company has no
reason to believe that any pending application for a Government Permit
will be denied or limited in a manner inconsistent with the Company's
business plan as described in the Prospectus.
(o) The Company is in all material respects in compliance
with all applicable Environmental Laws. The Company has no knowledge of
any past, present or, as anticipated by the Company, future events,
conditions, activities, investigation, studies, plans or proposals that
(i) would interfere with or prevent compliance with any Environmental Law
by the Company or (ii) could reasonably be expected to give rise to any
common law or other liability, or otherwise form the basis of a claim,
action, suit, proceeding, hearing, or investigation, involving the
Company and related in any way to Hazardous Substances or Environmental
Laws. Except for the prudent and safe use and management of Hazardous
Substances in the ordinary course of the Company's business, (i) no
Hazardous Substance is or has been used, treated, stored, generated,
manufactured, or otherwise handled on or at any Facility and (ii) to the
Company's best knowledge, no Hazardous Substance has otherwise come to be
located in, on, or under any Facility. No Hazardous Substances are
stored at any Facility except in quantities necessary to satisfy the
reasonably anticipated use or consumption by the Company. No litigation,
claim, proceeding, or governmental investigation is pending regarding any
environmental matter for which the Company has been served or otherwise
notified or, to the knowledge of the Company threatened or asserted
against the Company, or the officers or directors of the Company in
their capacities as such, or any Facility or the Company's business.
There are no orders, judgments or decrees of any court or of any
governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company, any Facility or any of the Company's
operations. The Company has not received from a governmental authority
or other person (i) any notice that it is a potentially responsible
person for any Contaminated site or (ii) any request for information
about a site alleged to be Contaminated or regarding the disposal of
Hazardous Substances. There is no litigation or proceeding against any
other person by the Company regarding any environmental matter. The
Company has disclosed in the Prospectus or made available to Unified
Management and its counsel true, complete, and correct copies of any
reports, studies, investigations, audits, analysis, tests, or monitoring
in the possession of or initiated by the Company pertaining to any
environmental matter relating to the Company, its past or present
operations, or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws"
means any applicable federal, state or local statute, regulation, code,
rule, ordinance, order, judgment, decree, injunction, or common law
pertaining in any way to the protection of human health or the
environment, including without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Toxic Substances Control Act, the Clean Air Act, the
Federal Water Pollution Control Act, and any similar or comparable state
or local law; "Hazardous Substance" means any hazardous, toxic,
radioactive, or infectious substance, material, or waste as defined,
listed, or regulated under any Environmental Law; "Contaminated" means
the actual existence on or under any real property of Hazardous
Substances, if the existence of such Hazardous Substances triggers a
requirement to perform any investigatory, remedial, removal, or other
response action under any Environmental Laws or if such response action
legally could be required by any governmental authority; "Facility" means
any property currently owned, leased or occupied by the Company.
(p) The Company has not taken nor intends to take, directly
or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock
to facilitate the sale or resale of the Common Stock.
<PAGE>
(q) The Company is not an "investment company" within
the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the Commission
thereunder.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
business and the value of its properties and as is customary for
companies engaged in similar industries.
(t) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any liability; the
Company has not incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code
of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(u) The Company is in material compliance with all laws,
rules, regulations, orders of any court or administrative agency,
operating licenses, or other requirements imposed by any governmental
body applicable to it, including, without limitation, all applicable
laws, rules, regulations, licenses, or other governmental standards
applicable to the industry in which the Company operates; and the conduct
of the business of the Company, as described in the Prospectus, will not
cause the Company to be in violation of any such requirements.
(v) The Charitable Benefit Warrants have been authorized for
issuance to the various purchasers of the Units and will, when issued,
possess rights, privileges, and characteristics as represented in the
most recent form of Charitable Benefit Warrants filed as an exhibit to
the Registration Statement; the securities to be issued upon exercise of
the Charitable Benefit Warrants, when issued and delivered against
payment therefor in accordance with the terms of the Charitable Benefit
Warrants, will be duly and validly issued, fully paid, nonassessable,
and free of preemptive rights, and all corporate action required to be
taken for the authorization and issuance of the Charitable Benefit
Warrants, and the securities to be issued upon their exercise, has
validly and sufficiently been taken.
(w) Except as disclosed in the Prospectus, neither the
Company nor any of its officers, directors or affiliates have caused any
person, other than Unified Management, to be entitled to reimbursement of
any kind, including, without limitation, any compensation that would be
includable as underwriter compensation under the NASD's Corporate
Financing Rule with respect to the offering of the Units, as a result of
the consummation of such offering based on any activity of such person as
a finder, agent, broker, investment adviser, or other financial service
provider.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
(a) On the basis of the representations, warranties, and
covenants herein contained, and subject to the conditions herein set
forth, Unified Management agrees to act on behalf of the Company in
connection with sales to Florida purchasers, and the Company agrees to
sell Units to Florida purchasers who subscribe for Units by properly
completing Unit Purchase Agreements and who are approved for purchase.
Unified Management will have no obligation to purchase Units on a firm
commitment basis, a best efforts basis, or any other basis.
<PAGE>(b) Payment for the Units to be sold hereunder will be
made directly by the purchasers in checks drawn to the order of the
Company or bank wire to an account specified by the Company against
certificates for the Common Stock and the Charitable Benefit Warrants
(which delivery shall take place in such location as may be specified by
purchasers in the Unit Purchase Agreement).
3. OFFERING.
The Units are to be initially offered to the public at the public
offering price (determined solely by the Company) set forth in the
Prospectus.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with Unified Management that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (ii) not file any amendment to the
Registration Statement or supplement to the Prospectus of which Unified
Management shall not previously have been advised and furnished with a
copy or to which Unified Management shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations.
(b) The Company will advise Unified Management promptly (i)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the institution of any proceedings for
that purpose. The Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(c) The Company will cooperate with Unified Management in
endeavoring to qualify the Units for sale under the securities laws of
Florida and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose. The
Company will, from time to time, prepare and file such statements,
reports, and other documents, as are or may be required to continue such
qualification in effect for so long a period as Unified Management may
reasonably request.
(d) The Company will deliver to Unified Management during the
period when delivery of a Prospectus is required under the Act, as many
paper copies of the Prospectus in final form, or as thereafter amended or
supplemented, as Unified Management may reasonably request. Until the
Offering is terminated, the Company will maintain the Prospectus on its
website in several electronic formats, including HTML and MS Word, so as
to permit prospective investors to download such Prospectus in compliance
with the Act and the Rules and Regulations relating to the use of
electronic media for delivery purposes.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the sale of the Units as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus
is required by law to be delivered by Unified Management, any event shall
occur as a result of which, in the judgment of the Company or in the
reasonable opinion of Unified Management, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or, if it is necessary at any
time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus
so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
<PAGE>(f) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any event
not later than 16 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earnings statement shall satisfy the requirements of Section 11(a) of the
Act and Rule 158 of the Rules and Regulations.
(g) The Company will, for a period of two years from the date
of the Prospectus, deliver to Unified Management, either electronically
or printed on paper, copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act
or the Exchange Act.
(h) There is no public market for the Common Stock and it is
unlikely that any such market will develop after the Offering. The
Company does not currently meet the requirements for listing on an
organized stock exchange or quotation of over-the counter market maker
trades on the Nasdaq market. The Company will use reasonable efforts to
list the Common Stock on a regulated securities exchange following the
termination of the Offering.
(i) The Company shall apply the net proceeds of its sale of
the Units as set forth in the Prospectus and shall file such reports with
the Commission with respect to the sale of the Units and the application
of the proceeds here from as may be required in accordance with Rule 463
under the Act.
(j) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Units in such a
manner as would require the Company or any of the subsidiaries to
register as an investment company under the 1940 Act.
(k) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(l) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. FEES, COSTS, AND EXPENSES.
(a) The Company will pay Unified Management a commission of
2.0% of the gross proceeds of sales of Units to purchasers resident in
Florida, arising as a result of access to the Company's website,
newspaper advertisements, direct email, or direct mail and not arising
out of any solicitation of potential customers by Unified Management;
provided, however, that such sales must be made pursuant to completed
Florida Unit Purchase Agreements and must be approved by the Company.
The Company may reject any Unit Purchase Agreement in its absolute
discretion.
(b) The Company will pay all costs, expenses and fees incident
to the performance of the obligations of the Company under this
Agreement, including, without limiting the generality of the foregoing,
the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, Unified Management copies of the
Registration Statement, Preliminary Prospectuses, the Prospectus, and
this Agreement; the filing fees of the Commission; the filing fees
incident to securing any required review by the NASD of the terms of the
sale of the Units; and the expenses, including the fees and
disbursements of counsel, incurred in connection with the qualification
of the Units under state securities or Blue Sky laws. Any transfer taxes
imposed on the sale of the Units will be paid by the Company. The
Company shall not, however, be required to pay for any of Unified
Management' expenses (other than those related to qualification under
NASD regulation and state securities or Blue Sky laws).
6. CONDITIONS OF OBLIGATIONS OF UNIFIED MANAGEMENT.
<PAGE>The obligations of Unified Management hereunder are subject
to the accuracy of the representations and warranties of the Company
contained herein, and to the performance by the Company of their
covenants and obligations hereunder and to the following additional
conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise)
shall have been disclosed to Unified Management and complied with to its
reasonable satisfaction. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to
the knowledge of the Company, shall be contemplated by the Commission and
no injunction, restraining order, or order of any nature by a federal or
state court of competent jurisdiction shall have been issued as of the
date hereof which would prevent the issuance of the Units.
(b) Unified Management shall have received the opinion of
Bruce Brashear, Esq., counsel for the Company, dated the date of this
Agreement, addressed to Unified Management to the effect that:
(i) The Units have been duly and validly authorized.
(ii) The Common Shares have been duly and valid
authorized and, when certificates therefor have been duly
authenticated, delivered and paid for in accordance with all
applicable laws and agreements, will be duly and validly
issued, fully-paid, and nonassessable.
(iii) The shares issuable upon exercise of the
Charitable Benefit Warrants (the "Underlying Shares") have
been duly and validly authorized and, (a) assuming the
Underlying Shares will be duly and validly authorized as of
the date of issuance and (b) when certificates therefor have
been duly authenticated, delivered, and the Underlying Shares
have been paid for in accordance with all applicable laws and
the Warrant Agreement, the Underlying Shares will be duly and
validly issued, fully-paid, and nonassessable.
(iv) The Charitable Benefit Warrants have been duly and
valid authorized and, when (a) the Warrant Agreement has been
duly executed and delivered (assuming due authorization,
execution and delivery thereof by the Warrant Agent) and (b)
the Charitable Benefit Warrants have been duly authenticated,
delivered and paid for in accordance with all applicable laws
and the Warrant Agreement, the Charitable Benefit Warrants
will be valid and binding obligations of the Company
enforceable against the Company, except that such enforcement
may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a
proceeding at law or in equity).
(v) This Agreement has been duly authorized, executed,
and delivered by the Company.
In addition to the matters set forth above, the opinion of Bruce
Brashear, Esq., shall also include a statement to the effect that nothing
has come to the attention of such counsel that has caused him to believe
that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated
therein pursuant to Rule 430A under the Act) and as of the date of this
Agreement, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant
to the Rules and Regulations and as of the date of this Agreement, as the
case may be, contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements, in
the light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial
statements, schedules and statistical information therein).
(c) Unified Management shall have received on the date of this
Agreement a certificate or certificates of the Chairman and Chief
Executive Officer and the Controller of the Company to the effect that,
as of the date of this Agreement each of them severally represents as
follows:
<PAGE>
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
or her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the
Date of this Agreement;
(iii) All filings required to have been made pursuant to
Rule 424 or Rule 430A under the Act have been made;
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as
of the effective date of the Registration Statement, the
statements contained in the Registration Statement were true
and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has
not been any material adverse change or any development
involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, properties,
assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(h) The Company shall have furnished to Unified Management
such further certificates and documents confirming the
representations and warranties, covenants and conditions
contained herein and related matters as Unified Management
may reasonably have requested.
If any of the conditions herein above provided for in this Section
6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of Unified Management hereunder may be
terminated by Unified Management by promptly notifying the Company of
such termination in writing.
In such event, the Company and Unified Management shall not be
under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the Units
required to be delivered as and when specified in this Agreement are
subject to the conditions that at the date of this Agreement, no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
<PAGE>
(a) The Company agrees to indemnify and hold harmless
Unified Management and each person, if any, who controls Unified
Management within the meaning of the Act, against any losses, claims,
damages, or liabilities to which Unified Management or any such
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and will reimburse Unified Management and each such
controlling person upon demand for any legal or other expenses reasonably
incurred by Unified Management or such controlling person in connection
with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Units, whether or not
Unified Management or controlling person is a party to any action or
proceeding; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment
or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through Unified Management
specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) Unified Management will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and will
reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that Unified Management will be
liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company
by or through Unified Management specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability
which Unified Management may otherwise have.
<PAGE>
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to
any party who shall fail to give notice as provided in this Section 8(c)
if the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was materially prejudiced by
the failure to give such notice, but the failure to give such notice
shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In
case any such proceeding shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party and shall pay as incurred the fees
and disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them, or (iii) the indemnifying party shall have failed to assume
the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action.
It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the reasonable fees and expenses of more than one separate
firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section
8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be
sought hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise, or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless n indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages, or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and Unified Management on the
other from the offering of the Units. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and Unified Management on
the other in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and Unified Management on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total
commissions received by Unified Management. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or Unified Management on the other and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
The Company and Unified Management agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, or liabilities (or
actions or proceedings in respect thereof) referred to above in this
Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) Unified Management shall not be
required to contribute any amount in excess of the commissions
applicable to the Units sold through Unified Management to Florida
purchasers, and (ii) 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.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party
is a party.
(f) Any losses, claims, damages, liabilities, or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or
expenses are incurred. The indemnity and contribution agreements
contained in this Section 8 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on
behalf of Unified Management or any person controlling Unified
Management, the Company, its directors or officers, or any persons
controlling the Company, (ii) acceptance of any Units and payment
therefor hereunder, and (iii) any termination of this Agreement. A
successor to Unified Management, or to the Company, its directors or
officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution, and reimbursement agreements
contained in this Section 8.
<PAGE>
9. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, emailed (with
confirmation of delivery) or telecopied as follows: if to Unified
Management, to Unified Management Corporation, 429 Pacific Street,
Indianapolis, IN 46204-1897, Attention, President, Fax: 212-269-6804,
email: [email protected]; if to the Company, to Ixion Biotechnology, Inc.,
12085 Research Drive, Alachua, FL 32615, Attention: Chairman of the
Board, Fax: 904-462-3961; email: [email protected]; with a copy to
Bruce Brashear, Esq., 920 NW 8th Ave., Ste. A, Gainesville, FL 32601,
Fax: 352-336-0505, email: [email protected].
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the the termination of the Offering
if any of the following has occurred: (i) since the respective dates as
of which information is given in the Registration Statement and the
Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and its subsidiaries taken as a
whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise), or prospects of the
Company and its subsidiaries taken as a whole, whether or not arising in
the ordinary course of business or (ii) the enactment, publication,
decree, or other promulgation of any statute, regulation, rule, or order
of any court or other governmental authority which, in your opinion,
materially and adversely affects or may materially and adversely affect
the business or operations of the Company; or
(b) as provided in Sections 6 and 9 of this Agreement.
11. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
Unified Management, the Company, and their respective successors,
executors, administrators, heirs and assigns, and the officers,
directors, and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of any
of the Units through Unified Management shall be deemed a successor or
assign merely because of such purchase.
12. INFORMATION PROVIDED BY UNIFIED MANAGEMENT.
The Company and Unified Management acknowledge and agree that the
only information furnished or to be furnished by Unified Management to
the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth on the front cover page (insofar as
such information relates to Unified Management) and the information under
the caption "Plan of Distribution" in the Prospectus.
13. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties, and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement and (b) any
investigation made by or on behalf of Unified Management or controlling
person thereof, or by or on behalf of the Company or its directors or
officers.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the state of Florida. All disputes relating to this
Agreement shall be adjudicated before a court located in Alachua County,
Florida to the exclusion of all other courts that might have
jurisdiction.
<PAGE>If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement between
the Company and Unified Management in accordance with its terms.
Very truly yours,
Ixion Biotechnology, Inc.
By: ---------------------------
Weaver H. Gaines
Chairman and Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date
first above written.
Unified Management Corporation
By ---------------------------
Authorized Officer
RESTATED
BYLAWS
OF
IXION BIOTECHNOLOGY, INC.
(a Delaware corporation)
(As of December 12, 1997)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates
representing stock in the corporation shall be signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of
Directors, if any, or by the President or a Vice-President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the corporation. Any or all the signatures on any such
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent,
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock,
and whenever the corporation shall issue any shares of its stock as
partly paid stock, the certificates representing shares of any such class
or series or of any such partly paid stock shall set forth thereon the
statements prescribed by the General Corporation Law. Any restrictions
on the transfer or registration of transfer of any shares of stock of any
class or series shall be noted conspicuously on the certificate
representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by
it, alleged to have been lost, stolen, or destroyed, and the Board of
Directors may require the owner of the lost, stolen, or destroyed
certificate, or his legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be
made against it on account of the alleged loss, theft, or destruction of
any such certificate or the issuance of any such new certificate or
uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by
the General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within
a reasonable time after the issuance or transfer of any uncertificated shares,
the corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall
not be required to, issue fractions of a share. If the corporation does not
issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a
full share upon the surrender of such scrip or warrants aggregating a full
share. A certificate for a fractional share or an uncertificated fractional
share shall, but scrip or warrants shall not unless otherwise provided
therein, entitle the holder to exercise voting rights, to receive dividends
thereon, and to participate in any of the assets of the corporation in the
event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not
exchanged for certificates representing the full shares or uncertificated full
shares before a specified date, or subject to the conditions that the shares
for which scrip or warrants are exchangeable may be sold by the corporation
and the proceeds thereof distributed to the holders of scrip or warrants, or
subject to any other conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be
made only on the stock ledger of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares
of stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. In order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record
date has been fixed by the Board of Directors, the record date for determining
the stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by the General Corporation Law, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock"
or "shares of stock" or "stockholder" or "stockholders" refers to an
outstanding share or shares of stock and to a holder or holders of record of
outstanding shares of stock when the corporation is authorized to issue only
one class of shares of stock, and said reference is also intended to include
any outstanding share or shares of stock and any holder or holders of record
of outstanding shares of stock of any class upon which or upon whom the
certificate of incorporation confers such rights where there are two or more
classes or series of shares of stock or upon which or upon whom the General
Corporation Law confers such rights notwithstanding that the certificate of
incorporation may provide for more than one class or series of shares of
stock, one or more of which are limited or denied such rights thereunder;
provided, however, that no such right shall vest in the event of an increase
or a decrease in the authorized number of shares of stock of any class or
series which is otherwise denied voting rights under the provisions of the
certificate of incorporation, except as any provision of law may otherwise
require.
7. STOCKHOLDER MEETINGS.
- - TIME. The annual meeting shall be held on the date and at the
time fixed, from time to time, by the directors, provided, that the first
annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date and at the time fixed by
the directors.
- - PLACE. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may,
from time to time, fix. Whenever the directors shall fail to fix such place,
the meeting shall be held at the registered office of the corporation in the
State of Delaware.
- - CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
Special meetings of the stockholders shall be called upon a request in writing
by the holders of not less than 50% of all the shares entitled to vote at the
meeting.
[Stockholders' right to call special meeting added by Executive
Committee consent of December 12, 1997.]
- - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings
shall be given, stating the place, date, and hour of the meetings and stating
the place within the city or other municipality or community at which the list
of stockholders of the corporation may be examined. The notice of an annual
meetings shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall
also include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the corporation. Notice by mail shall be
deemed to be given when deposited, with postage thereon prepaid, in the United
States Mail. If a meeting is adjourned to another time, not more than thirty
days hence, and/or to another place, and if an announcement of the adjourned
time and/or place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the directors, after adjournment, fix a
new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or
after the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
- - STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city or other municipality
or community where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote
at any meeting of stockholders.
- - CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and
if present and acting - the Chairman of the Board, if any, the Vice-Chairman
of the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the Chairman of the
meeting shall appoint a secretary of the meeting.
- - PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or
by his attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and,
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which is it coupled is an interest in the stock
itself or an interest in the corporation generally.
- - INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspectors at
such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots, or consents, hear and determine
all challenges and questions arising in connection with the right to vote,
count and tabulate all votes, ballots, or consents, determine the result, and
do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the person presiding at the meeting, the
inspector or inspectors, if any, shall make a report in writing of any
challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions
of that Section shall not apply to the corporation.
- - QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum.
- - VOTING. Each share of stock shall entitle the holder thereof to
one vote. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Any other action shall be authorized by
a majority of the votes cast except where the General Corporation Law
prescribes a different percentage of votes and/or a different exercise of
voting power, and except as many be otherwise prescribed by the provisions of
the certificate of incorporation and these Bylaws. In the election of
directors, and for any other action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. Action taken pursuant
to this paragraph shall be subject to the provisions of Section 228 of the
General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors of the corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof. The use of the phrase "whole
board" herein refers to the total number of directors which the corporation
would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of two persons.
Thereafter the number of directors constituting the whole board shall be at
least four. Subject to the foregoing limitation and except for the first
Board of Directors, such number may be fixed from time to time by action of
the stockholders or of the directors, or, if the number if not fixed, the
number shall be two. The number of directors may be increased or decreased by
action of the stockholders or of the directors.
[Number of directors increased to three by shareholders consent of April
1, 1993 and to four by shareholder consent of April 16, 1994.]
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation,
shall be elected by the incorporator or incorporators and shall hold office
until the first annual meeting of stockholders and until their successors are
elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation.
Thereafter, directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly
created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until
their earlier resignation or removal. Except as the General Corporation Law
may otherwise require, in the interim between annual meetings of stockholders
or of special meetings of stockholders called for the election of directors
and/or for the removal of one or more directors and for the filling of any
vacancy in that connection, newly created directorships and any vacancies in
the Board of Directors, including unfilled by vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of
a majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
4. MEETINGS.
- - TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
- - PLACE. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
- - CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at
the direction of the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, of the President, or of a majority of the directors in office.
- - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting,
except when he attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
- - QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the General
Corporation Law, the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. The
quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of the General Corporation Law and these
Bylaws which govern a meeting of directors held to fill vacancies and newly
created directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board,
or any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other.
- - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings. Otherwise, the Vice-
Chairman of the Board, if any and if present and acting, or the President, if
present and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board,
shall have and may exercise the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation with the
exception of any authority the delegation of which is prohibited by Section
141 of the General Corporation Law, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
[Executive Committee and Audit Benefits Committee established by Board
by resolution dated April 16, 1994.]
7. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board,
an Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution
of the Board of Directors choosing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each
officer shall be chosen for a term which shall continue until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and
perform such duties in the management and operation of the corporation as
shall be prescribed in the resolutions of the Board of Directors designating
and choosing such officers and prescribing their authority and duties, and
shall have such additional authority and duties as are incident to their
office except to the extent that such resolutions may be inconsistent
therewith. The Secretary or an Assistant Secretary of the corporation shall
record all of the proceedings of all meetings and actions in writing of
stockholders, directors, and committees of directors, and shall exercise such
additional authority and perform such additional duties as the Board shall
assign to him. Any officer may be removed, with or without cause, by the
Board of Directors. Any vacancy in any office may be filled by the Board of
Directors.
The Board of Directors may delegate to any officer or agent the
power to appoint one or more Assistant Vice Presidents, one or more Assistant
Treasurers, and one or more Assistant Secretaries and to prescribe their
respective terms of office, authorities, and duties. Any subordinate officer
appointed pursuant to such delegation may be removed, either with or without
cause, by the Board of Directors at any meeting, by the vote of a majority of
the Board of Directors present at such meeting, or by any superior officer or
agent upon whom such power of removal shall have been conferred by the Board
of Directors.
[Addition to Bylaw Article III adopted by the Board of Directors on
August 31, 1994.]
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and
the provisions of the General Corporation Law, the power to amend, alter, or
repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of
Directors or by the stockholders.
EXTRACT OF BOARD MINUTES OF APRIL 16, 1994
COMMITTEES
The Executive Committee shall have all of the power and authority of the
entire Board (except such powers as may not be delegated pursuant to Section
141 of the General Corporation Law of Delaware). Any action taken by the
Executive Committee shall be promptly reported to the Board.
The Audit and Benefits Committee shall be responsible for managing
relations with the Company's independent accountants, if any, and for
recommending benefits and terms of employment for the Company's executive
employees. The Audit and Benefits Committee shall approve and recommend all
executive employment agreements, bonus plans, stock option plans, or other
benefit plans, if any, and shall, in the case of executive officers, recommend
base salaries, option awards, and bonus awards. The membership of the Audit
and Benefits Committee shall be not less than two, and, to the extent
possible, shall be disinterested, outside directors. Recommendations by the
Audit and Benefits Committee in the area of benefits shall be referred to the
Board for approval.
No. W VOID AFTER DECEMBER 9, 2007
CHARITABLE BENEFIT WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
IXION BIOTECHNOLOGY, INC.
THIS WARRANT SUBJECT TO RESTRICTIONS ON TRANSFER
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the
number of Charitable Benefit Warrants (the "Charitable Benefit Warrants")
specified above. Charitable Benefit Warrants may not be resold and may
only be transferred by gift to a charitable organization described in
Section 501(c)(3) of the Internal Revenue Code (the "Code"), which is
excluded from the definition of a private foundation as referred to in
Section 509(a) of the Code, which is eligible to receive tax-deductible
contributions under Section 170 of the Code, and which has been approved
by the Company ("Approved Qualified Charitable Organization"). At the
date of this Certificate, the following Qualified Charitable
Organizations have been approved by the Company: the Juvenile Diabetes
Foundation, the Joslin Diabetes Center, Inc., the American Kidney Fund,
the National Vulvodynia Association, the Crohn's & Colitis Foundation of
America, the Cystic Fibrosis Foundation, the Oxalosis and Hyperoxaluria
Foundation, the Mycological Society of America, the Intestinal Disease
Foundation, the National Kidney Foundation, the National Institute of
Diabetes and Digestive and Kidney Diseases, the North American
Mycological Society, the University of Florida Research Foundation, Inc.,
and Florida Cystic Fibrosis, Inc. A current list of Approved Qualified
Charitable Organizations may be obtained at any time from the Company
upon request.
Each whole Charitable Benefit Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set
forth in this Certificate and the Charitable Benefit Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of
Common Stock, par value $.01, of Ixion Biotechnology, Inc., a Delaware
corporation (the "Company"), during the exercise period set forth below
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate
office of SunTrust Bank, Atlanta, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $20.00per share, subject to
adjustment (the "Exercise Price"), in lawful money of the United States
of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Charitable Benefit Warrant
represented hereby are issued pursuant to and are subject in all respects
to the terms and conditions set forth in the Charitable Benefit Warrant
Agreement (the "Charitable Benefit Warrant Agreement"), dated December
10, 1997, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Charitable Benefit Warrant Agreement, the Exercise Price and the number
of shares of Common Stock subject to purchase upon the exercise of each
Charitable Benefit Warrant represented hereby are subject to modification
or adjustment.
Each Charitable Benefit Warrant represented hereby is exercisable
at the option of a Registered Holder, but no fractional interests will be
issued. An Approved Qualified Charitable Organization may exercise this
Charitable Benefit Warrant at any time between the date hereof and the
Expiration Date (as hereinafter defined). Any other Registered Holder
which is not an Approved Qualified Charitable Organization may exercise
this Charitable Benefit Warrant only between December 9, 2006 and the
Expiration Date. In the case of the exercise of less than all the
Charitable Benefit Warrants represented hereby, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor,
which the Warrant Agent shall countersign, for the balance of such
Charitable Benefit Warrants.
The term "Expiration Date" means 5:30 p.m. (Atlanta time) on
December 9, 2007. If such date shall in the State of Georgia be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:30 p.m. (Atlanta time) on the next following
day which in the State of Georgia is not a holiday or a day on which
banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Charitable Benefit Warrant unless a
registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to such securities is effective or an exemption
thereunder is available and the delivery of such securities is permitted
under applicable state securities laws. The Company has covenanted and
agreed that it will file a registration statement under the Act, use its
best efforts to cause the same to become effective, use its best efforts
to keep such registration statement current, if required under the Act,
while any of the Charitable Benefit Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the
Registered Holder exercising this Charitable Benefit Warrant. This
Charitable Benefit Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Charitable Benefit Warrants,
each of such new Warrant Certificates to represent such number of
Charitable Benefit Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment
of any tax or other charge imposed in connection therewith or incident
thereto, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an
equal aggregate number of Charitable Benefit Warrants will be issued to
the transferee in exchange therefor, subject to the limitations provided
in the Charitable Benefit Warrant Agreement.
Prior to the exercise of any Charitable Benefit Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except
as provided in the Charitable Benefit Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Charitable Benefit Warrant
represented hereby (notwithstanding any notations of ownership or writing
hereon made by anyone other than a duly authorized officer of the Company
or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary, except as provided in the Charitable Benefit
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:
IXION BIOTECHNOLOGY, INC.
By:___________________________________
Weaver H. Gaines
(SEAL) Chairman and Chief Executive Officer
Attest:
By:_________________________________
Gwenyth E. Thompson
Assistant Secretary
COUNTERSIGNED:
SUNTRUST BANK, ATLANTA
As Warrant Agent
By:_____________________________________
Authorized Officer
SUBSCRIPTION FORM
THIS WARRANT MAY BE EXERCISED BY AN APPROVED
QUALIFIED CHARITABLE ORGANIZATION AT ANY TIME AFTER THE DATE
HEREOF UNTIL THE EXPIRATION DATE.
THIS WARRANT MAY BE EXERCISED BY ANY OTHER REGISTERED HOLDER
WHICH IS NOT AN APPROVED QUALIFIED CHARITABLE ORGANIZATION
ONLY BETWEEN DECEMBER 9, 2006, AND THE EXPIRATION DATE.
To Be Executed by the Registered Holder
in Order to Exercise Charitable Benefit Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________________________ Charitable Benefit Warrants
represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Charitable Benefit Warrants, and
requests
that certificates for such securities shall be issued in the name of
PLEASE INSERT TAX ID NUMBER
OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
and be delivered to
(please print or type name and address)
and if such number of Charitable Benefit Warrants shall not be all the
Charitable Benefit Warrants evidenced by this Warrant Certificate, that a
new Warrant Certificate for the balance of such Charitable Benefit
Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated above.
ASSIGNMENT
THIS WARRANT MAY ONLY BE TRANSFERRED TO
AN APPROVED QUALIFIED CHARITABLE BENEFIT ORGANIZATION
To Be Executed by the Registered Holder
in Order to Assign Charitable Benefit Warrants
FOR VALUE RECEIVED,
, hereby sells,
assigns and transfers unto
the following Approved Qualified Charitable Benefit Organization
PLEASE INSERT TAX ID OR
OTHER IDENTIFYING NUMBER
(please print or type name and address)
of
the Charitable Benefit Warrants represented by this Warrant Certificate,
and hereby irrevocably
constitutes and appoints
Attorney to transfer this Warrant
Certificate on the books of the
Company, with full power of substitution in the premises.
Dated:______________________ X
Signature
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND
TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER
AND MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
==============================================================================
IXION BIOTECHNOLOGY, INC.
AND
SUNTRUST BANK, ATLANTA
-------------------
CHARITABLE BENEFIT WARRANT AGREEMENT
DATED AS OF DECEMBER 10, 1997
==============================================================================
AGREEMENT, dated this 10th day of December, 1997, by and between
Ixion Biotechnology, Inc., a Delaware corporation (the "Company"), and
SunTrust Bank, Atlanta, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with the offering to the public of up to
400,000 Units (the "Units"), each Unit consisting of one share of Common
Stock (as defined in Section 1) and 0.25 charitable benefit common stock
purchase warrants (the "Charitable Benefit Warrants"), each whole warrant
entitling the holder thereof to purchase one additional share of Common
Stock; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Charitable Benefit Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer and exchange of the Charitable
Benefit Warrants, the issuance of certificates representing the
Charitable Benefit Warrants, the exercise of the Charitable Benefit
Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Charitable Benefit Warrants and the
certificates representing the Charitable Benefit Warrants and the
respective rights and obligations thereunder of the Company, the holders
of certificates representing the Charitable Benefit Warrants, and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Approved Qualified Charitable Organization" means a
charitable organization described in Section 501(c)(3) of the Internal
Revenue Code (the "Code"), which is excluded from the definition of a
private foundation as referred to in Section 509(a) of the Code, which is
eligible to receive tax-deductible contributions under Section 170 of the
Code, and which has been approved by the Company pursuant to Section 9
hereof. Approved Qualified Charitable Organizations at the date of this
Agreement include the following: the Juvenile Diabetes Foundation, the
Joslin Diabetes Center, Inc., the American Kidney Fund, the National
Vulvodynia Association, the Crohn's & Colitis Foundation of America, the
Cystic Fibrosis Foundation, the Oxalosis and Hyperoxaluria Foundation,
the Mycological Society of America, the Intestinal Disease Foundation,
the National Kidney Foundation, the National Institute of Diabetes and
Digestive and Kidney Diseases, the North American Mycological Society,
the University of Florida Research Foundation, Inc., and Florida Cystic
Fibrosis, Inc.
(c) "Common Stock" means the authorized stock of the Company of
any class, whether now or hereafter authorized, which has the right to
participate in the voting and in the distribution of earnings and assets
of the Company without limit as to amount or percentage.
(d) "Commission" means the Securities and Exchange Commission.
(e) "Corporate Office" means the office of the Warrant Agent (or
its successor) at which at any particular time its business shall be
administered, which office is located on the date hereof at 58 Edgewood
Avenue, Atlanta, Georgia 30303.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Date" means, subject to the provisions of Section
5(b) hereof, the date on which the Warrant Agent shall have received both
(i) the Warrant Certificate representing such Charitable Benefit Warrant,
with the exercise form thereon duly executed by the Registered Holder
thereof or its attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant
Agent for the account of the Company, of the amount in lawful money of
the United States of America equal to the applicable Exercise Price (as
hereinafter defined) in good funds.
(h) "Exercise Price" means, subject to modification and adjustment
as provided in Section 8, $20.00, and further subject to the Company's
right, in its sole discretion, to decrease the Exercise Price for a
period of not less than 30 days on not less than 30 days' prior written
notice to the Registered Holders.
(i) "Initial Public Offering Price" means $10.00.
(j) "Nasdaq" means the Nasdaq Stock Market.
(k) "Registered Holder" means the person in whose name any
certificate representing the Charitable Benefit Warrants shall be
registered on the books maintained by the Warrant Agent pursuant to
Section 6.
(l) "Transfer Agent" means SunTrust Bank, Atlanta, or its
authorized successor.
(m) "Warrant Certificate" means a certificate representing each of
the Charitable Benefit Warrants substantially in the form annexed hereto
as Exhibit A.
(n) "Warrant Expiration Date" means 5:30 p.m.(Atlanta time), on
December 9, 2007; provided that if such date shall in the State of
Georgia be a holiday or a day on which banks are authorized to close,
then 5:30 p.m. (Atlanta time) on the next following day which, in the
State of Georgia, is not a holiday or a day on which banks are authorized
to close. Upon five business days' prior written notice to the
Registered Holders, the Company shall have the right to extend the
Warrant Expiration Date.
SECTION 2. Charitable Benefit Warrants and Issuance of Warrant
Certificates.
(a) Each whole Charitable Benefit Warrant shall initially entitle
(i) any Approved Qualified Charitable Organization which is a Registered
Holder to purchase at the Exercise Price therefor at any time or in part
from time to time until the Warrant Expiration Date, or (ii) any other
Registered Holder which is not an Approved Qualified Charitable
Organization to purchase at the Exercise Price therefor at any time after
December 9, 2006 or in part from time to time after such date until the
Warrant Expiration Date, one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) After execution of this Agreement, Warrant Certificates
representing the number of Charitable Benefit Warrants sold or to be sold
(subject to modification and adjustment as provided in Section 8)
pursuant to the offering, shall be executed by the Company and delivered
from time to time to the Warrant Agent in sufficient quantity for the
Warrant Agent to promptly issue Charitable Benefit Warrants to the
purchasers thereof.
(c) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the
person entitled thereto in connection with any transfer or exchange
permitted under this Agreement. Except as provided herein, no Warrant
Certificates shall be issued except (i) Warrant Certificates initially
issued hereunder and those issued upon the exercise of fewer than all
Charitable Benefit Warrants held by the exercising Registered Holder,
(ii) Warrant Certificates issued upon any transfer or exchange permitted
under Section 6 hereof of Charitable Benefit Warrants, (iii) Warrant
Certificates issued in replacement of lost, stolen, destroyed, or
mutilated Warrant Certificates pursuant to Section 7, and (iv) at the
option of the Company, Warrant Certificates in such form as may be
approved by its Board of Directors, to reflect any adjustment or change
in the Exercise Price or the number of shares of Common Stock purchasable
upon exercise of the Charitable Benefit Warrants made pursuant to Section
8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or to conform to usage. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost,
stolen, or destroyed Warrant Certificates) and issued in registered form.
Charitable Benefit Warrants shall be numbered serially with the letter W
on the Charitable Benefit Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President, or any Vice President,
and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon. Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed
any of the Warrant Certificates shall cease to be such officer of the
Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates, nevertheless, may be countersigned by the
Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to
be such officer of the Company. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company,
except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Charitable Benefit Warrants in denominations of one or whole
number multiples thereof may be exercised (i) by an Approved Qualified
Charitable Organization (as set forth on the listing of such
organizations described in Section 9 hereof) which is the Registered
Holder thereof commencing at any time or in part from time to time, but
not after the Warrant Expiration Date, or (ii) any other Registered
Holder which is not an Approved Qualified Charitable Organization
commencing on or after December 9, 2006 or in part from time to time but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Charitable Benefit Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the
person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder, upon exercise thereof,
as of the close of business on the Exercise Date. If Charitable Benefit
Warrants in denominations other than whole number multiples thereof shall
be exercised at one time by the same Registered Holder, the number of
full shares of Common Stock which shall be issuable upon exercise thereof
shall be computed on the basis of the aggregate number of full shares of
Common Stock issuable upon such exercise. As soon as practicable on or
after the Exercise Date and in any event within five business days after
such date, if one or more Charitable Benefit Warrants have been
exercised, the Warrant Agent on behalf of the Company shall cause to be
issued to the person or persons entitled to receive the same, a Common
Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. Upon the exercise of any
one or more Charitable Benefit Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of the number of
securities delivered upon such exercise and, subject to subsection (b)
below, shall cause all payments or other amounts in cash or by check made
payable to the order of the Company, equal to the Exercise Price, to be
deposited promptly in the Company's bank account.
(b) The Company shall not be required to issue fractional shares on the
exercise of Charitable Benefit Warrants. Charitable Benefit Warrants may
only be exercised in such multiples as are required to permit the
issuance by the Company of one or more whole shares. If one or more
Charitable Benefit Warrants shall be presented for exercise in full at
the same time by the same Registered Holder, the number of whole shares
which shall be issuable upon such exercise thereof shall be computed on
the basis of the aggregate number of shares purchasable on exercise of
the Charitable Benefit Warrants so presented. If any fraction of a share
would, except for the provisions provided herein, be issuable on the
exercise of any Charitable Benefit Warrant (or specified portion
thereof), the Company shall pay an amount in cash equal to such fraction
multiplied by the then current market value of a share of Common Stock,
determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted
trading privileges on a national securities exchange, or is traded
on Nasdaq, the current market value of a share of Common Stock
shall be the closing sale price of the Common Stock at the end of
the regular trading session on the last business day prior to the
date of exercise of the Charitable Benefit Warrants on whichever of
such exchanges or Nasdaq had the highest average daily trading
volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, but is traded in the
over-the-counter market, the current market value of a share of
Common Stock shall be the average of the last reported bid and
asked prices of the Common Stock reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of exercise
of the Charitable Benefit Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted
trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, and bid and asked prices
of the Common Stock are not reported by the National Quotation
Bureau, Inc., the current market value of a share of Common Stock
shall be an amount, not less than the book value thereof as of the
end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined by the members of
the Board of Directors of the Company exercising good faith and
using reasonable and customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Charitable Benefit Warrants, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Charitable Benefit Warrants. The Company covenants that all
shares of Common Stock which shall be issuable upon exercise of the
Charitable Benefit Warrants shall, at the time of delivery thereof, be
duly and validly issued and fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens, and charges with respect
to the issue thereof, and that upon issuance such shares shall be listed
on each securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Charitable Benefit Warrants hereunder
require registration with, or approval of, any governmental authority
under any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will file a
registration statement under the federal securities laws or a
post-effective amendment, use its best efforts to cause the same to
become effective and to keep such registration statement current while
any of the Charitable Benefit Warrants are outstanding and deliver a
prospectus which complies with Section 10(a)(3) of the Act, to the
Registered Holder exercising the Charitable Benefit Warrant (except, if
in the opinion of counsel to the Company, such registration is not
required under the Federal securities law or if the Company receives a
letter from the staff of the Commission stating that it would not take
any enforcement action if such registration is not effected). The
Company will use its best efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws with respect to any
such securities. However, Charitable Benefit Warrants may not be
exercised by, or shares of Common Stock issued to, any Registered Holder
in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the
issuance of Charitable Benefit Warrants, or the issuance or delivery of
any shares of Common Stock upon exercise of the Charitable Benefit
Warrants; provided, however, that if shares of common Stock are to be
delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Charitable Benefit Warrant being
exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of transfer
taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing
shares of Common Stock or other securities required upon exercise of the
Charitable Benefit Warrants, and the Company will comply with all such
requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Charitable Benefit
Warrants of the same class. Charitable Benefit Warrants may not be
transferred in whole or in part except to an Approved Qualified
Charitable Organization as set forth in the list included in Section 9
hereof, or to a testamentary trust, legatee, or heir by will or descent
upon the death of a Registered Holder. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate
Office, and, upon satisfaction of the terms and provisions hereof, the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates
which the Registered Holder making the exchange shall be entitled to
receive.
(b) The Warrant Agent shall keep, at its office, books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with
customary practice and this Agreement. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the
Company shall execute and the Warrant Agent shall issue and deliver to
the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Charitable Benefit Warrants of
the same class.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription
or exercise form, as the case may be, on the reverse thereof shall be
duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the
Warrant Agent, duly executed by the Registered Holder thereof or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of
each Charitable Benefit Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership of and the loss, theft,
destruction, or mutilation of any Warrant Certificate and (in the case of
loss, theft, or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to
the Company and/or the Warrant Agent that a new Warrant Certificate has
been acquired by a bona fide Approved Qualified Charitable Organization)
countersign and deliver to the Registered Holder in lieu thereof a new
Warrant Certificate of like tenor representing an equal aggregate number
of Charitable Benefit Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of Shares of
Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the Company shall,
at any time or from time to time after the date hereof issue any shares
of Common Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such issuance, subdivision, or
combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Exercise Price for the
Charitable Benefit Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall
be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares, multiplied by the Exercise Price in effect immediately prior to
such Change of Shares and (b) the consideration, if any, received by the
Company upon such sale, issuance, subdivision, or combination, by (ii)
the total number of shares of Common Stock outstanding immediately after
such Change of Shares; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in
excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of
Common Stock.
For the purposes of any adjustment to be made in accordance with
this Section 8(a), the following provisions shall be applicable:
(A) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the
day following the record date for the determination of shareholders
entitled to receive such dividend or other distribution and shall
be deemed to have been issued without consideration.
(B) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number
of shares issuable (subject to readjustment upon the actual
issuance thereof) upon the exercise of options, rights or warrants
and upon the conversion or exchange of convertible or exchangeable
securities.
(b) Upon each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Charitable Benefit Warrant shall be the number derived
by multiplying the number of shares of common Stock purchasable
immediately prior to such adjustment by the Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the
applicable adjusted Exercise Price.
(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Charitable Benefit
Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company
with or into another corporation (other than (1) a merger with a
subsidiary of the Company in which merger the Company is the continuing
corporation or (2) any consolidation or merger of the Company with or
into another corporation which, in either instance, does not result in
any reclassification or change of the then outstanding shares of Common
Stock or other capital stock issuable upon exercise of the Charitable
Benefit Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of
subdivision or combination)) or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale, or conveyance, the
Company, or such successor or purchasing corporation, as the case may be,
shall make lawful and adequate provision whereby the Registered Holder of
each Charitable Benefit Warrant then outstanding shall have the right
thereafter to receive on exercise of such Charitable Benefit Warrant the
kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale, or conveyance by a
holder of the number of securities issuable upon exercise of such
Charitable Benefit Warrant immediately prior to such reclassification,
change, consolidation, merger, sale, or conveyance and shall forthwith
file at the Corporate Office of the Warrant Agent a statement signed by
its Chairman, President, or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provision. Such provisions shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8(a) and (b). The above provisions
of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Exercise
Price or the number of shares of Common Stock purchasable upon exercise
of the Charitable Benefit Warrants, the Warrant Certificates theretofore
and thereafter issued shall, unless the Company shall exercise its option
to issue new Warrant Certificates pursuant to Section 2(e) hereof,
continue to express the Exercise Price per share and the number of shares
purchasable thereunder as the Exercise Price per share and the number of
shares purchasable thereunder were expressed in the warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Exercise Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Company setting forth: (i) the Exercise Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each
Charitable Benefit Warrant, after such adjustment, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief
summary thereof to be sent by ordinary first class mail to each
Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity
thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an
Assistant Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) No adjustment of the Exercise Price shall be made as a result
of or in connection with (A) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements, and
convertible or exchangeable securities outstanding or in effect on the
date hereof; (B) stock options to be granted under the Company's 1994
Stock Option Plan to employees or consultants; (C) shares of Common
Stock, options, or warrants issued to outside parties in connection with
strategic alliances, joint ventures, or other corporate partnerships with
the Company, or (D) the issuance of shares of Common Stock if the amount
of said adjustment shall be less than $.10, provided, however, that in
such case, any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.10. In addition,
prior to the exercise of any Charitable Benefit Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except
as provided in this Charitable Benefit Warrant Agreement.
SECTION 9. Concerning Approved Qualified Charitable Organizations
(a) Charitable Benefit Warrants may only be transferred to an
Approved Qualified Charitable Organization; provided, however, that
transfer to a testamentary trust, legatee, or heir by will or descent
upon the death of a Registered Holder, will be permitted upon proper
proof as decided by the Company in its absolute discretion.
(b) Qualified Charitable Organizations may be added to the
approved list by the Company, in its absolute discretion, from time to
time until the Warrant Expiration Date. In order to be added to the
approved list, a charitable organization must be tax exempt, and it must
be eligible to receive tax deductible contributions in accordance with
Section 170 of the Code. Charitable organizations may be added at the
election of the Company, or they may be nominated by a Registered Holder.
Registered Holders wishing to nominate a charitable organization must
send their nomination in writing to the Company, together with proof of
such charitable organization's status as an organization described in
Section 501(c)(3) of the Code which is excluded from the definition of a
private foundation as referred to in Section 509(a) of the Code and which
is eligible to receive tax deductible contributions in accordance with
Section 170 of the Code.
(c) The Company shall provide to the Warrant Agent, from time to
time, a statement, signed by its Chairman of the Board, President, or a
Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, setting forth the complete list of
Approved Qualified Charitable Organizations. The Warrant Agent shall not
accept for transfer Charitable Benefit Warrants which attempt to transfer
or assign such Charitable Benefit Warrants to any person other than an
organization which is on the most recent list of Approved Qualified
Charitable Organizations; provided, however, that transfer to a
testamentary trust, legatee, or heir by will or descent upon the death of
a Registered Holder, will be permitted upon proper proof as decided by
the Company in its absolute discretion.
(d) Approved Qualified Charitable Organizations at the date of
this agreement include the following:
Juvenile Diabetes Foundation
Joslin Diabetes Center, Inc.
American Kidney Fund
National Vulvodynia Association
Crohn's & Colitis Foundation of America
Cystic Fibrosis Foundation
Oxalosis and Hyperoxaluria Foundation
Mycological Society of America
Intestinal Disease Foundation
National Kidney Foundation
National Institute of Diabetes and Digestive and
Kidney Diseases
North American Mycological Society
University of Florida Research Foundation, Inc.
Florida Cystic Fibrosis, Inc.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by
the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed
to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Charitable Benefit Warrants
represented thereby or of any securities or other property delivered upon
exercise of any Charitable Benefit Warrant or whether any stock issued
upon exercise of any Charitable Benefit Warrant is fully paid and
nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to
be made any adjustment of the Exercise Price, or to determine whether any
fact exists which may require any such adjustments, or with respect to
the nature or extent of any such adjustments, when made, or with respect
to the method employed in making the same. It shall not (i) be liable for
any recital or statement of fact contained herein or for any action
taken, suffered or omitted by it in reliance on any Warrant Certificate
or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act
or omission in connection with this Agreement except for its own gross
negligence, bad faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur
no liability or responsibility for any action taken, suffered or omitted
by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President, or any Vice
President (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify
the Warrant Agent and save it harmless from and against any and all
losses, expenses and liabilities, including judgments, costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution
of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's gross negligence,
bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising
as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company.
At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company
shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 15 days after giving notice
of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant
Agent, then the Company agrees to perform the duties of the Warrant Agent
hereunder until a successor Warrant Agent is appointed. After acceptance
in writing of such appointment by the new warrant agent is received by
the Company, such new warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance,
act or deed; but if for any reason it shall be necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed, the
same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file
notice thereof with the resigning Warrant Agent and shall forthwith cause
a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent
shall be a party, or any corporation succeeding to the corporate trust
business of the Warrant Agent or any new warrant agent shall be a
successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor
to the Warrant Agent under the provisions of the preceding paragraph.
Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed to the Company and to the
Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell securities
of the Company and otherwise deal with the Company in the same manner and
to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from
the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or
(ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates;
provided, however, that no change in the number or nature of the
securities purchasable upon the exercise of any Charitable Benefit
Warrant, or to increase the Exercise Price therefor or to accelerate the
Warrant Expiration Date, shall be made without the consent in writing of
the Registered Holders representing not less than 66.667% of the
Charitable Benefit Warrants then outstanding, other than such changes as
are presently specifically prescribed by this Agreement as originally
executed.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered
or mailed first-class registered or certified mail, postage prepaid, or
by fax as follows: if to the Registered Holder of a Warrant Certificate,
at the address of such holder as shown on the registry books maintained
by the Warrant Agent; if to the Company at 12085 Research Drive, Alachua,
FL 32615, Fax 904-462-0875, Attention: Weaver H. Gaines, Chairman and
Chief Executive Officer, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate Office.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to conflicts
of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of
the Company, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any
of them. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy, or claim, in equity or at
law, or to impose upon any other person any duty, liability or
obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Charitable Benefit Warrants or such earlier
date upon which all Charitable Benefit Warrants have been exercised or
redeemed, except that the Warrant Agent shall account to the Company for
cash held by it and the provisions of Section 10 hereof shall survive
such termination.
SECTION 16. Counterparts.
This Agreement may be executed in counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
Dated: December 10, 1997
IXION BIOTECHNOLOGY, INC.
By:___________________________________
Printed Name: Weaver H. Gaines
(SEAL) Title: Chairman and Chief Executive Officer
Attest:
By:_________________________________
Printed Name: Gwenyth E. Thompson
Title: Assistant Secretary
SUNTRUST BANK, ATLANTA
As Warrant Agent
By:_____________________________________
Printed Name:____________________________
Title:____________________________________
EXHIBIT A
No. W VOID AFTER DECEMBER 9, 2007
CHARITABLE BENEFIT WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
IXION BIOTECHNOLOGY, INC.
THIS WARRANT SUBJECT TO RESTRICTIONS ON TRANSFER
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the
number of Charitable Benefit Warrants (the "Charitable Benefit Warrants")
specified above. Charitable Benefit Warrants may not be resold and may
only be transferred by gift to a charitable organization described in
Section 501(c)(3) of the Internal Revenue Code (the "Code"), which is
excluded from the definition of a private foundation as referred to in
Section 509(a) of the Code, which is eligible to receive tax-deductible
contributions under Section 170 of the Code, and which has been approved
by the Company ("Approved Qualified Charitable Organization"). At the
date of this Certificate, the following Qualified Charitable
Organizations have been approved by the Company: the Juvenile Diabetes
Foundation, the Joslin Diabetes Center, Inc., the American Kidney Fund,
the National Vulvodynia Association, the Crohn's & Colitis Foundation of
America, the Cystic Fibrosis Foundation, the Oxalosis and Hyperoxaluria
Foundation, the Mycological Society of America, the Intestinal Disease
Foundation, the National Kidney Foundation, the National Institute of
Diabetes and Digestive and Kidney Diseases, the North American
Mycological Society, the University of Florida Research Foundation, Inc.,
and Florida Cystic Fibrosis, Inc. A current list of Approved Qualified
Charitable Organizations may be obtained at any time from the Company
upon request.
Each whole Charitable Benefit Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set
forth in this Certificate and the Charitable Benefit Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of
Common Stock, par value $.01, of Ixion Biotechnology, Inc., a Delaware
corporation (the "Company"), during the exercise period set forth below
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate
office of SunTrust Bank, Atlanta, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $20.00per share, subject to
adjustment (the "Exercise Price"), in lawful money of the United States
of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Charitable Benefit Warrant
represented hereby are issued pursuant to and are subject in all respects
to the terms and conditions set forth in the Charitable Benefit Warrant
Agreement (the "Charitable Benefit Warrant Agreement"), dated December
10, 1997, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Charitable Benefit Warrant Agreement, the Exercise Price and the number
of shares of Common Stock subject to purchase upon the exercise of each
Charitable Benefit Warrant represented hereby are subject to modification
or adjustment.
Each Charitable Benefit Warrant represented hereby is exercisable
at the option of a Registered Holder, but no fractional interests will be
issued. An Approved Qualified Charitable Organization may exercise this
Charitable Benefit Warrant at any time between the date hereof and the
Expiration Date (as hereinafter defined). Any other Registered Holder
which is not an Approved Qualified Charitable Organization may exercise
this Charitable Benefit Warrant only between December 9, 2006 and the
Expiration Date. In the case of the exercise of less than all the
Charitable Benefit Warrants represented hereby, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor,
which the Warrant Agent shall countersign, for the balance of such
Charitable Benefit Warrants.
The term "Expiration Date" means 5:30 p.m. (Atlanta time) on
December 9, 2007. If such date shall in the State of Georgia be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:30 p.m. (Atlanta time) on the next following
day which in the State of Georgia is not a holiday or a day on which
banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Charitable Benefit Warrant unless a
registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to such securities is effective or an exemption
thereunder is available and the delivery of such securities is permitted
under applicable state securities laws. The Company has covenanted and
agreed that it will file a registration statement under the Act, use its
best efforts to cause the same to become effective, use its best efforts
to keep such registration statement current, if required under the Act,
while any of the Charitable Benefit Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the
Registered Holder exercising this Charitable Benefit Warrant. This
Charitable Benefit Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Charitable Benefit Warrants,
each of such new Warrant Certificates to represent such number of
Charitable Benefit Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment
of any tax or other charge imposed in connection therewith or incident
thereto, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an
equal aggregate number of Charitable Benefit Warrants will be issued to
the transferee in exchange therefor, subject to the limitations provided
in the Charitable Benefit Warrant Agreement.
Prior to the exercise of any Charitable Benefit Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except
as provided in the Charitable Benefit Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Charitable Benefit Warrant
represented hereby (notwithstanding any notations of ownership or writing
hereon made by anyone other than a duly authorized officer of the Company
or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary, except as provided in the Charitable Benefit
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:
IXION BIOTECHNOLOGY, INC.
By:___________________________________
Weaver H. Gaines
(SEAL) Chairman and Chief Executive Officer
Attest:
By:_________________________________
Gwenyth E. Thompson
Assistant Secretary
COUNTERSIGNED:
SUNTRUST BANK, ATLANTA
As Warrant Agent
By:_____________________________________
Authorized Officer
<PAGE>
SUBSCRIPTION FORM
THIS WARRANT MAY BE EXERCISED BY AN APPROVED
QUALIFIED CHARITABLE ORGANIZATION AT ANY TIME AFTER THE DATE
HEREOF UNTIL THE EXPIRATION DATE.
THIS WARRANT MAY BE EXERCISED BY ANY OTHER REGISTERED HOLDER
WHICH IS NOT AN APPROVED QUALIFIED CHARITABLE ORGANIZATION
ONLY BETWEEN DECEMBER 9, 2006, AND THE EXPIRATION DATE.
To Be Executed by the Registered Holder
in Order to Exercise Charitable Benefit Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________________________ Charitable Benefit Warrants represented
by this Warrant Certificate, and to purchase the securities issuable upon
the exercise of such Charitable Benefit Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT TAX ID NUMBER
OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
and be delivered to
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(please print or type name and address)
and if such number of Charitable Benefit Warrants shall not be all the
Charitable Benefit Warrants evidenced by this Warrant Certificate, that a
new Warrant Certificate for the balance of such Charitable Benefit
Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated above.
<PAGE>
ASSIGNMENT
THIS WARRANT MAY ONLY BE TRANSFERRED TO
AN APPROVED QUALIFIED CHARITABLE BENEFIT ORGANIZATION
To Be Executed by the Registered Holder
in Order to Assign Charitable Benefit Warrants
FOR VALUE RECEIVED,
, hereby sells,
assigns and transfers unto
the following Approved Qualified Charitable Benefit Organization
PLEASE INSERT TAX ID OR
OTHER IDENTIFYING NUMBER
(please print or type name and address)
of
the Charitable Benefit Warrants represented by this Warrant Certificate,
and hereby irrevocably
constitutes and appoints
Attorney to transfer this Warrant
Certificate on the books of the
Company, with full power of substitution in the premises.
Dated:______________________ X
Signature
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND
TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER
AND MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
[BRUCE BRASHEAR, ESQ. LETTERHEAD]
January 23, 1998
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Registration Statement on Form SB-2
Ixion Biotechnology, Inc.
Ladies and Gentlemen:
I have acted as special counsel to Ixion Biotechnology, Inc., a
Delaware corporation (the "Company"), in connection with the public offering
of up to 400,000 units (the "Units"), each Unit consisting of one voting
share of Common Stock (the "Common Shares") and .25 Charitable Benefit
Warrant to purchase voting common shares at $20.00 per share (the
"Warrants"). The shares of voting Common Stock issuable upon exercise of the
Warrants are referred to herein as the "Underlying Shares."
The Warrants are to be in the form described in, and subject to the
terms and conditions of, the Warrant Agreement by and between the Company and
SunTrust Bank, Atlanta, or its successor, as Warrant Agent (the "Warrant
Agreement).
This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-B under the Securities Act of 1933, as
amended (the "1933 Act").
In connection with this opinion, I have examined and am familiar
with originals or copies, certified or otherwise identified to my
satisfaction, of such documents as I have deemed necessary or appropriate as
a basis for the opinions set forth herein, including (i) Post Effective
Amendment No. 1 to the Registration Statement of the Company on Form SB-2
relating to the Units, filed with the Securities and Exchange Commission (the
"Commission") on January 23, 1998 (the "Registration Statement"); (ii) the
Articles of Incorporation and the Bylaws of the Company, as amended to date;
(iii) the form of Warrant Agreement, together with the form of Warrant; (iv)
the form of voting Common Stock Certificate; (v) copies of certain resolutions
(the "Resolutions") adopted by the Board of Directors of the Company relating
to the issuance of the Units, the filing of the Registration Statement and any
amendments or supplements thereto and related matters; and (vi) such other
documents as I have deemed necessary or appropriate as a basis for the opinions
set forth below.
In my examination, I have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making my
examination of documents executed by parties other than the Company, I have
assumed that such parties had the power, corporate or other, to enter into
and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding
effect thereof. As to any facts material to the opinions expressed herein
which were not independently established or verified, I have relied upon oral
or written statements and representations of officers and other
representatives of the Company and others.
I am admitted to the bar in the State of Florida, and I do not
express any opinion as to the laws of any other jurisdiction, other than the
laws of the United States of America to the extent referred to specifically
herein.
Based on such examination, I am of the opinion that:
1. The Units have been duly and validly authorized.
2. The Common Shares have been duly and validly authorized and, when
certificates therefor have been duly authenticated, delivered and paid for in
accordance with all applicable laws and agreements, will be duly and validly
issued, fully paid and nonassessable.
3. The Underlying Shares have been duly and validly authorized and,
(a) assuming the Underlying Shares will be duly and validly authorized as of
the date of issuance and (b) when certificates therefor have been duly
authenticated, delivered and the Underlying Shares have been paid for in
accordance with all applicable laws and the Warrant Agreement, the Underlying
Shares will be duly and validly issued, fully paid and nonassessable.
4. The Warrants have been duly and validly authorized and, when (a)
the Warrant Agreement has been duly executed and delivered (assuming due
authorization, execution and delivery thereof by the Warrant Agent) and (b)
the Warrants have been duly authenticated, delivered and paid for in
accordance with all applicable laws and the Warrant Agreement, the Warrants
will be valid and binding obligations of the Company enforceable against the
Company, except that such enforcement may be subject to or limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity). For
purposes of the foregoing opinion, I have assumed that Georgia law is the
same as Florida law.
I consent to the use of my name under the caption "Legal Matters" in
the Registration Statement, and to the filing of this opinion as an exhibit
to the Registration Statement. By giving you this opinion and consent, I do
not admit that I am expert with respect to any part of the Registration
Statement within the meaning of the term "expert" as used in Section 11 of
the 1933 Act, or the rules and regulations promulgated thereunder, nor do I
admit that I am in the category of persons whose consent is required under
Section 7 of the 1933 Act.
Sincerely,
/S/ Bruce Brashear
Bruce Brashear, Esq.
[ COOPERS & LYBRAND LLP LETTERHEAD ]
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-34765) of our report, which includes an explanatory paragraph
indicating substantial doubt as to the Company's ability to continue as a going
concern, dated February 4, 1997, except for Note 12, as to which the date is
June 27, 1997, on our audits of the financial statements of Ixion
Biotechnology, Inc. as of December 31, 1996 and for the years ended December
31, 1996 and 1995 and for the period March 25, 1993 (date of inception) through
December 31, 1996. We also consent to the reference to our Firm under the
caption "Experts".
/S/ Coopers & Lybrand L.L.P.
Orlando, Florida
January 22, 1998
