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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON February 16, 1999
REGISTRATION NO. 333-334765
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
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)
13709 Progress Blvd., Box 13
Alachua, Florida 32615-9495
904-418-1428
(Address and Telephone Number of Principal Executive
Offices and Principal Place of Business)
Weaver H. Gaines
13709 Progress Blvd., Box 13
Alachua, Florida 32615-9495
904-418-1428
(Name, Address and Telephone Number of Agent for Service)
------
Copy to:
Bruce Brashear, Esq.
Brashear & Associates, P.L.
926 NW 13th Street,
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/
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
Title of Each Class of Amount to be Registered Proposed Max Proposed Max Amount of
Securities to be Registered (1) Offering Price Aggregate Offering Registration
Per Security Price (1)(2) Fee (1)(2)
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
Units Consisting of 150,000 Units $10.00 $1,500,000 $1,212
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
(a) One Share Voting Common
Stock, par value $.01 per share
("Common Stock" 150,000 Shares
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
(b).25 Charitable Benefit Warrant
to purchase shares of Voting
Common Stock at $20.00
per share 37,500 Warrants
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
Voting Common Stock purchaseable
pursuant to Warrants
37,500 Shares $20.00 $750,000 $606
- ---------------------------------- ------------------------- ----------------- --------------------- ----------------
</TABLE>
(1) 400,000 Units and 100,000 Warrants and Warrant Shares originally
registered. Registration fee calculated on original registration amount.
(2) 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 Outside Front Cover Page
and Outside Front Cover of
Prospectus
- --------------------------------------- ---------------------------------------
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus Pages
- --------------------------------------- ---------------------------------------
3. Summary Information and Risk Factors Prospectus Summary; Risk 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, Management
Promoters and Control Persons
- --------------------------------------- ---------------------------------------
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and Management
- --------------------------------------- ---------------------------------------
12. Description of Securities Description of Securities; Shares
Eligible For Future Sale
- --------------------------------------- ---------------------------------------
13. Interest of Named Experts and Legal Matters; Experts
Counsel
- --------------------------------------- ---------------------------------------
14. Disclosure of Commission Position Description of Securities
on Indemnification for Securities
Act Liabilities
- --------------------------------------- ---------------------------------------
15. Organization Within Last Five Years Certain Relationships and Related Party
Transactions
- --------------------------------------- ---------------------------------------
16. Description of Business Prospectus Summary; Business
- --------------------------------------- ---------------------------------------
17. Management's Discussion and Management's Discussion and Analysis of
Analysis or Plan ofOperation Financial Conditions and Results of
Operations
- --------------------------------------- ---------------------------------------
18. Description of Property Business
- --------------------------------------- ---------------------------------------
19. Certain Relationships and Related Certain Relationships and Related Party
Transactions Transactions
- --------------------------------------- ---------------------------------------
20. Market for Common Equity and Description of Securities
Related Stockholder Matters
- --------------------------------------- ---------------------------------------
21. Executive Compensation Management
- --------------------------------------- ---------------------------------------
22. Financial Statements Financial Statements
- --------------------------------------- ---------------------------------------
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
- --------------------------------------- ---------------------------------------
<PAGE>
Initial Public Offering Prospectus
IXION
150,000 Units
$10.00 per Unit
Minimum Purchase 50 Units ($500)
Ixion Biotechnology, Inc. We are a recently-founded biotechnology
13709 Progress Blvd., Box 13 company, and have lost money since we were
Alachua, FL 32615-9495 founded. We are developing two product
904-418-1428 lines. One is a cure for immune mediated
Fax: 904-418-1583 diabetes (also called Type I diabetes)
Email: [email protected] based on transplanting artificially-grown
human pancreatic islets. We grow these
islets from stem cells which we obtain
from adult donors.
The other product line is a diagnosis and
treatment of oxalate-related diseases.
The Offering Oxalate is found normally in the body, but
can be toxic, especially to mammals.
Unfortunately, oxalate is a common
Per byproduct of metabolism and is also present
Unit Total in large amounts in typical diets. In high
concentrations, oxalate causes death, but
Public Price $10.00 $1,500,000 even in smaller concentrations it is
Commissions $ .50 $ 75,000 associated with various pathological
disorders, such as kidney stones, cystic
Proceeds to fibrosis, hyperoxaluria, and Crohn's
Ixion $ 9.50 $1,425,000 disease.
This is our initial public offering, and no public market exists for our shares.
The offering price may not reflect the market price, if any, for our shares
after the offering.
We are making this offering directly, meaning there are no brokers
involved (except in Florida where a broker is required under Florida law). We
will sell the shares directly. You must purchase a minimum of 50 Units ($500).
Because there is no minimum total number of Units to be sold, and no escrow, we
will get all funds immediately. See "Use of Proceeds." We will terminate the
offering upon the earliest of:
the sale of all Units, December 10, 1999, or Any earlier date on which we decide
to close the offering. See "Plan of Distribution."
These securities are speculative. The investment involves a high degree of risk,
and you should purchase Units only if you can afford a complete loss. See "Risk
Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February 16, 1999.
<PAGE>
[GRAPHICS OMITTED]
TABLE OF CONTENTS
Page Page
Prospectus Summary 3 Management 42
Risk Factors 6 Certain Relationships and
Special Note Regarding Related Party Transactions 47
Forward Looking Statements 12 Principal Shareholders 48
Use of Proceeds 13 Description of Securities 49
Dilution 14 Certain Federal Income Tax
Dividend Policy 14 Consequences 52
Capitalization 15 Shares Eligible for Future Sale 55
Selected Financial Data 16 Plan of Distribution 56
Management's Discussion Legal Matters 58
and Analysis of Financial Experts 58
Condition and Results of Where You Can Get More Information 58
Operations 17 Unit Purchase Agreement 59
Business 23 Index to Financial Statements F-1
On December 10, 1997, when our initial registration statement first
became effective, we became a reporting company. Last year we distributed our
annual report containing audited financial statements to our shareholders, and
we made copies of our quarterly reports available to them as well. We intend to
continue that practice.
This prospectus is available in an electronic format at
http://www.ixion-biotech.com. We will also send you promptly, without charge,
a paper copy of this prospectus if you ask for one. Please request paper copies
from us directly at 904-418-1428 or from our printer, BACOMPT, at 317-574-7481
or 1-800-595-9886. Materials available at or linked to our website are not
incorporated by reference into this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. It is not complete and may not contain all of the information
that is important to you. To understand this offering fully, you should read the
entire prospectus carefully, including the risk factors and financial
statements.
About Our Company
We are a development stage, discovery research biotechnology company,
with several product candidates in development. We hold world-wide exclusive
licenses to patents and pending patents in two key areas: diabetes and
oxalate-related disorders.
We are developing diabetes products based on our ability to grow
functioning islets of Langerhans starting with pancreatic stem cells. A stem
cell is an unusual type of cell which can reproduce and differentiate into more
specialized types of cells. We get the stem cells from adult donors. We are
developing cell lines of in vitro (in test tube) islet stem cells in commercial
quantities for use in cell transplantation to cure diabetes. We intend to
optimize the growth of functioning islets or islet progenitors in vitro from
stem cells or progenitor cells that we have established in cell cultures. The
transplantation of islets is the only known potential cure for immune mediated
(Type I) diabetes.
We are also developing products based on our oxalate technology for the
diagnosis and treatment of oxalate-related diseases. Oxalate is found normally
in blood, urine, and other tissues, but it is toxic, especially to mammals.
Unfortunately, oxalate is a common byproduct of metabolism and is also present
in large amounts in typical diets. In high concentrations, oxalate causes death,
but even in smaller concentrations, it is associated with various pathological
disorders, such as calcium oxalate kidney stones, cystic fibrosis,
hyperoxaluria, cardiomyopathy, cardiac conductance disorders, Crohn's disease,
renal failure and toxic death, and vulvodynia.
Our oxalate technology is based on genes from Oxalobacter formigenes. O
formigenes is a non-pathogenic, anaerobic intestinal bacterium, which means it
is a benign bacterium and that it can not live in oxygen. It inhabits the colon
where it degrades oxalate in healthy people. Inadequate colonies of O.
formigenes means a reduced ability to cope with oxalate.
The most developed product candidates in our development pipeline are a
therapy for the management of oxalate-related disorders and an associated
diagnostic test.
The diagnostic component of our oxalate disease management product is a
molecular diagnostic test for the rapid and sensitive detection of human O.
formigenes. The therapeutic component is a tablet consisting of recombinant
(genetically engineered) enzymes normally found in O. formigenes. These enzymes
degrade oxalate. The tablet's working name is IxC1-62/47. It has been shown to
be effective in lowering urinary oxalate levels in animal studies. We believe
that our tablet will greatly diminish the recurrence of calcium oxalate kidney
stones and will have positive therapeutic effects on other oxalate-related
disorders.
We are in the development stage, meaning we are primarily developing
our products and have not started to manufacture or sell them. We have earned
only limited revenues, mostly from research and development payments, and have
an accumulated deficit of $2,649,623 and a working capital deficit of $329,470
at September 30, 1998. See "Risk Factors." As a result of the difficulty of
raising funds during 1998, we have reduced the scale of our operations in order
to continue our research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<PAGE>
The Offering
Securities offered 150,000 Units at a price of $10.00 per
Unit. Minimum purchase is 50 Units.
What's in the Unit Each Unit consists of one
share of common stock and 1/4 of a
Charitable Benefit Warrant. Four Units
are required to acquire one whole
Charitable Benefit Warrant. Each whole
Charitable Benefit Warrant entitles the
holder to purchase one share of common
stock at a price of $20.00 per share. See
"Description of Securities."
Shares outstanding on January 31, 2,514,014 shares, including 34,420 shares
1999 sold in this offering since December
10, 1997.
Shares to be outstanding after the
offering 2,629,594 shares, if all Units are sold.
Total shares to be outstanding after
offering and exercise of all options
and warrants 2,775,076, if all Units are sold.
Charitable Benefit Warrants
outstanding after offering 37,500, if all Units are sold.
Total public price $1,500,000
Maximum discounts and commissions
$75,000
Estimated offering expenses $121,818
Net proceeds after commissions and
expenses $1,303,182, if all Units are sold.
Use of Proceeds We intend to spend the
proceeds for research and development,
capital investment, repayment of bridge
loans, patent prosecution, capital
investment, and working capital and
general corporate purposes. Because there
is no minimum number of Units to be sold,
and no escrow, we will get all funds
immediately.
Risk Factors Investing in our securities is very
risky, and you should be able to bear a
complete loss of your investment. See
"Risk Factors" and "Dilution."
<PAGE>
Summary Financial Data
Year Ended Nine Months Ended
December 31, September 30
1996 1997 1997 1998
---------- ----------- ---------- ---------
(unaudited)
Statement of Operations Data:
Total Revenues $171,205 $ 221,452 $ 219,547 $ 3,624
Total Expenses 724,844 1,003,406 806,507 673,888
Net Loss (553,639) (781,954) (586,960) (670,264)
Net Loss per Share (Basic) $ (0.23) $ (0.32) $ (.24) $ (.27)
Weighted Average
Common Shares 2,407,224 2,458,440 2,456,412 2,482,687
Balance Sheet Data (unaudited) September 30, 1998
--------------------
(unaudited)
Cash and cash equivalents $ 39,073
Working capital deficit (329,470)
Total assets 358,852
Total liabilities 1,718,053
Total capital deficiency (1,359,201)
<PAGE>
RISK FACTORS
Investing in Ixion's securities is very risky. You should be able to
bear a complete loss of your investment. You should carefully consider the
following factors, among others. We have classified the following risk factors
into three main groups, although they overlap to some degree:
Business risks particular to our company; Investment risks of this
offering; and Business risks which we share in common with other companies in
the biotechnology sector.
The business risks particular to Ixion are the following:
New Business Venture; Absence of Products. Our securities are subject
to the risks inherent in any new business venture. We have limited experience
and a short history of operations, especially with respect to marketing and
selling any products. We have had only minimal revenues, none of which came from
the sale of products. With the exception of our molecular diagnostic test for
the presence of the anaerobic bacterium, Oxalobacter formigenes, none of our
products has been finally designed, developed, tested, or marketed. None,
including the molecular diagnostic test, has received regulatory approval. We
can not assure you that we will be able to complete the design and testing of
our products, that the products will be approved by the FDA or accepted in the
marketplace, or that we will be able to sell them at a profit. Furthermore, as a
young company, we especially vulnerable to the problems, delays, expenses, and
difficulties encountered by any company in the development stage, many of which
are out of our control. Consequently, an investment in our securities is highly
speculative.
History of Operating Losses; Accumulated Deficit; Working Capital
Deficit. We lost $781,954 in 1997, and we expect a net loss of approximately
$900,000 for 1998. As of September 30, 1998, our accumulated deficit was
$2,649,623. We had a working capital deficit (current assets less current
liabilities) at that date of $329,470. Our losses have resulted principally from
expenses of research and development and from general and administrative
expenses. These expenses have exceeded our revenues. We have not received any
revenue from the sale or license of our molecular diagnostic test, and we cannot
assure you that we will be able to generate significant revenues in the future,
or that we will successfully complete the transition from development stage to
successful operations or profitability. We will have to do significant research,
development, testing, and regulatory work, which, together with our general and
administrative expenses, will result in material operating losses in the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We Do Not Expect Commercialization of Our Products in Near Future. Our
product candidates need significant additional development, preclinical and
clinical trials, regulatory approval, and additional investment prior to product
introduction. We may be unable to market any products for several years.
Furthermore, it will be a number of years, if ever, before we will receive
material revenues from product sales or royalties. In addition, our products are
subject to the risks of failure inherent in the development of products based on
innovative technologies. Accordingly, we can not assure you that we will be
successful in our research and development efforts, that any of our product
candidates will prove safe, effective, and non-toxic in clinical trials, that we
will develop any commercially successful products, that the patent rights of
others will not keep us from marketing our products, or that others will not
develop equally-good or better products.
Our products are based on novel scientific approaches. There is, therefore,
substantial risk that these approaches may be unsuccessful. See "Business -
Product Development."
Our Proposed Products May Not be Accepted in the Market. Patients,
doctors, and third-party payors must accept our molecular diagnostic test for O.
formigenes and our other products as medically useful and cost-effective. Market
acceptance will require substantial education about the benefits of our
molecular diagnostic test and other products. We can not assure you that the
market will accept our products , even if approved for marketing, on a timely
basis. If patients, the medical community, and third-party payors do not accept
our products or acceptance takes a long time, then revenues and profits would be
reduced. See "Dependence on Reimbursement," below.
Earnings Inadequate to Pay Fixed Charges. We do not expect any earnings
for the foreseeable future. That means, by definition, that earnings will be
inadequate to cover fixed charges, including interest on our outstanding 10%
Unsecured convertible notes. Payment of principal on our unsecured convertible
notes will depend on our ability to raise additional funds through the sale of
our securities, corporate alliances, or otherwise.
Dependence on Key Personnel. Because of the scientific nature of our
business, we depend greatly on attracting and retaining management and
scientific personnel, especially Dr. Ammon Peck, our Chief Scientist and
Chairman of our Scientific Advisory Board. We have only one full-time executive,
Weaver H. Gaines, Chairman and Chief Executive Officer. David C. Peck, our
President and Chief Financial Officer and Kimberly A. Ramsey, our Controller,
are consultants who devote substantial time to other employers. We have an
employment contract with Mr. Gaines, an exclusive consulting agreement with Dr.
Peck, and a consulting agreement with Mr. David Peck. The agreements of Dr.
Peck, Mr. Gaines, and Mr. Peck all contain non-compete provisions, but all allow
termination on short notice. The loss of any of these individuals could have a
material adverse effect on us. We have a $500,000 key person life insurance
policy on Dr. Peck. See "Management - Consulting Agreement with Dr. Peck,"
"Management - Employment Agreements."
Reliance on Relationships with the University of Florida. We have
sought a close and favorable relationship with the University of Florida. We
have licensed both our diabetes and oxalate technologies from them. We are an
affiliate of the Biotechnology Program of the University, which provides
business support services and specialized equipment to us. Our Chief Scientist
and three members of our Scientific Advisory Board are faculty members at the
University. See "Business Scientific Advisory Board." We can not assure you that
disputes will not cause our favorable relationship with the University to
deteriorate. A deterioration in the relationship between us and the University
would affect us adversely. 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. Our Chief Scientist and three members of our Scientific Advisory
Board work for the Florida State University System. As a result, we and they
must comply with Florida statutes and University policy on conflicts of
interest. In order for us to do business with the University (which includes
licensing technology or cooperative research), Dr. Peck must obtain an exemption
from the Florida conflict of interest statutes annually. The University must
also approve service on our Scientific Advisory Board for its employees. If the
University were to decline to approve the outside activities of Dr. Peck or the
University employees who are members of our Scientific Advisory Board, or were
to change the terms of its conflicts of interest policy, it could have a
material adverse effect on us. See "Business - Government Regulation."
Dependence on Licensed Technology. Our rights to develop most of our
proposed products come from our license agreements with the University of
Florida. We own no patents outright. In the event that our license agreements
terminate for any reason, we would lose our rights to manufacture and market
products. See "Business - Licensed Technology."
Uncertain Ability to Protect Proprietary Technology. Our success will
partly depend on our ability to obtain patent protection in the United States
and abroad. We also must be able to protect our trade secrets and to avoid
infringing the patent rights of others.
We have received three US patents and have two US notices of allowance
pending. We have six additional US patent applications pending. Two of the
patents and one patent allowance are for our oxalate technology, and one issued
and one allowed patent relate to our islet regeneration technology. However, we
can not assure you that our patent rights will provide us 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. We also can not assure you that our existing or future patents will
not 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 we need for developing our products. If our products or
processes infringe upon the patents, or otherwise impermissibly utilize the
intellectual property of others, we might be unable to develop, manufacture, or
sell our products. In such event, we may be required to obtain licenses from
third parties. We can not be sure that we will be able to obtain such licenses
on acceptable terms, or at all. See "Business - Licensed Technology."
Risk of Product Liability; Risk of No Insurance. Our business exposes
us to product liability claims inherent in the testing and marketing of medical
products. We currently carry no product liability insurance, but intend to
acquire such insurance prior to selling any of our products for commercial use.
We can not assure you that we will be able to get or keep adequate liability
insurance at a reasonable cost. Our inability to get or keep insurance at
acceptable cost could prevent or inhibit the commercialization of our products.
In addition, a liability claim, even one without merit, could result in major
legal expenses.
No Dividends Expected. We have never paid any cash dividends on our
common stock, and we do not intend to pay any in the foreseeable future. Limited
Experience in Sales and Marketing. We have no experience in pharmaceutical
sales, marketing, or distribution. To market any of our products directly, we
would have to develop a substantial marketing and sales force. Alternatively, we
intend, for certain products, to obtain the assistance of companies with
established distributions systems and direct sales forces. We can not assure you
that we will be able to establish sales and distribution capabilities or that we
will be able to enter into licensing or other agreements with established
companies to sell our products. See "Business - Business Strategy" and "Business
- - Manufacturing and Marketing."
Absence of Manufacturing Facilities or Personnel; Dependence on Others.
We own no manufacturing facilities or equipment, and employ no manufacturing
personnel. We expect to use third parties to manufacture our products on a
contract basis. We can not assure you that we will be able to obtain contract
manufacturing services on reasonable terms. See "Business - Business Strategy"
and "Business - Facilities."
The following risk factors are risks of this particular offering.
Need for Additional Financing. Based on our operating plan, we expect
that the net proceeds of this offering, assuming the sale of all the Units,
together with possible contract research revenue and grant income, will be
adequate to provide for operating requirements for approximately 12 months.
However, even if we sell all the Units, we will need a lot more money to reach
the point of a commercially successful product.
Our plan of operations has been adjusted for four possible levels of
sales of Units, ranging from all 150,000 Units sold to 75,000 Units Sold. (See
"Use of Proceeds.") If only 100,000 Units were to be sold, we believe we will
still be able, subject to the uncertainties of research and development, to file
for regulatory approval for the XEntrIX TM Oxalobacter formigenes Monitor and to
make further progress on our diabetes research over the next 12 months. Without
additional funds, however, we will not be able to file for regulatory approval
for IxC1-62/47, our oxalate therapeutic. If we sell fewer than 150,000 Units,
however, our operations will necessarily be scaled back well below optimum
levels. If only 75,000 Units are sold in total (given that 34,420 Units have
already been sold through the date of this prospectus), our operations would be
severely curtailed and additional financing would be essential in the next 12
months.
Even if we are able to sell all 150,000 Units, we will need still more
capital. Our future capital requirements will depend on the costs involved
in future capital raising activities, continued scientific progress in our
research and development programs, the size of our programs, any new
programs, the progress of preclinical and clinical testing, the costs of
obtaining regulatory approvals, the costs of patents, competing
technological and market developments, and whether we are able to enter
into collaborative agreements.
We intend to seek additional financing even during the pendency of this
offering, through collaborations with corporate partners, private sales of debt
or equity, or other sources. In these efforts to raise capital, we may sell
securities which are senior to the common stock or which further dilute you. We
can not assure you that we will be able to get additional funding on acceptable
terms, or at all. If adequate funds are not available, we will have to curtail
or defer our research and development programs or to obtain funds through
arrangements that may require us to give up 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 number
of Units required to be sold in the offering, all the cash received will go
directly to us to be used as described in "Use of Proceeds." Since December 10,
1997, when this offering first became effective, through January 31, 1999, we
have sold a total of 34,420 Units for $344,200. The total expenses of the
offering through September 30, 1998, are approximately $116,000. The sale of a
total of less than 100,000 Units through the end of the offering, would
materially and adversely effect us in we would have to significantly limit our
operational expenses, by curtailing or deferring one or more of our research and
development programs or to obtain funds through arrangements that would require
us to relinquish certain technological or product rights. Such spending
reductions would significantly extend the development time for our products and
limit the number of products developed. See "Use of Proceeds."
Direct Public Offering: No Underwriter. We are offering the Units
directly, meaning there are no underwriters, brokers, dealers or placement
agents (except in Florida, where a broker is required under Florida
securities laws). The absence of an underwriter has adversely affected our
ability to sell Units.
Control by Management and Existing Shareholders. At January 31, 1999,
the current officers, directors, and members of their families sharing their
household, own beneficially approximately 65% of our outstanding shares. In the
event we sell all of the Units offered, those persons will still own
approximately 62% of our common stock. They will still be able to control all
matters requiring approval by stockholders, including the election of directors,
amendment of our certificate of incorporation, or approval of a merger or sale
of substantially all our assets. This concentration of ownership may also delay
or prevent a change in control that may be favored by other stockholders. See
"Management" and "Principal Shareholders."
Use of Offering Proceeds to Repay Bridge Loans from Officers;
Discretion to Change Use of Proceeds. We will use some of the net offering
proceeds to repay a portion of bridge loans from officers rather than to support
our research and development activities. Bridge loans from officers totaled
$350,000 (over 20% of the offering) at January 31, 1999. The board of directors
may also change the nature in which the proceeds are used. See "Use of Proceeds"
and "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 and
Volatility of Small Biotech Company Stocks. There is no public market for our
common stock, and no public market is likely after the offering. There is also
no public market for the Charitable Benefit Warrants, and by their terms, they
will never be tradable. We may, after termination of the offering, establish a
passive, bulletin board system on the Internet supplying information to buyers
and sellers of our shares to provide limited liquidity. Any passive bulletin
board system must comply with rulings of the SEC strictly limiting the
operations of such system. In the absence of a public trading market, you 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 perceptions will change over
time, affecting our ability to fund operations. Thus, future trading
prices, if any, of our shares will depend on many factors, including, among
others, those mentioned above, together with prevailing interest rates, our
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
us or our competitors, and the market for similar securities.
In particular, the public market for small biotechnology stocks is highly
volatile and has seen extreme price and volume fluctuations which have
particularly affected the market prices for emerging biotechnology
companies and which often have been unrelated to their operating
performances.
Arbitrary Determination of Offering Price. We have unilaterally and
arbitrarily determined the offering price. Among the factors we considered
in determining such price were offering prices of other early stage biotech
initial public offerings during 1997, our capital requirements, our
negative book value, the percentage of ownership to be held by investors
following the offering, the prospects for our business and the biotech
industry, the early stage of our products, the lack of revenue and the
prospects for future revenues, and the current state of the economy in the
United States.
The offering price does not necessarily bear any relationship to our
assets, negative book value, or other investment criteria, and you should not
consider it an indication of the actual value of our securities. If a public
market for our shares were to develop or if we were to merge with another
company, the public market price or the merger price for our shares could be
substantially less than the offering price. See "Plan of Distribution."
Risks of Low-Priced Stocks. The SEC defines a "penny stock" generally
as any equity security with a market price less than $5.00 per share. If the
trading price, if any, of our shares were to fall below $5.00 per share, the
shares may become subject to Rule 15g-9 under the Exchange Act. That rule
imposes requirements on broker-dealers that sell "penny stocks" to persons other
than established customers and institutional accredited investors. A
broker-dealer must make a special suitability determination and have received
the purchaser's written consent to the transaction prior to the sale.
Consequently, the rule, if applied to us, would affect the ability of
broker-dealers to sell our shares and would affect the ability of holders to
sell our shares in the secondary market. There is no liquidity in our shares
now, but if a public market arose and we became subject to the penny stock
rules, the market liquidity could be adversely affected. See "Description of
Securities."
Limitations on Transfer and Exercise of Charitable Benefit Warrants.
The Charitable Benefit Warrants included in the Units 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. 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."
Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of our common stock (including shares issued upon the
exercise of outstanding options and warrants or upon the conversion of our
Unsecured convertible notes) in the public market, if any, after this offering
or the prospect of such sales could adversely affect the market price of your
common stock and may have a material adverse effect on our ability to raise
capital to fund our operations. Upon completion of this offering, assuming all
Units are sold, we will have 2,629,594 shares of common stock outstanding. The
150,000 shares included in the Units will be freely tradeable under the
Securities Act, except for any shares held by our "affiliates." Affiliates'
shares will be subject to the limitations of Rule 144. The remaining 2,479,594
shares are "restricted" securities that may be sold only if registered under the
Securities Act, or sold in accordance with Rule 144. The officers and directors,
who together hold 1,635,544 shares and rights to purchase an additional 82,452
shares (of which 31,477 can be acquired within the next 60 days), have agreed
not to sell any shares in the public market for a period of 180 days from the
date of this prospectus. We are unable to predict the effect that sales made
under Rule 144 may have on any market price for our shares should one develop.
It is likely that market sales of large amounts of our shares after this
offering, if a market for the shares develops, would depress the price of Ixion
stock. See "Shares Eligible for Future Sale - Registration Rights."
Immediate and Substantial Dilution. You will experience 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. The dilution will amount to $10.19 (102%) if all Units are sold;
$10.29 (103%) if 75% of the Units are sold; $10.38 (104%) if 50% of the Units
are sold; and $10.48 (105%) if 25% of the Units are sold. You will be further
diluted if holders of outstanding options, warrants, and Unsecured convertible
notes who have rights to acquire common stock at prices below $10.00 per share
exercise such rights. See "Dilution."
Risk factors that apply to Ixion as a member of the biotechnology
industry include the following:
Uncertainty Associated with Preclinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of our products,
we must extensively test them in preclinical and clinical trials. We have no
experience in managing clinical trials and intend to employ third parties to
conduct them. We have not completed the required preclinical studies for our
oxalate products; and have not even commenced preclinical work on any diabetes
product. Furthermore, we can not assure you that preclinical or clinical trials
of any of our products will result in regulatory approvals. Biotech companies
have had significant setbacks in advanced clinical trials, even after good
results in earlier stages. Clinical failures would have a material adverse
effect on our business, operating results, and financial condition. See
"Business - Government Regulation."
Ethical, Legal, and Social Implications of Islet Progenitor/Stem Cell
Therapies. Our islet stem cell diabetes program involves the use of tissue
cloned from human cells, and therefore may raise ethical, legal, and social
issues. The cloning of human tissue in scientific research is a national issue.
Many research institutions have adopted policies regarding the ethical uses of
cloning, and state and federal legislatures are considering legislation. These
policies may limit the scope of our research in this area. Any inability to
conduct research on human stem or progenitor cells due to such factors as
government regulation or otherwise could have a material adverse effect on us.
Intense Competition. The biotech and pharmaceutical industries are
intensely competitive. Technological change can rapidly and significantly affect
drug and device development. Our competitors include major drug and diagnostic
companies, specialized biotech firms, and universities and other research
institutions. Most of our competitors have much greater financial and research
resources than we do. These greater resources may allow our competitors to
discover or develop technologies and products that are more effective or less
costly than any of ours. In addition, some of our competitors have greater
experience than we do in conducting preclinical and clinical trials and
obtaining FDA approvals, so they may succeed in obtaining approvals for
competitive product candidates more rapidly than we. See "Business Competition."
Dependence on Reimbursement. We will not be able to commercialize our
products successfully unless we can get adequate reimbursement from government
and private health insurers, managed care plans, and other organizations.
Third-party payors attempt to keep health care costs down 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. In particular, services or
products which are determined to be "investigational" or which are not
considered "reasonable and necessary" for diagnosis or treatment may be denied
reimbursement coverage. To date, no third-party payor has agreed to reimburse
patients for our molecular test for the detection of Oxalobacter formigenes. As
a result, we expect that patients will initially be billed directly for this
test.
We do not know if insurers or third-party payors will ever provide full
reimbursement coverage for our molecular test for O. formigenes test or any of
our other products. If adequate reimbursement coverage is not available, we do
not know whether individuals will want to pay directly. If insurers or
third-party payors do not provide adequate coverage and reimbursement for our
products, our ability to sell them would be adversely affected.
Government Regulation; Risk of no Regulatory Approval. Our activities
are subject to extensive regulation by the FDA and health authorities in foreign
countries. Regulatory approval for our planned products is required before we
can market them. Obtaining regulatory authorization involves, among other
things, lengthy and detailed laboratory and clinical testing, manufacturing
validation, and other complex procedures. The approval process is costly,
time-consuming, and subject to unexpected delays. The FDA has discretion in the
approval process, and we can not predict when or whether we will satisfy the
FDA. We can not assure you that the FDA will not require additional information
or additional clinical trials that could substantially delay approval of our
applications. Moreover, we can not be sure that FDA approval will cover the
clinical indications we seek or that it will not contain significant limitations
in the form of warnings, precautions, or contra-indications. Any failure to
obtain, or any material delay in obtaining, regulatory approvals would
materially and adversely affect our ability to generate product sales. Even if
we obtain regulatory approvals, a marketed product is subject to continuing
regulatory 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."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus regarding the dates on which we anticipate
commencing clinical trials or filing for regulatory approval, constitute
forward-looking statements under the federal securities laws. Such
statements are subject to risks and uncertainties that could cause the
actual timing of such clinical trials or filings to differ materially from
those we project. With respect to such dates, we have made assumptions
regarding, among other things, the successful and timely completion of
preclinical tests, the approval of investigational new drug applications
for each of our drug candidates by the FDA, the availability of a
simplified application way to seek market clearance from the FDA for our
molecular diagnostic test, 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.
Our ability to commence clinical trials or file for regulatory approval
on the dates anticipated is subject to risks, including the risks discussed
under "Risk Factors." You should not rely on the dates on which we anticipate
filing regulatory approval or commencing clinical trials.
Statements regarding our research and development plans also constitute
forward-looking statements. 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.
Our projections regarding the likely effect of Year 2000 issues on our
company is also a forward-looking statement.
All of the above estimates are based on the current expectations of our
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 us from the sale of the Units, after deduction of
estimated offering expenses, and our 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 us.
The offering became effective on December 10, 1997, and was originally
for 400,000 Units. Since then, we have sold a total of 34,420 Units, and
consequently have reduced the number of Units for sale in this offering to the
amount we reasonably believe can be sold through December 10, 1999.
We intend 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 loans
from officers, and to fund our 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. We have broad discretion over the amounts and timing of expenditures.
We currently expect to spend the net proceeds as follows:
150,000 125,000 100,000 75,000
Units Sold Units Sold Units Sold Units Sold
(100%) (75%) (50%) (25%)
Gross proceeds from
offering $1,500,000 $1,250,000 $1,000,000 $750,000
Less offering expenses 121,818 121,818 121,818 121,818
(8.1%) (9.8%) (12.1%) (16.2%)
Maximum commissions 75,000 62,500 50,000 37,500
Net proceeds from
offering $1,303,183 $1,065,682 $828,182 $590,682
Use of Net Proceeds
R&D, diabetes 250,000 200,000 150,000 125,000
R&D, oxalate 386,000 324,600 274,000 200,500
Repay bridge loans 300,000 200,000 100,000 50,000
from officers
Capital equipment 80,000 70,000 60,000 60,000
Patents 150,000 150,000 125,000 100,000
General corporate 136,582 121,082 119,182 55,182
If fewer than 150,000 Units are sold, we would delay or scale back our
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 our product development and operations to proceed at the
varying rates set forth above for at least 12 months. If only 100,000 total
Units were to be sold, we believe we will nevertheless be able, subject to the
uncertainties of research and development to carry out our research and
development program in oxalate technology through filing a 510(k) on the
molecular diagnostic test for Oxalobacter formigenes. We would not be able to
file an IND with regard to IxC1-62/47, the oxalate therapeutic, with the FDA. We
would, however, be able to make further progress on our diabetes research over
the next 12 months without additional capital. If only 75,000 Units are sold in
total (given that 34,420 Units have already been sold through the date of this
prospectus), our operations would be severely curtailed and additional financing
would be essential in the next 12 months. See "Management's Discussion of
Results of Operations and Financial Condition Liquidity and Capital Resources."
Until required for operations, our policy is to invest our cash
reserves, if any, 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, 1998, our common stock had a negative net tangible
book value of $(1,812,915) or approximately $(.73) 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, 1998, as
adjusted to give effect to the offering.
<TABLE>
<CAPTION>
150,000 125,000 100,000 .75,000
Units Sold Units Sold Units Sold Units Sold
<S> <C> <C> <C> <C>
Assuming a public
offering price of $10.00 $10.00 $10.00 $10.00
Net proceeds $1,303,182 $1,065,682 $828,182 $590,682
Net tangible book deficit per
share for existing
shareholders before
offering 1 $(0.73) $(0.73) $(0.73) $(0.73)
Increase per share attributable
to payment for shares
purchased by new investors $0.54 $0.44 $0.35 $0.25
Pro forma net tangible book
deficit after offering 2 $(0.19) $(0.29) $(0.38) $(0.48)
Dilution per share to
new investors 2, 3 $10.19 $10.29 $10.38 $10.48
</TABLE>
(1) "Net tangible book deficit per share" means Ixion's tangible net deficit
(tangible assets less total liabilities and less unamortized debt discount)
divided by shares of common stock outstanding. (2)"Dilution" means the
difference between the public offering price per share and the net tangible book
deficit per share after giving effect to the offering. (3) Does not include the
effects of any options or warrants or conversion of our unsecured convertible
notes.
We were initially capitalized by a sale of common stock to our
founders. Subsequently, we have completed two private placements of common stock
and a private placement of unsecured convertible notes. The following table sets
forth the difference between our officers, directors, promoters, and affiliates,
and purchasers of the Units in the offering with respect to the number of shares
purchased (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 are sold.
<TABLE>
<CAPTION>
Shares Issued 1 Total Consideration 1 Average Price
Number Percent 2 Amount Percent 2 Per Share
------ --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Officers, directors,
promoters and
affiliates 1,877,966 69.3% $798,323 24.7% $0.43
New Investors 150,000 5.5% $1,500,000 46.3% $10.00
</TABLE>
(1) Includes 82,452 shares which may be issued to officers, directors,
promoters, and affiliates upon exercise of stock options or conversion
of Unsecured convertible notes, 31,477 of which are issuable within 60
days, and assumes the sale of all Units offered. (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
We have never declared or paid any cash dividends on our common stock
and do not intend to do so for the foreseeable future.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1998,
and as adjusted to reflect the receipt of the net proceeds from this offering.
Please read this table together with our financial statements and notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------- --------------------------------------------------------------------
September 30, 1998
As Adjusted
- --------------------------------------------- --------------------------------------------------------------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
150,000 125,000 100,000 75,000
Actual Units Sold Units Sold Units Sold Units Sold
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Debt:
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Short-term debt including current
portion of long-term debt.................. $ 258,975 $ 258,975 $ 258,975 $ 258,975 $ 258,975
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Long-term debt less current portion 1. 1,347,059 1,347,059 1,347,059 1,347,059 1,347,059
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Stockholders' Equity (Deficiency):
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Common Stock, $0.01 par value,
4,000,000 shares authorized, 2,508,144
shares issued and outstanding,2 2,629,594
(100% sold), 2,604,594 (75% sold),
2,579,594 (50% sold), or 2,554,594 (25%
sold), as adjusted 3...................... 25,081 26,296 26,046 25,796 25,546
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Additional paid-in capital 2.......... 1,571,322 2,873,004 2,635,754 2,398,504 2,161,254
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Common stock warrants outstanding..... 35,494 35,494 35,494 35,494 35,494
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Deficit accumulated during the development 2,649,623) (2,649,623) (2,649,623) (2,649,623) (2,649,623)
---------- ----------- ----------- ----------- -----------
stage......................................
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Less unearned compensation............ (341,475) (341,475) (341,475) (341,475) (341,475)
--------- --------- --------- --------- ---------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
- --------------------------------------------- -------------- ------------ ------------ ------------ --------------
Total capital (deficiency)............. $(1,359,201) $ (56,304) $ (293,804) $(531,304) $(768,804)
------------ ---------- ----------- ---------- ------------
</TABLE>
(1) Includes deferred fees and deferred salaries, including accrued
interest, payable to related parties. (2) Actual Common stock at September
30, 1998 includes $286 from the 28,550 Units sold through that date, and
actual Additional paid-in capital includes $285,215 from the 28,550 Units
sold through that date. (3) Excludes 100,900 shares reserved for issuance
pursuant to the exercise of outstanding stock options, 35,953 of which are
exercisable, 23,630 shares reserved for issuance pursuant to outstanding
warrants, 192,600 shares reserved for issuance to employees and 31,500
reserved for issuance to directors and members of the Scientific Advisory
Committee pursuant to options available for grant under our 1994 Stock
Option Plan, 1,000 shares reserved for issuance under our 1994 Board
Retainer Plan, and up to 323,557 shares issuable upon conversion of our
Unsecured convertible notes.
<PAGE>
SELECTED FINANCIAL DATA
We are providing the following selected financial data to aid you in
your analysis of this potential investment. We derived this information from (1)
our 1996 and 1997 historical financial statements; and (2) from our
internally-prepared unaudited financial statements for the nine-months periods
ended September 1996 and September 1997 and the period from March 25, 1993
through September 30, 1998. Our financial statements as of December 31, 1996 and
1997 with the notes thereto together with our internally-prepared unaudited
financial statements and notes, are included elsewhere in this prospectus. Our
unaudited financial statements, in our opinion, contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
our financial position and results of operations for the unaudited interim
periods. Please read the data set forth below in conjunction with our financial
statements, related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
For the
Period March
25,
1993 (Date of For the Nine Months
Inception) Year Ended Ended
through ___December31___ __September 30,__
September 30
Statement of Operations Data: __1998__ __1996__ 1997 __1997__ __1998__
------ ------ ------ ------ ------
Revenues: (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income under research agreement $275,001 $139,079 $135,922 $135,922 _
Income from SBIR Grant 91,650 20,000 71,650 71,650 _
Interest income 23,334 7,760 10,147 9,223 367
Other income
17,805 4,366 3,733 2,752 3,257
------ ----- ----- ----- -----
Total revenues 407,790 171,205 221,452 219,547 3,624
-------------- ----------- ------- ------- -----
Expenses:
Operating, general and 1,405,038 276,642 336,572 290,271 307,097
administrative
Research and development 1,355,744 392,010 554,751 432,378 269,474
Interest 296,601 56,192 112,083 83,858 97,317
-------------- ------- ------- ------ -------
3,057,413 724,844 1,003,406 806,507 673,888
-------------- ------- ------- ------ -------
Total expenses
Net Loss $ (2,649,623) $ (553,639) $ (781,954) $(586,960) $(670,264)
============ =========== ============ ========= =========
Basic and Diluted Net Loss per $ (0.23) $ (0.32) $ (0.24) $ (0.27)
=========== =========== ========== ========
Share
Weighted Average Common Shares 2,407,224 2,458,440 2,456,412 2,482,687
=========== =========== =========== ===========
</TABLE>
Balance Sheet Data: September 30,
(unaudited)
1997 1998
Cash and cash equivalents 88,103 39,073
Working capital (deficit) 1,783 (329,470)
Total Assets 384,832 358,852
Total Liabilities 1,116,604 1,718,053
Total Capital Deficiency (731,772) (1,359,201)
<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. Our 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
Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.
Since we were founded in March of 1993, we have principally been doing
research and development, securing patent protection, and raising capital. We
have not received any revenues from the sale of products. In June 1998, we
reached an agreement in principle with the University of Florida Diagnostic
Referral Laboratories for them to provide a service to physicians using our
molecular diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We
have received no revenue to date under this agreement. Provided the Diagnostic
Referral Laboratories markets the service and provided doctors accept the test
as useful, we may receive revenue from this test during 1999. (See "Risk Factors
- - Our Proposed Products May Not be Accepted in the Market.") However we do not
expect any of our other product candidates to be commercially available for at
least several years. From inception through September 30, 1998, we incurred
cumulative losses of $2,649,623. These losses were due primarily to expenditures
on general and administrative activities, research and development, patent
preparation and prosecution, and interest charges.
We expect to continue to incur substantial research and development costs
resulting from ongoing research and development programs, manufacturing of
products for use in clinical trials and preclinical and clinical testing of
our products.
We also expect that general and administrative costs, including
amortization of patents, legal and regulatory costs necessary to support
preclinical development and clinical trials, SEC reporting costs, and the
creation of a marketing and sales organization, if warranted, will increase
in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable
future.
We have only a limited operating history upon which you can base an
evaluation our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other
things, successfully develop and commercialize our products, secure all
necessary proprietary rights, respond to competitive developments, and
continue to attract, retain and motivate qualified persons.
There can be no assurance that we will be successful in addressing
these risks.
Our operating expenses will depend on several factors, including the
level of research and development expenses and our success in raising capital.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. We may sometimes 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, we believe that period-to-period comparisons in the future are
not necessarily meaningful and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.
Results of Operations
Nine Months Ended September 30, 1998 and 1997
Our revenues under a research agreement with Genetic Institute
decreased from $135,922 in the nine months ended September 30 of 1997 to $0 for
that period in 1998. Revenues under our SBIR grant declined from $71,650 in the
first nine months of 1997 to $0 for that period in 1998. Revenues under the
Genetics Institute agreement and the SBIR ceased at the end of 1997.
Interest income decreased 96% from $9,223 in the first nine months of
1997 to $367 in the first nine months of 1998. This decrease was attributable to
the expenditure of the proceeds from the sale of our unsecured convertible notes
in the last quarter of 1996, which proceeds had been invested during 1997.
Interest income relating to the investment of proceeds of the unsecured
convertible notes ceased in the first quarter of 1998.
Operating, general and administrative expenses increased 5.8% from
$290,271 in the first nine months of 1997 to $307,097 in the equivalent period
of 1998. These increased expenses reflect increased legal expenses, increased
advertising and promotion, and increased legal and accounting fees relating to
SEC reporting, offset to some degree by decreased directors' fees, compared to
the first nine months of 1997. We expect our general and administrative expense
to modestly decrease during 1998 and 1999 as a result of a reduction in the
scale of operations, offset, to some degree, by increased amortization of
capitalized patent costs as new patents are issued, and increased legal and
accounting expenses resulting from filings with the SEC under the Exchange Act.
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 decreased 37.7% from $432,378 in the
first nine months of 1997 to $269,474 in the first nine months of 1998,
primarily as a result of a temporary reduction in research and development
personnel during the first quarter of 1998, and concomitant reduction in lab
supplies, together with a reduction of one technician for most of 1998, the
termination of our consulting contract with our regulatory advisor, and a
significant reduction in the stock compensation expense relating to our
scientific advisors.
Interest expense increased 16% from $83,858 in the first nine months
of 1997 to $97,317 in the first nine months of 1998 due primarily to interest on
bridge loans from officers, and the compounding of interest on deferred fees and
salaries, including deferred interest, payable to related parties. Interest
expense will continue to increase during 1998 and 1999, as a result of the
continued compounding of interest on deferred fees and salaries accounts and
additional bridge loans from officers.
Years Ended December 31, 1996 and 1997
Revenues under the Genetics Institute research agreement decreased 2.3%
from $139,079 in 1996 to $135,922 in 1997. In both years these revenues related
entirely to recognition and receipt of income from a research support agreement
with Genetics Institute, Inc. Revenues under the Genetics Institute agreement
ceased at the end of the agreement in 1997. Income from our SBIR grant increased
from $20,000 in 1996 to $71,650 for 1997. That grant expired on September 30,
1997.
Interest income increased 31% from $7,760 in 1996 to $10,147 in 1997.
This increase was attributable to the proceeds from the sale of unsecured
convertible notes in the last quarter of 1996, which were invested for only one
quarter in 1996 compared to the full year in 1997. Interest income relating to
the proceeds of our unsecured convertible notes will decline in 1998.
Operating, general and administrative expenses increased 21.7% from
$276,642 in 1996 to $336,572 in 1997. These increased expenses reflect increased
personnel, increased patent amortization expenses, amortization of certain
capitalized costs incurred in connection with the offering of our 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 the amortization
expenses commenced during 1997. We do not expect our general and administrative
expense to increase materially during 1998 as a result the reduction of the
scale of operations, offset, to some degree by increased rent, increased
amortization of capitalized patent costs as new patents are issued, and
continued 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 41.5% from $392,010 in 1996
to $554,751 in 1997, primarily as a result of additional research and
development personnel, and increased research activities.
Interest expense increased 99.5% from $56,192 in 1996 to $112,083 in
1997 due primarily to cash interest on our 10% Notes, the amortization of debt
discount (initially $285,835) attributable to the beneficial conversion feature
of our 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. Interest expense will continue to increase
during 1998, and 1999 primarily as a result of the continued compounding of
interest on deferred fees and salaries accounts and interest on bridge loans
from officers.
Liquidity and Capital Resources
In December, 1997, we commenced the public offering of 400,000 Units of
newly issued securities, for an aggregate of $4,000,000. Each Unit consists
of one share of common stock and .1/4 of a Charitable Benefit Warrant. Each
whole Charitable Benefit Warrant entitles you to purchase one share of
common stock at a price of $20.00 per share. Ixion is directly (except in
Florida where sales must be made through a broker) making the offering in
ten states, primarily over the Internet. There is no minimum number of
Units to be sold in the offering, and all funds received have gone and will
go immediately to us. On December 10, 1998, we extended the offering
through the earliest of: the sale of all Units, December 10, 1999, or the
date we decide to close the offering.
In addition, we have reduced the size of the offering from 400,000 Units to
150,000 Units, including the 34,320 Units we sold during 1998. At January 31,
1999, we have sold a total of 34,420 Units in the offering.
During 1998, our development activities were funded primarily by the
proceeds from the offering and bridge loans from the Chairman and Chief
Executive Officer and the President. The bridge loans total $350,000 at January
31, 1999. Interest on the bridge loans from officers 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%. We have no agreement with the officers to
advance further funds, however, the officers have continued to fund operating
requirements voluntarily to meet working capital needs. We can not assure you
that the officers will continue to voluntarily fund bridge loans during 1999. We
do not have any bank financing arrangements. Our long-term indebtedness consists
primarily of deferred fees and salaries payable to related individuals and our
unsecured convertible notes.
At September 30, 1998, we had $39,073 in cash and cash equivalents.
Until required for operations, our policy is to invest any cash reserves in bank
deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments.
On January 1, 1996, we 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. At September 30, 1998,
$8,975 in principal remains outstanding under this agreement..
In connection with the Genetics Institute sponsored research agreement
referred to above, some patent-related expenses were reimbursed by Genetics
Institute. We may be contractually obligated to repay these reimbursed expenses
in installments over a 36 month period upon a determination by Genetics
Institute not to exercise their option contained in the sponsored research
agreement. Reimbursement has not commenced, we have accrued $42,317 as a long
term liability pending final action under the agreement.
Through September 30, 1998, we have paid offering-related expenses of
$116,561 which have been applied against the proceeds of the public offering. We
expect further offering-related expenses to be modest.
On October 8, 1998, upon the expiration of our lease at the
Biotechnology Development Institute, we moved to comparable rental facilities
across the street from our former location. The new lease will be for increased
space and rent and for a three-year term, with two one-year renewal options. We
expect that annual payments under the new lease (including amortization of
tenant improvements and an emergency generator) will be approximately $84,000
per year (not including utilities). We will continue to have access, as a
graduate affiliate, to the Biotechnology Development Institute's specialized
facilities, centralized equipment, and core laboratories. Relocation will not
materially affect our research and development operations; however, we incurred
relocation expenses and have been obliged to purchase or lease laboratory and
office furnishings and equipment. We estimate that the principal amount of such
lease or purchase is approximately $80,000.
We have incurred negative cash flows from operations since our inception.
We have spent and expect to continue to spend, substantial funds to
complete our planned product development efforts, commence clinical trials,
and diversify our technology. Our future capital requirements and the
adequacy of available funds will depend on numerous factors, including the
success of the continuing public offering of our securities, the successful
commercialization of the XEntrIx (TM) Oxalobacter formigenes Monitor (our
new diagnostic test) and IxC1-62/47 (our lead therapeutic compound),
progress in our product development efforts, the magnitude and scope of
development 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 our products.
We require all of the proceeds of this offering to meet our planned
operating requirements through December 31, 1999. Shortfalls in the proceeds of
the public offering to date have forced a curtailment in our planned operating
requirements to adjust to reduced resources. In the event our plans change or
our assumptions change or prove to be inaccurate or the proceeds of the offering
continue to be insufficient to fund operations at the planned level (due to
further unanticipated expenses, delays, problems or otherwise), we will require
additional financing. We will be required to obtain additional funds in any
event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our products through regulatory approval
to commercialization. The terms and prices of any equity or debt financings or
corporate combination may be significantly more favorable to new investors than
those of the Units sold in the offering, resulting in significant dilution to
current investors. We do not have any material committed sources of additional
financing. We can not assure you that additional funding, consolidation, or
alliance, if necessary, will be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to further delay,
scale-back, or eliminate certain aspects of our operations or attempt to obtain
funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.
Product Research and Development Plan
Our plan of operation for 1999 consists primarily of research and
development and related activities, resources permitting, including:
further research into islet and islet stem cell growth and
differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients; further
research into identifying and characterizing novel growth factors
associated with islets to discover factors important in islet
cell differentiation and possible regulation of diabetes and to
identify stem cell markers to which we hope to produce monoclonal
antibodies useful in stem cell isolation research into
differential gene expression studies on differentiated islet
cells; further research into encapsulation materials for
transplantation of islets; further preclinical development of a
quantitative version of our molecular diagnostic test, the
XEntrIx (TM) Oxalobacter formigenes Monitor, further development
of our oxalate therapeutic compound, IxC1-62/47; continuing the
prosecution and filing of patent applications; and hiring
additional employees.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential, the status of competitive products, and, most important,
our success in raising capital. The focus and direction of our operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, and other factors.
We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.
Year 2000 Compliance
Many computer systems and computer chips embedded in equipment are
unable to tell the difference between the year 1900 and the year 2000. This is
know as the Year 2000 issue. Many businesses are at risk for possible
miscalculations or systems failures as a result of their computers, software, or
equipment's not being Year 2000 compliant.
Our assessment of Year 2000 compliance issues is not complete.
Software and Computers. Our computers all run Windows operating systems
which are or will be Year 2000 compliant according to our tests and information
received from Microsoft. We have been assured by the vendors that our office
applications programs are Year 2000 compliant. We have been also been assured by
the vendor that our finance and accounting software, our only mission-critical
software, is Year 2000 compliant.
Equipment. Most of our laboratory equipment does not use a computer or
embedded chip. Our policy is that all equipment that we purchase must be Year
2000 compliant. Our assessment of our laboratory equipment is not complete. With
respect to equipment made available to us as a result of our affiliation with
the Biotechnology Development Institute, we have requested a statement of
compliance.
Suppliers. We are contacting key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable equipment
vendors), have developed or are in the process of developing plans to address
Year 2000 issues. We will continue to monitor and evaluate the progress of our
suppliers.
In general our review of the potential consequences of Year 2000
compliance issues on us leads us to believe that those issues will prove to be
immaterial to our business, operations, and financial condition. Accordingly, we
do not have contingency plans and have no plans to develop any unless our
further assessment indicates one is necessary.
<PAGE>
BUSINESS
Ixion Biotechnology, Inc.
Ixion is a development stage, discovery research biotechnology company,
with several product candidates in development. We are the holder of world-wide
exclusive licenses to patents and pending patents in two key areas: diabetes and
oxalate-related disorders.
We are developing diabetes products based on our islet progenitor/stem
cell 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 islet progenitor stem cells which Ixion has established in cell cultures.
The transplantation of islets or islet stem cells is the only known potential
cure for Type I diabetes. We believe 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 our cell transplantation therapy, we have an
ongoing discovery program to identify and characterize islet stem cells 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 we hope to produce antibodies useful in stem cell
isolation and research. All of our potential diabetes products are in the
discovery research stage.
Diabetes is a chronic, complex metabolic disease. Immune mediated
diabetes (often referred to as Insulin Dependent Diabetes, Juvenile Diabetes, or
Type I Diabetes) is characterized by an inability to produce insulin due to the
destruction of the insulin-producing cells of the pancreatic islets of
Langerhans. Immune mediated 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 immune mediated
diabetes, the most severe form of the disease, and must take insulin. An
additional one and one-half million Type II patients in the United States also
take insulin. Annual expenditures on all forms of diabetes are nearly $100
billion.
We are also developing products based on our oxalate technology for the
diagnosis and treatment of oxalate-related diseases. Our oxalate technology is
based on genes from the non-pathogenic anaerobic intestinal bacteria,
Oxalobacter formigenes. O. formigenes produces enzymes which degrade oxalate in
healthy people. Inadequate colonies of O. formigenes result in reduced ability
to degrade oxalate. Excess oxalate 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 our oxalate-related disease management
product is a DNA probe for the rapid and sensitive detection of human O.
formigenes (the XEntrIX TM Oxalobacter formigenes Monitor). 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 XEntrIX TM
Oxalobacter formigenes Monitor, on the other hand, can accurately and reliably
detect very small numbers of O. formigenes, can be made quantitative, and is
capable of automation.
The therapeutic component of our 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). We believe 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.
We intend to file an Investigational New Drug application with the Food
and Drug Administration for our 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 XEntrIX TM Oxalobacter formigenes Monitor. The date on which we will
be able to make these filings depends upon our cash resources. See "Business -
Government Regulation."
Ixion is in the development stage. We have earned only limited
revenues, the majority of which have been research and development payments, and
we have an accumulated deficit of $2,649,623 from our inception through
September 30, 1998.
See "Risk Factors."
Industry Description and Outlook
In 1998, the U.S. biotechnology industry was composed of approximately
1,300 companies, public and private. The public market for biotechnology
financing was very poor during 1998, particularly for smaller companies and many
companies are running low on cash. 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 were 21
million diabetics in Europe and as many as 100 million worldwide. Immune
mediated diabetes 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 seventh leading cause of death in the U.S.
Current therapies, including insulin shots 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. We believe 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
help control 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, we believe 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 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. We believe that it may be clinically important
to screen and treat patients with oxalate-associated diseases 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 appears to 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 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 inflammatory bowel disease is unknown, with many theories,
none proven. Many persons with inflammatory bowel disease also have elevated
levels of urinary oxalate, 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 inflammatory bowel disease
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
We intend to market our initial diagnostic products, while working with
strategic partners to take our 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. It typically ranks in the top 10 in the United States in gross
royalties received from patent licenses, and the top 20 in the United States in
the number of U.S. patents obtained.
Technology Evaluation and Development. We plan to use our affiliation
with the University of Florida Biotechnology Program to seek out cutting-edge
university based biotechnology. Our scientific and business team will review
early stage academic inventions, identify discoveries which are commercially
promising, obtain licenses from the University, and develop the discoveries to
add value by confirming the initial observations. Discoveries that support our
core technologies will be retained for further development; the remainder will
be licensed-out.
Our relationship with the scientists at the University of Florida is
based upon personal relationships between our management and University of
Florida members of our Scientific Advisory Board, on the one hand, and other
members of the University of Florida faculty on the other. These relationships
are helped by our nearby location and by the business consulting provided by our
management to University faculty at no cost, by arrangement with the
Biotechnology Program. We have 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, we 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 our 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, we
hope 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 Evaluation------Substantial commercial potential,
Very Early Stage \ 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 our core oxalate and diabetes areas to diversify and strengthen
our intellectual property estate and to establish our reputation and credibility
in the scientific and medical communities.
Collaborative Product Development and Marketing with Established
Companies. Ixion hopes to develop products in collaboration with other
companies. Collaborative agreements may call for our partners to provide
research funds as well as clinical and other support during product development,
although we may develop and test ideas independently before entering into a
collaborative agreement. We contemplate that our partners will provide an
established and trained marketing and sales force, as well as manufacturing
experience, clinical trial expertise, support for patent prosecution, and other
capabilities.
Independent Product Development. The quality of our scientific team
also permits independent product development. Independently developed products
will provide us with the flexibility either to market the product directly or
enter into agreements with pharmaceutical partners on terms more favorable to
us. While independent product development is riskier than collaborative
development, we may be able to retain a higher proportion of any eventual
product revenue stream.
Contract Clinical Trial and Manufacturing Services. Initially, we have
elected to retain contract vendors to support clinical studies and product
development. Moreover, it will not initially construct our own manufacturing
facilities. By contracting with a qualified manufacturing company, Ixion will be
able to obtain immediate access to the necessary regulatory skill base at low
entry costs. We thus expect to minimize the time to market, maintain control
over development candidates, and reduce our financial risk when product risk is
the greatest.
Product Development
Our first target product for diabetes will be cell lines of cultured
islet or stem cells for use in transplantation for diabetes treatment. Our first
target product for oxalate-related diseases will be the XEntrIX TM Oxalobacter
formigenes Monitor and the IxC1-62/47 enzymatic treatment for oxalate-related
conditions. We also plan 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 applications and, subject to certain limitations, would not
require FDA approval prior to use in that context. (See "Business - Government
Regulation," below.)
Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where our 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.
About 3,000 patients die each year while waiting for a pancreas graft.
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. We believe that a source of reproducible
islet cells would significantly improve the speed and results of research into
transplanted islets for diabetes.
Ixion's islet 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 further studies. We have also been successful in propagating
human islet cells from children and adult donors as well, but have not
transplanted such islets at the date of this prospectus.
The following table summarizes the current status of our islet research
and development program for diabetes products.
<PAGE>
Product Development-Diabetes Islet Technology
- --------------- -------------------------------------- --------------------
Product Planned Research Products Status(1)
- --------------- -------------------------------------- --------------------
Cultured Islets Implantation in vivo of encapsulated Research
or Stem Cells cells for study of protected
implantations to reverse diabetes
- ---------------------------------------------------------------------------
Genetically Implantation in vivo without encapsulation Concept
Engineered for study of unprotected implantations to
Concept Islets or reverse diabetes
Stem Cells
- ---------------------------------------------------------------------------
Islet Growth Promotion of cell growth and
Factors differentiation of pancreatic
explants Research
- ---------------------------------------------------------------------------
Nucleic Acid Genetic and phenotype analysis Concept
Probes
- ---------------------------------------------------------------------------
Surface Analysis of health or disease of Research
Antibodies 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
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Product Planned Clinical Products Status(1)
- --------------- --------------------------------------------- ------------------
Cultured Islets Encapsulated implantation in vivo to Concept
or Stem Cells reverse diabetes
- ----------------------------------------------------------------------------
Genetically Transplantation without encapsulation Concept
Engineered (or other mechanical means of immunologic
Islets or Stem protection) in vivo to reverse diabetes
Cells
- ----------------------------------------------------------------------------
Islet Growth Correct disease deficiencies
Factors Promote greater efficiency in culturing
cells for transplantation
Elucidation of diabetes disease process Concept
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. Except for our XEntrIX TM
Oxalobacter formigenes Monitor, there is no method of rapidly and easily
detecting the presence or absence of O. formigenes in the body. The current
tests for O. formigenes are laborious, time consuming, and unreliable.
The XEntrIX TM Oxalobacter formigenes Monitor. Our oxalate technology
consists of cloned, sequenced, and expressed genes encoding the oxalate
degrading enzymes from the intestine dwelling bacteria, Oxalobacter formigenes.
Dr. Sidhu, in collaboration with Dr. Milton Allison, a member of Ixion's
Scientific Advisory Board and the discoverer of O. formigenes, have used these
genes to construct a DNA-based diagnostic test (the XEntrIX TM Oxalobacter
formigenes Monitor) 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 XEntrIX TM Oxalobacter formigenes Monitor is a significant
improvement over current tests for O. formigenes and is an important potential
addition to routine diagnostic testing for several reasons.
Our XEntrIX TM Oxalobacter formigenes Monitor 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.
Our DNA-based method relies upon standard DNA techniques and does
not require anaerobic cultures of 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 XEntrIX TM Oxalobacter formigenes
Monitor is simple to perform and provides the required level of
sensitivity, accuracy, selectivity, and throughput necessary for a
commercial diagnostic test.
The XEntrIX TM Oxalobacter formigenes Monitor 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.
We are focusing ongoing development of the XEntrIX TM Oxalobacter
formigenes Monitor 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 evaluated include the
following: Bacteroides ovatus, Proteus vulgaris, Enterobacter
cloacae,, Eschericia coli, Enterobacter, aerogenes, Clostridium
perfringens, Closteridium sordellii, Veillonella parvula,
Streptococcus pneumoniae, Staphylococcus aureus, Pseudomonas
aerogenosa, Streptococcus bovis, Enterococcus faecalis,
Staphlycoccus epidermidis, Moorella thermoautotrop, Shigella
boydii, Proteus mirabilis, Salmonella typhimurium, Citrobacter
brakii, Lactobacillus acidophilus, Moraxella osloensis, Moorella
thermoacetica, Alcaligenes sp., and Klebsiella oxytoca.
Development of probes against clinically important intestinal
organisms such as those listed above. These, coupled with the
quantitative version of the XEntrIX TM Oxalobacter formigenes
Monitor, will provide for a panel of clinically important
diagnostic tests for enteric bacteria.
Development of a quantitative kit version of the XEntrIX TM Oxalobacter
formigenes Monitor.
In June of 1998, we agreed in principle with the University of Florida
Diagnostic Referral Laboratories for them to offer a service to physicians using
our XEntrIX TM Oxalobacter formigenes Monitor under the provisions of the FDA's
analyte specific reagent regulation. The Diagnostic Referral Laboratories are
responsible for marketing the new service, which costs $295 per sample. No
reimbursement is yet available for patients requesting this test. Sales to date
have been immaterial.
We expect to file an application under Section 510(k) of the FDA Act
for clearance to market the XEntrIX TM Oxalobacter formigenes Monitor directly.
There is no assurance that the Ixion Oxalobacter formigenes Monitor will qualify
for 510(k) procedure, in which case we will have to file an application for
premarket approval with the FDA. If we must follow the premarket approval route,
the approval process may be lengthy.
IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease. In addition to
the XEntrIX TM Oxalobacter formigenes Monitor 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.
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 initiated the process of purifying
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) further animal studies. We are also purifying the native form
of the oxc and frc enzymes from O. formigenes, to provide comparative data to
the recombinant versions. We have not determined whether the recombinant or
native enzymes will be used therapeutically. The current intention is to file an
investigative new drug application for the IxC1-62/47 enzymatic therapy for
oxalate-related disorders when resources permit.
The XEntrIX TM Oxalobacter formigenes Monitor 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 Oxalobacter formigenes Monitor. The Quantitative-PCR
Oxalobacter formigenes Monitor 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. We believe that a robust colony of O. formigenes prevents recurrent
calcium-oxalate kidney stone formation in persons susceptible to excess oxalate
absorption and may ameliorate other disease states. We believe that we are 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 the future 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 our oxalate
product research and development program.
<PAGE>
Product Development-Oxalate Technology
- ----------------- ---------------------------------------------- ---------------
Product Planned Research Products Status (1)
- ----------------- ---------------------------------------------- ---------------
Oxalobacter Detection of O. formigenes in stool Preclinical
formigenes for vulvodynia and kidneystone research
Monitor
- ----------------- ---------------------------------------------- ---------------
Blood Oxalate Measurement of oxalate levels in blood for Concept
Assay research in kidney stone, hyperoxaluria,
cystic fibrosis, Crohn's disease,
vulvodynia, and other oxalate-related
diseases
- --------------------------------------------------------------------------------
Planned Clinical Products
- ------------------ --------------------------------------------- ---------------
Oxalobacter Detection of O. formigenes in stool for Preclinical
formigenes oxalate-related and other oxalate-related
Monitor disorders
- ------------------- -------------------------------------------- ---------------
IxC-162 Enzyme Treatment of oxalate-related disorders: Preclinical
Therapy Kidney Stones
Crohn's Disease
Cystic Fibrosis
Hyperoxaluria
Vulvodynia
Other oxalate-related diseases
- ------------------- -------------------------------------------- ---------------
Blood Oxalate Assay Diagnostic oxalate detection kit for blood Concept
- ------------------- -------------------------------------------- ---------------
Dialysis Cartridge Rapid removal of excess oxalate in blood Concept
- ------------------- --------------------------------------------- --------------
Oxalate-Resistant Catheter coated to avoid oxalate Concept
Catheter 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
We have exclusively licensed from the University of Florida Research
Foundation, on a world-wide basis, commercial rights in two areas: in vitro
grown islet progenitor/stem cells for curing diabetes, and materials and methods
for detection of oxalate and Oxalobacter formigenes.
Under the UF Research Foundation licenses, we have been issued two US
oxalate patents and one US islet patent. We have received notice of allowances
of claims in one US oxalate patent and one US islet patent. Still pending are
five US oxalate patent applications and one islet patent application. We have
also filed internationally on each of these patent families, but no foreign
patent has issued.
The license agreements require the UF Research Foundation to file and
prosecute the patents and require us to reimburse the costs. They must also take
all steps to defend such patent rights, also at our expense. If the UF Research
Foundation fails to take any such action, we have the right to defend such
rights at our own expense.
Except for royalty rates and certain other immaterial differences, the
terms of our patent licenses with the UF Research foundation are substantially
identical. The UF Research Foundation licensed its rights under on an exclusive,
worldwide basis for the life of any patents granted thereunder. We have rights
under the UF Research Foundation 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 our license, we must use our 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, we must
provide annual business plans showing our plan for product development.
Under the UF Research Foundation licenses, we paid a license issue fee,
are obligated to pay royalties on our net sales or net sales of our
sublicensees, and must reimburse the UF Research Foundation for patent costs.
There are no minimum annual royalties. We are also obliged to obtain product
liability insurance prior to the sale for commercial purposes of licensed
products. There is no assurance that we 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 our
licensed technologies. We is aware of patent applications previously filed by
and patents already issued to others that could conflict with our patents or
patent applications, either by claiming the same methods or compounds or by
claiming methods or compounds that could dominate those licensed to us. In
addition, we can not assure you that we are aware of all patents or patent
applications that may materially affect our ability to make, use, or sell any
products. United States patent applications are confidential while pending in
the United States Patent and Trademark Office, and patent applications filed in
foreign countries are often first published 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 us and limit our ability to obtain meaningful patent protection. If patents
are issued to other companies that contain competitive or conflicting claims, we
may be required to obtain licenses to these patents or to develop or obtain
alternative technology. We can not assure you that we will be able to obtain any
such license on acceptable terms or at all. If such licenses are not obtained,
we could be delayed in or prevented from the development or commercialization of
our product candidates, which would have a material adverse effect on us.
We are aware of potentially significant risks relating to our islet
technology and to our oxalate technology, particularly bacterial oxalyl-CoA
decarboxylase, an enzyme used in the XEntrIX TM Oxalobacter formigenes Monitor
and our IxC1-62/47 enzyme therapy. We may not be able to commercialize our
proposed diabetic products based on our method of proliferating islets and stem
cells in vitro or our proposed oxalate-related disease management products, both
due to patent rights held by third parties. As a result, our position with
respect to the use of islets or stem cells or products containing oxalyl-CoA
decarboxylase are uncertain and involve legal and factual questions that are
unknown or unresolved. Although we believe our patents and patent applications
provide a competitive advantage in our efforts to discover, develop, and
commercialize useful products, if any of these questions is resolved
unfavorably, we may not have the right to commercialize products relating to
certain aspects of islet 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. Our inability to
commercialize any of these products would have a material adverse effect on us.
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
patented method is similar, but not identical, to our islet technology. Archer's
patent was licensed to CytoTherapeutics, Inc. in 1991. CytoTherapeutics may have
filed patent applications in foreign countries based upon Archer's patent and
may have additional patent applications on the same general subject matter
pending in the United States.
We are 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. Subsequently, on June 7, 1995, Human Cell Cultures filed in the U.S.
a continuation of its second (now abandoned) U.S. application, and has been
issued US patents. Dr. Coon's patents claim methods which are also similar, but
not identical, to our islet technology. There may have been additional patent
applications filed in the United States or foreign countries based upon the Dr.
Coon's work.
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 our 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. We can not assure you that the owners of
Archer's patent nor the owners of Coon's patents will not challenge our islet
patents or patent or that we will succeed in defending any such challenges. We
also can not assure you that the sale of islet products by us would not be held
to infringe United States and foreign patent rights of the owners Archer's
patent and Coon's patent. 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 were determined that products derived
from our islet technology infringe Archer's patent or Coon's patents, we would
not have the right to make, use, or sell our islet products in one or more
countries in the absence of a license from the owners of such patents. We can
not assure you that we could obtain a license from such owners on acceptable
terms or at all.
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 Human
Genome 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 our bacterial
oxalyl-CoA decarboxylase is found to infringe the patent owned by Human Genome
Sciences, then we 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 we 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 us, may also be
necessary to enforce any patents to which we has rights or to determine the
scope, validity, and enforceability of other parties' proprietary rights, which
may affect our product candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. Our licensors may also have to participate in interference
proceedings declared by the Patent Office to determine the priority of an
invention, which could result in substantial cost to us. There can be no
assurance that our licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the technology licensed by us from the UF
Research Foundation, they are primarily responsible for any litigation,
interference, opposition, or other action pertaining to patents or patent
applications related to the licensed technology, and we are required to
reimburse them for the costs. As a result, we generally do not have the ability
to institute or determine the conduct of any such patent proceedings unless they
do not elect to institute or elects to abandon such proceedings. In cases where
they elect to institute and prosecute patent proceedings, our rights will be
dependent in part upon the manner in which they conduct the proceedings. The UF
Research Foundation could elect not to vigorously pursue or defend or to settle
such proceedings on terms that are not favorable to us. An adverse outcome in
any patent litigation or interference proceeding could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or require us to cease using such technology, any of which could have a
material adverse effect on us.
We can not assure you that any existing patent application, or any
future patent application will issue or that any patents, if issued, will
provide us with adequate patent protection with respect to the covered products,
their uses, technology, or processes. In addition, under our licenses, we are
required to meet specified diligence requirements to retain our rights. See
"Risk Factors - Uncertainty Regarding Patents and Proprietary Rights."
In January 1997, we 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, we paid
a license issue fee of 1,000 shares of our Common stock and is obligated to pay
royalties of 2% on net sales by Ixion or our 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 11 years).
Because the inventions covered by our licenses were made with federal
assistance (which is typical of university-based discoveries), they are subject
to the rights of the federal government under 35 USC Title 18, "Patent Rights in
Inventions Made with Federal Assistance," including "march in" rights under
which the government has the right to require us to grant an exclusive license
under any of such inventions to a third party if the government determines that
(1) adequate steps have not been taken to commercialize such inventions, (2)
such action is necessary to meet public health or safety needs, or (3) such
action is necessary to meet requirement for public use under federal
regulations. The government's 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 our 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 our policy to require our 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 us. These agreements provide that all confidential information developed or
made known to the individual during the course of his or her relationship with
us 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 us
shall be assigned to us as our exclusive property (subject, in the case of Dr.
Peck, to the prior rights of the University of Florida). There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for our trade secrets or other proprietary information in the
event of an unauthorized disclosure or will be effective to assign inventions.
Certain of our research has been funded in part by Small Business
Innovation Research grants and may be funded in the future by such grants and by
Small Business Technology Transfer Research grants. In connection with any such
funding, the U.S. Government will have the rights described above.
In order to produce or use the XEntrIX TM Oxalobacter formigenes
Monitor in its current formulation or to produce the Blood Oxalate Assay (and
other immunodiagnostic products) in commercial quantities for resale, it will be
necessary to license certain rights from Roche Diagnostics, Inc., the holder of
patents on the 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. Ixion does not anticipate that the
terms of such license will have a materially adverse effect on us.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our 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 ours. 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.
Our products under development are expected to address a broad range of
markets. Our competition will be determined in part by the potential indications
for which our 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 our 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. Our competitive
position will also depend on our 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. We expects our 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 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 commercially distributed 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 our planned products, such as the diabetes
treatment products, will be regulated as drugs and biologics. The Food, Drug,
and Cosmetic Act and the Public Health Service Act 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:
preclinical laboratory and animal testing, submission to the
FDA of an investigational new drug application which must be
effective prior to the initiation of human clinical studies,
adequate and well-controlled clinical trials to establish
safety and efficacy for its intended use, submission to the
FDA of an new drug application or biologics license
application, and review and approval of the new drug
application or biologics license application 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 investigational new drug application. If a
company is not notified by the FDA within 30 days of submission, the company may
initiate Phase I clinical trials. 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 a 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 a new drug application (in the
case of a drug) or biologic license application (in the case of a biologic). The
FDA may request additional information, including additional animal studies or
clinical trials that may extend the review process and delay marketing approval.
The manufacturer must also pass a premarket inspection of its compliance with
good manufacturing practices. There can be no assurance that the FDA will
authorize marketing of the product, or that it will do so in a timely manner.
Once granted, an new drug application or product license application may place
substantial restrictions on how the product is marketed. After FDA approval of
the new drug application or biologic license application 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 our planned products (e.g., the in vitro
diagnostic products such as the XEntrIX TM Oxalobacter formigenes Monitor), will
be regulated as medical devices. The FDA regulates the clinical testing,
manufacture, labeling, distribution, and promotion of medical devices. 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 good manufacturing
practices), and class II devices are subject to general and specific controls
(for example, performance standards, patient registries and FDA guidelines).
Generally, class III devices are those which must receive a premarket approval
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) 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 application before marketing can begin.
Premarket approval applications must demonstrate, among other matters, that the
medical device is safe and effective. A premarket approval application is
typically a complex submission, usually including the results of preclinical and
clinical studies, and preparing an application is a detailed and time-consuming
process. Once a premarket approval 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 the
quality systems regulations. There can be no assurances that the FDA will
authorize marketing of the product under a 510(k) or a premarket approval, 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 requirements, which usually involve FDA review
of the investigation before it may begin. Clinical investigations of many in
vitro diagnostic tests are exempt from the investigational device exemption
requirements, provided the testing meets certain exemption criteria, including
labeling as an "investigational use only" product. In addition, in vitro devices
may be distributed for "research use only," provided they are intended for
laboratory research and labeled for research use. The FDA's current policy is to
encourage manufacturers of in vitro devices for "investigational use only" or
"research use only" to establish a certification program under which these in
vitro devices 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 "investigational use only" or
"research use only" product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.
Once granted, a 510(k) clearance or premarket application approval may
place substantial restrictions on how a device is marketed. Even where a device
is exempted from 510(k) clearance or premarket application approval, the FDA may
impose restrictions on marketing. For example, FDA has exempted many analyte
specific reagents not sold as finished test kits from obtaining 510(k) clearance
or premarket application approval. These reagents, however, may be marketed only
to clinical laboratories certified under the Clinical Laboratories Improvements
Act to conduct tests of high complexity and are subject to a number of labeling
requirements.
Ixion's Products. We have agreed, as discussed above, with the
University of Florida Diagnostic Referral Laboratories for them to offer a
service to urologists and other physicians based on our XEntrIX TM Oxalobacter
formigenes Monitor. We believe this agreement is permitted under the provisions
of the FDA's analyte specific reagent regulation; however, we can not assure you
that our reliance on that regulation will be accepted by the FDA.
The XEntrIX TM Oxalobacter formigenes Monitor and Blood Oxalate Assays,
when manufactured by or for us, 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, we intend to request authorization under the
510(k) procedure for the XEntrIX TM Oxalobacter formigenes Monitor and perhaps
the Blood Oxalate Assay. Premarket approval applications may, however, be
required for each of these products.
We believe that our diabetes treatment products and enzyme therapy for
treatment of oxalate-related disorders will require either an new drug
application or a biologic license application before they may be commercially
distributed. There can be no assurance that the FDA will accept our views on the
regulatory status of our 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. The law or government regulations
may change in ways that could prevent or delay marketing authorization for our
products. Delays in receipt of, failure to receive, or loss of previously
received approvals could have a material adverse effect on our 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. We intends to rely on our 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 us to enter into supply contracts with the
government, and criminal prosecution.
Non-U.S. Marketing. For marketing outside the United States, we 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. We intends to rely on our strategic partners both in the United
States and abroad for assistance with these matters.
Florida Conflicts of Interest. Because Dr. Peck, our Chief Scientist, Dr.
Schuster, Dr. Khan, and Dr. Schatz, members of our Scientific Advisory Board,
are employees of the Florida State University System, they, and consequently we,
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 research support agreements), we must obtain and
maintain an exemption for Dr. Peck from the application of the Florida conflict
of interest statutes, obtain approvals for outside activities for Drs. Schuster,
Khan, and Schatz.
Exemptions for Dr. Peck are issued pursuant to a monitoring plan which
requires us, among other things, to promptly disclose every material transaction
between us 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 us 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 requests to renew Dr. Peck's exemption for the academic years
ended June 30, 1998 and June 30, 1999 have been filed and are pending. The
approval process can take 12 or more months. While we have no reason to believe
that Dr. Peck's requests 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. Furthermore, it is not clear what the effect of a non-renewal
will be should the University decline to renew the exemptions on a timely basis
or at all.
Manufacturing and Marketing
We have 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 our products in other
countries outside of the United States. While using third parties for
distribution or marketing permits us to avoid the costs of establishing a
distribution or marketing network in a particular area, this strategy also makes
us 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. We believe there will be demand for the XEntrIX TM
Oxalobacter formigenes Monitor 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 XEntrIX TM Oxalobacter formigenes Monitor.
For the use of the XEntrIX TM Oxalobacter formigenes Monitor, the blood
oxalate assay, and our IxC1-62/47 enzyme therapy in the management of kidney
stones, we plan to target the country's approximately 7,300 in-office
urologists. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy for managing kidney stone risk in cystic fibrosis
patients, we plan to target the cystic fibrosis treatment centers in the United
States. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy in the diagnosis and treatment of vulvodynia, we
intend to approach the market through the 35,000 gynecologists practicing in the
United States.
Marketing Strategy. The strategy for marketing islet-related products
will depend on collaborations with third parties with greater marketing
resources than we.
The marketing strategy for the XEntrIX TM Oxalobacter formigenes
Monitor depends upon educating urologists and nephrologists of its clinical
usefulness. 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 XEntrIX TM Oxalobacter formigenes Monitor 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 XEntrIX TM Oxalobacter
formigenes Monitor 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. Ix XEntrIX TM ion Oxalobacter formigenes Monitor 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, we intend to
invest in both physician education programs, and, assuming funds are available,
consumer awareness campaigns. We 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, we propose to inform urologists about our
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 our vulvodynia products and the cystic fibrosis market for the management of
kidney stone risk.
In each case, we intend to participate in urology, nephrology, gynecology,
and other industry trade meetings and to exploit on-line medical databases and
our own web site. Finally, as stated above, we intend to use third-party sales
forces to amplify our efforts. See "Business - Business Strategy."
Facilities
In October 1998, we leased approximately 3,600 rentable square feet of
equipped laboratory space and approximately 1,413 rentable square feet of office
space at 13709 Progress Blvd., Alachua, Florida, across the street from our old
location in the business incubator owned by the University of Florida at the
Biotechnology Development Institute. Our lease has a three-year term, expiring
in September 2001, with two one-year renewal options. We are developing a small
scale facility in our lab suite to produce preclinical quantities of our XEntrIX
TM Oxalobacter formigenes Monitor TM as well as IxC1-62/47. Commercial scale
production will be subcontracted to contract manufacturers. See "Business -
Business Strategy" Annual payments (not including utilities) are approximately
$84,000.
For a fee of $1,000 for 1999, we have a graduate membership agreement with
the Biotechnology Development Institute under which we have access to
specialized facilities such as animal rooms, small-scale fermentation
capabilities, and glass washing and autoclaving facilities. As a graduate
member, we may also use the specialized equipment located in the centralized
instrument lab in the Biotechnology Development Institute at no extra cost, and
we may use the services of the University's Core Laboratories including the
Recombinant Protein Expression Core, the Flow Cytometry Core, the Protein
Chemistry Core, and the Electron Microscopy Core at a special graduate
membership rate.
We believe these facilities will be adequate for the foreseeable future.
Contract Suppliers and Manufacturers. It is our present intention to enter
into agreements with contract testing and manufacturing entities to test and
manufacture commercial quantities of our 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" requirements
applicable to such a facility.
Legal Proceedings
We are not a party to any legal proceedings and are not aware of any
threatened litigation or regulatory action that could have a material adverse
effect on our business, financial condition, or results of operations.
Employees
We have five full time employees. Our six part time employees include Dr.
Peck, who is an exclusive consultant, Mr. Peck, President and Chief Financial
Officer, and Ms. Ramsey, Controller. Ixion is not subject to any collective
bargaining agreements and believes that our relationship with our employees is
good.
Scientific Advisory Board
None of the members of the Scientific Advisory Board are our employees.
Scientific advisors spend only a small portion of their time to our affairs and
have commitments to other institutions that may conflict or compete with their
obligations to us. Scientific advisors collaborate with us on research grant
applications, review and evaluate our research programs, advise us about
technical matters, consult on product planning and feasibility studies, assist
in establishing research priorities, provide guidance on clinical evaluation
programs, alert us to potential collaborators, advise us on new developments,
and recommend personnel.
The Scientific Advisory Board meets periodically as a group. In addition,
some members may meet in smaller groups or individually with our scientists.
Ixion has confidentiality agreements with each scientific advisor providing that
all confidential information shall be our exclusive property. Scientific
advisors are not paid in cash, but are reimbursed expenses, and, pursuant to the
1994 Board Retainer Plan, receive 5,000 restricted shares of Ixion'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 are the following:
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.
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 from the University College, Dublin, Ireland
and her Ph.D. in 1978 from Trinity College, Dublin, Ireland.
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 undergraduate degree from Agra
University in Agra, India, his masters of science degree from the Peshawar
University, Peshawar, Pakistan, and his Ph.D. from the University of Florida.
Desmond Schatz, M.D. Dr. Schatz is the Medical Director of the Diabetes
Center and Associate Professor of Pediatric Endocrinology at the University of
Florida Medical School. He is a Diplomate of the American Board of Pediatric
Endocrinology and a member of the American Diabetes Association, the
International Diabetes Federation, and the Immunology of Diabetes Society. He
received his undergraduate degree from St. David's College in Johannesburg,
South Africa, and his medical degree from the University of the Witwatersrand
Medical School in Johannesburg.
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 co-founder and chairman of the scientific advisory board 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.
Hans Wigzell, M.D., D.Sc. Dr. Wigzell is presently the Rector of
Stockholm's famed Karolinska Institute. He received his medical degree and
doctorate of science. from Karolinska. 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.
<PAGE>
MANAGEMENT
Officers, Directors, and Key Employees
The following table sets forth certain information with respect to our
officers, directors, and significant employees and consultants.
Name Age Position
Weaver H. Gaines (1) 55 Chairman and Chief Executive Officer
David C. Peck (1,2) 51 President, Chief Financial Officer, and
Director
Ammon B. Peck, Ph.D. 53 Senior Vice President and Chief
Scientific Officer and Chairman
of the Scientific Advisory Board
David M. Margulies, M.D. (2) 47 Director
Vincent P. Mihalik (2) 48 Director
Karl-E. Arfors, Ph.D. (2) 62 Director
Vijay K. Ramiya, Ph.D. 38 Director of Research, Diabetes Division
Harmeet Sidhu, Ph.D. 40 Director of Research, Oxalate Division
Janet Cornelius, MS 58 Associate Director of Research,
Diabetes Division
Kimberly A. Ramsey 41 Controller
(1) Member of Executive Committee
(2) Member of Audit and Benefits Committee
Certain of our key personnel are part-time employees or consultants
who, at our present stage of development are not required full time. Mr. Peck,
our President and Chief Financial Officer devotes time to our 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"). Janet Cornelius,
Associate Director of Research, Diabetes Division devotes four days per month
(the remainder of her 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 us is limited by the University of Florida to
not more than 48 days per year), each other officer, employee, or consultant is
available when required and is not limited as to the time spent on Company
affairs.
Mr. Gaines is a co-founder of Ixion and has been our Chairman and Chief
Executive Officer and a Director since April, 1993. He is Ixion's only full-time
officer. He was also our President 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 past 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. 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 Ixion 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 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 Senior Vice President and
General Manager, Lab Systems and Molecular Biochemicals, Roche Diagnostics. From
November of 1996 until June 1998, he was Executive Vice President, Group
Personnel, Corange International Holding BV, the parent company of Boehringer
Mannheim Corporation. From November 1995 to 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, he was Senior Vice
President, Strategic Business Development/Commercial Operations for Diabetes
Care - Americas of Boehringer Mannheim. 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. Arfors became a director in June, 1998. From 1993 to the present he has
been President of Experimental Medicine, Inc., a company he founded. Previous
experience includes various research positions with Pharmacia, AB, of Uppsala,
Sweden, president and co-founder of the La Jolla Institute for Experimental
Medicine, and executive director for biological sciences for the Liposome
Company. He received his undergraduate degree from the University of Uppsala,
his B.M. (med kand) from the Medical Faculty at the University of Uppsala, and
his Fil. Lic. (genetics) from the University of Uppsala.
Vijayakumar K. Ramiya, Ph.D., joined us in 1998 as Director of Research,
Diabetes Division. From 1996 to 1998, he was a visiting Assistant Professor at
the Laboratory of Immuogenetics at the University of Illinois. Prior to that he
was a Research Assistant Professor at the University of Florida. Dr. Ramiya
earned his Ph.D. in immunology, and his master of science and bachelor of
science degrees from the Madurai Kamaraj University, Madurai, India. Dr. Ramiya
has extensive experience in insulin-dependent diabetes, having overseen
diabetes-related research projects at the University of Florida and basic
immunology projects at the University of Illinois, Cambridge University and the
University of Kentucky. He is a member of the American Diabetes Association.
Dr. Harmeet Sidhu joined us as a full-time consultant in May of 1995 and
became a full-time employee and Director of Research, Oxalate Division 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 us on July 1, 1997 as a part-time employee.
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 the islet technology work in collaboration with
Dr. Peck. She is a co-inventor of the islet 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 Ixion in June 1995 as a part time employee. 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. Our Bylaws authorize the Board of
Directors from time to time to determine the number of its members. The Board
currently consists of five members whose terms expire in 1999. Successors to
those directors whose terms have expired are required to be elected by
stockholder vote; vacancies in 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
Mr. Mihalik, Dr. Margulies, and Dr. Arfors, recommends to the Board of Directors
the appointment of our 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 our officers, key employees, and key consultants and administers our 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, 1998, our Chairman and Chief Executive Officer, our President,
and our Senior Vice President and Chief Scientist for the years ended December
31, 1996, 1997, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation Awards
Restricted Securities
Deferred Cash All Other Stock Underlying
Name Year Salary Salary Compensation Awards Options/SARs
<S> <C> <C> <C> <C> <C> <C>
Weaver H. Gaines (1) 1996 $25,000 $60,000 $0 $0 0
Chairman and CEO 1997 $23,750 $71,250 $0 $0 0
1998 $95,000 0 $0 $0 19,000
David C. Peck (2) 1996 $25,000 $35,000 $0 $0 0
President & CFO 1997 $20,000 $40,000 $0 $0 0
1998 $60,000 0 $0 $0 12,000
Ammon B. Peck (3) 1996 $ 5,000 $35,000 $0 $0 0
Sr. V.P. & Chief 1997 $16,667 $33,333 $0 $0 0
Scientist 1998 $50,000 0 $0 $0 10,000
</TABLE>
(1) Mr. Gaines joined Ixion at its inception in March 1993.
(2) Mr. Peck joined Ixion in April 1994. He is paid a consulting fee
rather than a salary. (3) Dr. Peck began consulting for Ixion in June
1994. He is paid a consulting fee rather than a salary.
In July 1998, we granted incentive stock options under our 1994 Stock
Option Plan to the executive officers shown above. They are exerciseable at
$10.00 per share. All of the granted options have 10 year terms.
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 we has sufficient cash to pay such bonuses
prudently) or deferred bonuses, based on our financial performance. For 1998,
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 last quarter of each year relating to the prior 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 we
achieve our approved goals, to no award if we achieve less than 70% of its
approved goals. Although the Committee recommended awards relating to 1997, none
has been granted as a result of our efforts to conserve resources.
Deferred Compensation Plan
In January, 1994, the Board of Directors adopted a Deferred
Compensation Plan for Ixion's officers, key employees, and consultants,
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. Our only obligation
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 at a price 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 our
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 6.54%.
At December 31, 1998, balances in the deferred accounts for Ixion's
executive officers and key consultant were as follows:
Name Capacities in Deferred Compensation
Which Served Balance (1)
- ----------------- ------------------------------ -----------------------------
Weaver H. Gaines Chairman and Chief Executive
Officer $356,965
David C. Peck President and Chief Financial
Officer $223,411
Ammon B. Peck, Ph.D. Senior Vice President, Chief
Scientist, and Chairman,
Scientific Advisory Board $110,761
(1) Includes accrued interest.
Employment Agreements
We have entered into written agreements (the "Employment Agreements")
with two of our 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 we have 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, 2000. 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 we or the executive has
the right to terminate the agreement at any time upon 60 days' notice. A
termination by Ixion "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 us 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 pursuant
to the terms of the Deferred Compensation Plan. Termination is deemed without
cause or for "Good Reason" if
there is a reduction in the executive's annual aggregate
compensation or benefits, there is a diminution in the
executive's position, powers, authority, duties, or
responsibilities, or there is a material breach of the
Employment Agreement by Ixion.
The Employment Agreements contain covenants that an executive must
refrain from engaging in any business competitive with us 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 of our proprietary
information during the period of his employment, or thereafter. All inventions
relating to biotechnology generally conceived while rendering services us must
be assigned to us.
Consulting Agreement with Dr. Peck
We have an exclusive consulting agreement expiring on December 31, 2000
with Dr. Ammon B. Peck for consulting services relating to our business and
technology. The fee is $50,000 per year. Dr. Peck is obligated to devote 48 days
of service per year to us, 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 us any inventions or intellectual property rights developed by 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. We have a life insurance
policy on the life of Dr. Peck in the amount of $500,000 payable to us.
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 our
business and growth, and to provide those personnel with an opportunity to
participate in our growth, development, and financial success.
The Plan reserves an aggregate of 250,000 shares (approximately 6.0% of
the 4.0 million authorized shares) of our 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, 1998, options to
purchase 100,900 shares were outstanding, and 224,100 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 our 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 us 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.
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 our stock
or any subsidiary of ours). The price may be paid in cash, by promissory note,
or previously owned shares.
1994 Board Retainer Plan
We do not pay cash compensation to outside members of the Board of
Directors or to members of the Scientific Advisory Board, but we do 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 us 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 us 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 us 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 74,000 shares have been issued. No
specific number of shares have been reserved for grants to key employees in
connection with the commencement of employment. 25,050 shares have been issued
to employees as hiring bonuses
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of certain transactions among Ixion and
related persons.
Commencing with our founding, Messrs. Gaines and D. Peck made loans to
us pursuant to the terms of a subordinated convertible promissory note. 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 convertible promissory 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 convertible promissory notes.
On August 31, 1994, Messrs. Gaines and D. Peck each converted $9,000 of
principal amount of subordinated convertible promissory notes into an aggregate
of 900,000 shares of Ixion'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 us 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 us 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 Ixion's
founders, including a partnership in which Mr. Gaines has an undivided 25%
interest, purchased an aggregate of 140,000 shares of Ixion'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.
As of January 1, 1996, we purchased used laboratory equipment with a
replacement value in excess of $60,000 from Carl Therapeutic, Inc. (controlled
by one of our vice presidents), 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 each entered into a revolving agreement to extend us up to $25,000 in
the form of bridge loans. Under these agreements, we borrowed a total of
$32,099.56, all of which was repaid in cash 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. During 1998, we borrowed a total of
$350,000 in bridge loans from these officers. The officers have been lending
money to us to fund operations; however, they have no commitment to lend
additional funds in the future.
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.
We believe that the terms of the Bacompt transaction are at least as fair to us
as could have been obtained from unaffiliated third parties. Under this
agreement, we have paid Bacompt a total of $11,533 as of the date of this
prospectus.
Because of their managerial positions and stock holdings in Ixion, and
their activities related to our organization, Messrs. Gaines and Peck, and Dr.
Peck may be deemed to be "promoters" as that term is used under the Securities
Act.
It is our policy that any material transactions or loans, and any
forgiveness of loans, between officers, directors, or material shareholders and
us must be approved by a majority of our 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 us than those
that can be obtained from unaffiliated third parties. All of the above
transactions were entered into in compliance with our 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 (1) each person known by us to
be the owner of more than 5% of the aggregate outstanding shares of common
Stock, (2) each officer and director and (iii) all officers and directors as a
group.
Amount and Nature of
Beneficial Ownership
Percentage of
Shares Owned
Name and Address of Number of Prior to After
Beneficial Owners (1) Shares Offering Offering(2)
Ammon B. Peck, Ph.D. 655,000(3) 26% 24%
David C. Peck 416,234(4) 16% 15%
Weaver H. Gaines 553,512(5) 22% 20%
David M. Margulies 21,875(6) (7) (7)
Vincent P. Mihalik 14,400(8) (7) (7)
Karl-E. Arfors 5,000 (7) (7)
All officers and 1,667,021 65% 62%
directors as a group
(6 persons)
(1) Address is 13709 Progress Blvd., Box 13, 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, but excludes 10,000 shares issuable
under options not currently exercisable. (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, but excludes 12,000
shares issuable under options not currently exercisable. (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, but
excludes 19,000 shares issuable under options not currently
exercisable.. (6) Includes 4,875 shares issuable upon exercise of
currently exercisable options, but excludes 5,125 shares issuable
under options not currently exercisable. (7) Less than 1.0%. (8)
Includes 3,400 shares issuable upon exercise of currently exercisable
options but excludes 5,100 shares issuable under options not currently
exercisable.
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of common stock and 0.25 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, Ixion's authorized capital consists
of 4,000,000 shares of common stock, $0.01 par value. As of January 31, 1999,
there were 2,514,014 shares of common stock outstanding, held of record by
approximately 100 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 Ixion, 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); holders other
than approved qualified charitable organizations may not exercise except between
December 9, 2006, and the December 9, 2007. 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 Ixion and SunTrust Bank, Atlanta, as
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 us 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 December 9, 2007.
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 way to channel 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 us as described below.
The following are the approved qualified charitable organizations as of
the date of this prospectus.
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
us, in our absolute discretion, from time to time until December 9, 2007. 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 us, or they may be nominated by a registered holder.
Registered holders wishing to nominate a charitable organization must send their
nomination in writing to us, 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.
We 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 December 9, 2007. 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 December 9, 2007. 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, we will make an adjustment upon a reclassification
or in case of a consolidation or merger with or into another company or the sale
of all or substantially all of our assets, 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. Upon notice to the Warrant holders, we have
the right to reduce the exercise price or extend the expiration date of the
Charitable Benefit Warrants.
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 Ixion issued $787,270 of unsecured convertible notes due 2001.
$215,600 of the unsecured convertible notes pay interest at 10% and $571,670 of
the unsecured convertible notes do not pay cash interest but are converted at
declining conversion prices. The unsecured convertible notes were issued under a
note purchase agreement, dated as of September 13, 1996, between Ixion and the
initial purchasers of the unsecured convertible notes. The 10% unsecured
convertible notes accrue interest at the stated rate until maturity, or
conversion, and pay interest quarterly. The 10% unsecured convertible notes are
convertible into shares of our common stock at any time prior to maturity at a
conversion price of $4.20 per share. The variable unsecured convertible notes
are non-interest bearing and are convertible into shares of our 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 Unsecured convertible notes prior to conversion, as
shown in the table below:
Converted at
End of 1996 1997 1998 1999 2000 2001
- ------ ---- ---- ---- ---- ---- ----
November $4.10 $4.00 $3.60 $3.20 $2.80 $2.40
February $3.90 $3.50 $3.10 $2.70 $2.30
May $3.80 $3.40 $3.00 $2.60 $2.10
August $3.70 $3.30 $2.90 $2.50
Outstanding Common Stock Purchase Warrants
As of December 31, 1998, 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 we
issue, sell, or otherwise distribute common stock at a price
which is less than the then current market price of the common
stock,
issue 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,
issue convertible securities whose conversion price is less than
the then current market price of the common stock, or
pay a dividend of cash or other property in any one year greater
than 10% of the then current market price of the common stock.
Ixion 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. Upon notice to the holders of the warrants, we have 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 ours will be liable for monetary damages for breach of
fiduciary duty as a director, except
for any breach of the director's duty of loyalty to us or
its stockholders, for acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of
law, for approval of certain unlawful dividends or stock
purchases or redemptions, and for any transaction from which
the director derived an improper personal benefit.
In appropriate circumstances, equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law.
We intend 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 ours regardless of whether we have the
power to indemnify the director against such liability under applicable law.
We have been advised that it is the opinion of the SEC 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.
We 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. Ixion does not currently intend to make distributions with
respect to the common stock. However, any distributions that are made by Ixion
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
our current or 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 our 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 us.
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. We have 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 us; or (d) is of stock held by a noncorporate stockholder and is in
partial liquidation of Ixion. 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 will be the sum of (1) its basis in the
Charitable Benefit Warrant and (2) the cash paid upon exercise of the Charitable
Benefit Warrant. The holding period for capital gain and loss purposes for the
shares received upon exercise 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 shares received
upon exercise 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 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 our assets or earnings and profits 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 our 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 December 9, 2007,
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 December 9, 2007,
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
our history and prospects, our 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.
SHARES ELIGIBLE FOR FUTURE SALE
At the completion of this offering, there will be 2,629,594 shares of
common stock outstanding if all Units are sold. There will be 100,400 shares of
common stock issuable upon the exercise of outstanding options, 61,130 issuable
upon the exercise of outstanding warrants, and up to 323,557 shares of common
stock issuable upon conversion of our unsecured convertible notes. There is no
current market for our securities, and it is unlikely there will be one at the
conclusion of this offering.
Should we elect to register our securities in the future, we cannot
predict whether a market for our 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 our ability to raise capital through the sale of its equity
securities.
Sales of Restricted Securities
All 2,479,594 outstanding shares of common stock which are not
registered in this offering, all outstanding warrants (not including the
Charitable Benefit 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 us 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 are entitled to certain
contingent piggyback registration rights, subject to the terms and conditions of
the agreement to purchase shares. Under that agreement, if at any time during
the period ending October 9, 2004, Ixion registers any shares of common stock on
certain SEC forms, one or more holders of the October 10 purchasers may request
that all or a part of their securities be included in the registration
statement. We are required to bear all registration and selling expenses (other
than underwriter's fees, discounts, or commissions) in connection with the
registration of those shares. 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 our common stock as of
September 30, 1998 are entitled to certain demand registration rights, subject
to the terms and conditions of their employment agreements. Subject to certain
exceptions, if we are 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 we register at least 100,000 shares 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 us under the
Act. We will bear all registration and selling expenses (other than
underwriter's fees, discounts, or commissions) in connection with the
registration of their 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 we 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. We will pay the
expenses of the registration (other than transfer taxes, underwriting
commissions, and fees of warrant holders' counsel).
Under 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 contingent
piggyback registration rights. We will pay the expenses of the registration
(other than transfer taxes, underwriting commissions, and fees of the converting
note holders' counsel).
PLAN OF DISTRIBUTION
We propose to sell up to 150,000 Units composed of 150,000 newly issued
shares of common stock and 37,500 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 us. 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
began on December 10, 1997 and will continue until December 10, 1999, or all of
the Units offered are sold or such earlier date as we 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 500 Units ($500.00) 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.
We have been offering and plan to continue to offer and sell the Units
directly to investors. We have not retained any underwriters, brokers, dealers,
or placement agents in connection with the offering except in Florida, as
described below. However, we reserve 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. We could pay
commissions equal to as much as 10 percent of the gross proceeds although we do
not currently intend to pay more than $75,000 in aggregate commissions. We 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 our Internet site (which was first
established in July of 1996), by publicizing the offering through newspaper
advertisements, and by contacting additional potential investors by direct email
and regular mail solicitation. Any voice or other communications will be
conducted in certain states through our 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 ours will be
deemed a "broker," as defined in the Exchange Act, solely by reason of
participation in this offering, because
none is subject to any of the statutory disqualifications in
Section 3(a)(39) of the Exchange Act, 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, none is an associated
person (partner, officer, director, or employee) of a broker or
dealer, and 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.
We intend to register the Units, and where required, itself as a
broker/dealer under the securities laws of some, but not all states. At present,
we do 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.
We reserve the right to seek qualification in such states at any time prior to
the termination of the Offering. We plan to seek to or continue to qualify the
Units for sale in California, the District of Columbia, Florida, Georgia,
Indiana, , Massachusetts, New Jersey, New York, Virginia, and other states, if
qualification can, in the opinion of management, be obtained for reasonable cost
or on reasonable terms. We will not make any sales to residents of any states
where the offering is not approved.
Residents of Florida must purchase Units through a broker/dealer registered
in Florida. We have agreed with Unified Management Corporation, whose address is
429 N. Pennsylvania St., Indianapolis, IN 46204, phone 317-634-3300 or
800-862-7283 for them to sell Units to Florida residents. Unified Management has
no commitment to purchase Units from us 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 us
for reasonable expenses, if any. We have agreed to indemnify Unified Management
against certain liabilities, including liabilities under the Securities Act. Mr.
Gaines, our Chairman is a member of the Board of Directors of Unified Financial
Services, Inc., the parent of Unified Management. Mr. Gaines will not benefit,
directly, or indirectly, from the commissions paid to Unified Management.
Residents of California purchasing Units must meet one of the following
suitability requirements. An investor must:
be 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 (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 us 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 our web site.
We reserve 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 us for such subscription will be
returned to the subscriber without interest or deduction.
Within five days of its receipt of a unit purchase agreement
accompanied by a check for the purchase price, we 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 us. 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. We
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. We do 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, we may apply for a listing on a United States regional exchange,
if we meet the listing requirements. However, there can be no assurance that we
will be listed or that a market will develop or be sustained. If it does not, we
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 us and such a
registered securities broker-dealer. We may in the future also seek to provide a
passive, bulletin board system on the Internet providing information to buyers
and sellers of our common stock to facilitate trading. The system would not
affect transactions and would be obliged to meet the requirements of the SEC. We
have 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
We have unilaterally and arbitrarily determined the offering price. Among
the factors we considered in determining such price were
offering prices of other early stage biotech initial
public offerings during 1997, our capital requirements,
our negative book value, the percentage of ownership to
be held by investors following the offering, the
prospects for our business and the biotech industry, the
early stage of our products, the lack of revenue and the
prospects for future revenues, and the current state of
the economy in the United States.
The offering price does not necessarily bear any relationship to our assets,
negative book value, or other investment criteria, and you should not be
consider it an indication of the actual value of our securities. If a public
market for our shares were to develop or if we were to merge with another
company, the public market price or the merger price for our shares could be
substantially less than the offering price.
LEGAL MATTERS
Certain legal matters in connection with validity of the Units offered
hereby will be passed upon for us by Bruce Brashear, Esq., Gainesville, Florida.
Certain tax matters in connection with the investment in Charitable Benefit
Warrants will be passed on for us 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 our common stock.
EXPERTS
The balance sheet as of December 31, 1997 and the statements of
operations, capital deficiency and cash flows for the years ended December 31,
1997 and 1996, and for the period March 25, 1993 (date of inception) to December
31, 1997 included in this prospectus have been so included in reliance on the
report, which includes an explanatory paragraph indicating substantial doubt as
to our ability to continue as a going concern, of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC
covering the Units offered by this prospectus. This prospectus does not contain
all of the information included in the registration statement. For further
information about Ixion and the Units we are offering in this prospectus, refer
to the registration statement and its exhibits and to our annual reports,
quarterly reports, and proxy statements also filed with the SEC. The statements
we make in this prospectus regarding the content of any contract or other
document are necessarily not complete, and you may examine the copy of the
contract or other document that we filed as an exhibit to the registration
statement or other reports to the SEC. All our statements about those contracts
or other documents are qualified in their entirety by referring you to the
exhibits to the registration statement or other reports.
At your request, we will provide you, without charge, a copy of any
exhibits incorporated by reference in this prospectus. If you want more
information, write, call, or email us at:
Ixion Biotechnology, Inc.
13709 Progress Blvd., Box 13
Alachua, FL 32615-9495
Telephone: 904-418-1428
Fax: 904-418-1583
Email: [email protected]
You may read and copy any reports, statements, or other information we
file at the public reference facilities of the SEC in Washington, D.C. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings are also available to
the public on the SEC Internet site at http://www.sec.gov.
<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.]
Send to: Ixion Biotechnology, Inc., 13709 Progress Blvd.,
Box 13, Alachua, FL 32615-9495
Phone: 904-418-1428 - - -Fax: 904-418-1583 - - - Email: [email protected]
Florida Subscribers Only:
Send to: Ixion Biotechnology, Inc., c/o Unified Management Corporation -
429 N. Pennsylvania 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>
F-3
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements Page
Report of Independent Accountants..........................................F-2
Balance Sheet as of December 31, 1997......................................F-3
Statements of Operations for the years ended
December 31, 1996 and 1997 and for the period
March 25, 1993 (date of inception) through December 31, 1997...............F-4
Statements of Capital Deficiency for the period
March 25, 1993 (date of inception) through
December 31, 1997..........................................................F-5
Statements of Cash Flows for the years ended
December 31, 1996 and 1997 and for the period March 25, 1993
(date of inception) through December 31, 1997..............................F-7
Notes to Financial Statements..............................................F-9
Condensed Unaudited Financial Statements
Balance Sheet as of September 30, 1998....................................F-16
Statements of Operations for the nine month periods ended
September 30, 1997 and 1998 and for the period March 25, 1993
(date of inception) through September 30, 1998............................F-17
Statements of Cash Flows for the nine month periods ended
September 30, 1997 and 1998 and for the period March 25, 1997
(date of inception) through September 30, 1998............................F-18
Notes to Condensed Financial Statements...................................F-20
<PAGE>
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, 1997, and the related statements of
operations, capital deficiency and cash flows for the years ended December 31,
1997 and 1996 and for the period March 25, 1993 (date of inception) through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1997, and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996 and for the period March 25, 1993 (date
of inception) through December 31, 1997 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 1 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 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/
Orlando, Florida
February 26, 1998, except as to
Note 12 for which the date is March 27, 1998
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1997
Assets
Current Assets:
Cash and cash equivalents ......................... $ 44,443
Accounts receivable ............................... 1,770
Prepaid expenses .................................. 1,402
Other current assets .............................. 500
Total current assets ................. 48,115
Property and Equipment, net ............................ 35,695
Patents and Patents Pending, net ....................... 216,504
Deferred Offering Costs ................................ 78,974
Other .................................................. 8,121
$ 387,409
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable ..................................... $ 64,422
Current portion of notes payable ..................... 85,570
Accrued expenses ..................................... 46,445
Total current liabilities ............... 196,437
Long-Term Liabilities:
Notes payable ........................................ 584,142
Liability under research agreement ................... 42,317
Deferred rent ........................................ 6,486
Deferred fees and salaries, including accrued
interest, payable to related part .................. 476,416
Total long-term liabilities ............. 1,109,361
Total liabilities ....................... 1,305,798
Commitments (Note 11)
Capital Deficiency:
Common stock, $.01 par value; authorized
4,000,000, issued and
outstanding 2,465,544 shares ...................... 24,655
Additional paid-in capital ........................... 1,239,003
Deficit accumulated during the development stage ..... (1,979,359)
Less unearned compensation ........................... (202,688)
Total capital deficiency ................ (918,389)
Total Liabilities and Capital Deficiency .................. $ 387,409
See accompanying notes to financial statements.
F-4
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Income under research agreement ..... $ 135,922 $ 139,079 $ 275,001
Income from SBIR grant .............. 71,650 20,000 91,650
Interest income ..................... 10,147 7,760 22,967
Other income ........................ 3,733 4,366 14,548
Total revenues .......... 221,452 171,205 404,166
Expenses:
Operating, general and administrative 336,572 276,642 1,098,110
Research and development ............ 554,751 392,010 1,086,131
Interest ............................ 112,083 56,192 199,284
Total expenses .......... 1,003,406 724,844 2,383,525
Net Loss ................................. $ (781,954) $ (553,639) $ (1,979,359)
Net Loss per Share (Basic) ............... $ -0.32 $ -0.23
Weighted Average Common Shares ........... 2,458,440 2,407,224
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
For the Period March 25, 1993 (Date of Inception) through December 31, 1997
<TABLE>
<CAPTION>
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, .... 100,000 $ 1,000 $ -- $ -- $ -- $ -- $ 1,000
$.01 per share
Sale of common stock, $.01 per ... 50,000 500 -- -- -- -- 500
share
Net loss for the period March 25,
1993 (date
of inception) through December -- -- -- (54,268) -- -- (54,268)
31, 1993
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 .. 650,000 6,500 6,500 -- -- -- 13,000
per share
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 ... -- -- 9,608 -- -- -- 9,608
warrants
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 ... -- -- 10,857 -- -- -- 10,857
warrants
Conversion of subordinated notes
payable to
related parties, $0.75 per .... 21,544 215 15,943 -- -- -- 16,158
share
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)
Issuance of stock, $10.00 per .... 14,000 140 139,860 -- -- (111,382) 28,618
share
Issuance of stock under Board
Retainer
Plan, $10.00 per share ........ 7,000 70 69,930 -- -- (43,000) 27,000
Payment received from shareholder
for note
received for common stock and . -- -- -- -- 6,000 -- 6,000
warrants
Amortization of unearned
compensation
over service period ........... -- -- -- -- -- 64,400 64,400
Stock warrants issued for services -- -- 30,000 -- -- -- 30,000
Sale of stock, $10.00 per share .. 1,000 10 9,990 -- -- -- 10,000
Net loss ......................... -- -- -- (781,954) -- -- (781,954)
Balance, December 31, 1997 .......... 24,655 $24,655 $ 1,239,003 $1,979,359 $ -- $(202,688) $ (918,389)
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1997 1996 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (781,954) $ (553,639) $(1,979,359)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 11,471 8,546 24,400
Amortization 3,019 738 3,844
Stock warrants issued under license agreement - 10,857 20,465
Amortization of debt discount 57,168 19,056 76,224
Stock warrants/options issued for consulting services 30,000 - 30,000
Stock compensation 110,018 139,295 256,813
Decrease (increase) in employee advance - 900 -
Decrease (increase) in prepaid expenses and
other current assets 6,376 7,932 (1,727)
Decrease (increase) in accounts receivable 6,389 (8,159) (1,770)
Increase (decrease) in deferred revenue (100,000) 100,000 -
Increase in liability under research agreement 42,317 - 42,317
Increase in accounts payable and
accrued expenses 28,881 24,869 95,193
Increase in deferred fees and salaries 91,378 83,256 449,864
Increase in deferred rent 6,486 - 6,486
Increase in interest payable - 2,325 33,198
Net cash used in operating activities (488,451) (164,024) (944,052)
Cash Flows from Investing Activities:
Purchase of property and equipment (5,757) (13,993) (31,897)
Organization costs - - (436)
Payments for patents and patents pending (90,289) (67,053) (209,770)
Net cash used in investing activities (96,046) (81,046) (242,103)
Cash Flows from Financing Activities:
Proceeds from issuance of subordinated notes
payable to related parties 75,000 - 105,307
Proceeds from issuance of convertible notes payable - 787,270 787,270
Proceeds from sale of common stock 10,000 - 416,700
Proceeds from collection of note receivable 6,000 - 6,000
Payment of loan costs - (11,080) (11,080)
Payment of deferred offering costs (62,629) - (62,629)
Principal reductions in note payable (10,970) - (10,970)
Net cash provided by financing activities 17,401 776,190 1,230,598
Net Increase in Cash and Cash Equivalents (567,096) 531,120 44,443
Cash and Cash Equivalents at Beginning of Period 611,539 80,419 -
Cash and Cash Equivalents at End of Period $ 44,443 $ 611,539 $ 44,443
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1997 1996 1997
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 21,887 $ 5,761 $ 28,156
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued for subordinated notes
payable $ - $ 16,158 $ 34,158
Common stock, stock warrants and stock options
issued for services or technology $ 30,000 $ 10,857 $ 49,457
Common stock issued for note receivable $ - $ - $ (6,000)
Common stock issued for purchase of patent $ 10,000 $ - $ 10,000
Equipment purchased under an installment
note arrangement $ - $ 28,022 $ 28,022
Common stock issued under Board Retainer Plans $ 70,000 $ 210,000 $ 287,500
Other common stock issued as compensation $ 130,000 $ 42,000 $ 172,000
Deferred offering costs included in
accounts payable $ 16,345 $ - $ 16,345
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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.
The Company's financial statements for the year ended December 31, 1997
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
$781,954 for the year ended December 31, 1997 and, as of December 31,
1997, had a total capital deficiency of $1,979,359.
In December, 1997, the Company commenced the public offering of 400,000
units of newly issued securities for an aggregate of $4,000,000. Each
unit consists of one share of common stock, $.01 par value, and a .25
Charitable Benefit Warrant. Each whole Charitable Benefit Warrant
entitles the holder to purchase one share of the common stock at a price
of $20.00 per share. The Company requires the proceeds of the public
offering to meet its planned operating requirements through December 31,
1998. The Company had received proceeds of $10,000 as of December 31,
1997. If the proceeds from the offering prove to be insufficient, then
the Company would be required to obtain additional funds through equity
or debt financing, strategic alliances with corporate partners, or
through other sources.
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.
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.
F-8
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
YearsEnded December 31, 1997 and 1996 and the Period March 25, 1993 (Date of
Inception) through December 31, 1997
1. Significant Accounting Policies - Continued:
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 and Patents Pending - Patents pending consist of direct costs
incurred in connection with the applications for patents. Amortization of
these costs over the estimated life will begin upon issuance or they will
be expensed immediately if rejected. At December 31, 1997, the Company
has received final approvals on one patent and purchased another through
the issuance of 1,000 shares of common stock. Patents are being amortized
over 13-17 years. 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, trend and prospects as well as the effects of obsolescence,
demand, competition and other economic factors.
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.
Deferred Offering Costs - Fees, costs and expenses related to the public
offering have been capitalized. These costs will be offset against the
proceeds from the offering or expensed should the offering be abandoned.
<PAGE>
1. Significant Accounting Policies - Continued:
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 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.
Net Loss Per Share - Basic net loss per share is computed using the
weighted average number of common shares outstanding for the period.
Diluted net loss per share is not presented, as the effects of including
common equivalent shares from stock options, warrants and convertible
notes payable in the computation is antidilutive.
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.
2 Property and Equipment:
Property and equipment consists of the following as of December 31, 1997:
Computers and equipment $ 57,084
Computer software 515
Library
1,104
58,703
Less accumulated depreciation
(23,008)
$ 35,695
<PAGE>
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, 1997, $17,052 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 which is greater than the market value of the common stock
at the date of issuance. 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, 1997, there were $215,600 of 10%
Notes and $571,670 of the Variable Notes outstanding ($362,059 net of
unamortized debt discount of $209,611 at December 31, 1997. Accrued
interest on the 10% Notes totaled $1,796 as of December 31, 1997.
In December, 1997, the Company entered into short-term loan agreements
with its officers for a total of $75,000. The loans accrue interest at 8%
and are due on demand (Note 8).
Future principal maturities of notes payable for each of the five years
subsequent to December 31, 1997 are as follows:
Year Ending
1998 $ 85,570
1999 6,482
2000 -
2001
787,270
Total $ 879,322
<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, 1997:
Deferred compensation $ 188,000
Net operating loss carryforward 598,000
---------
Deferred tax asset 786,000
Valuation allowance (786,000)
Net deferred tax asset $ -
Any tax benefits for the years ended December 31, 1997 and 1996 and the
period March 25, 1993 (date of inception) through December 31, 1997
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, the Company issued warrants to purchase 8,022 shares of
common stock to the University of Florida Research Foundation ("UFRFI").
The warrants were issued as part of a license agreement with UFRFI
whereby the Company 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.
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).
<PAGE>
5. Common Stock Warrants - Continued:
During 1997, the Company issued warrants to purchase 6,000 shares of
common stock to a consulting firm as part of a consulting agreement (Note
8). The warrants are accounted for under the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, as noted above. The value assigned was $5.00 per warrant,
based on the difference between the exercise price of $5.00 and a $10.00
market value at date of grant, for a total of $30,000 to consulting
expense. The value assigned approximates that derived from a
Black-Scholes valuation model assuming an average discount rate of 5.5%,
a volatility factor of 30% and an expected term of one year.
Common stock warrants outstanding at December 31, 1997 are as follows:
Number Exercise Expiration
Price Date
17,630 $2.00 August 31, 2000
6,000 $5.00 February, 2002 - October, 2002
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. 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:
Exercise
Shares Price
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
Granted 25,400 $6.00 - $10.00
Exercised
-
Outstanding at December 31, 1997 43,900
<PAGE>
6. Stock Option Plan - Continued:
The status of options outstanding at December 31, 1997 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 6.5 years $.02 1,333
$.075 3,500 7.5 years $.075 1,808
$3.00 13,000 8.5 years $3.00 3,900
$6.00 3,000 9.33 years $6.00 -
$7.50 2,000 9.4 years $7.50 -
$10.00 20,400 9.5 years $10.00 6,250
------ ------
43,900 13,291
</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 issued to employees were granted at
an exercise price equal to the market value at the date of grant.
Given the limited time period that the Company's stock has been publicly
traded, as well as the lack of history to estimate patterns of exercise
and option term, fair value disclosures required under FASB Statement No.
123 are provided as a range from low to high for the expected term and
volatility. Fair value is estimated using the Black-Scholes option
pricing model and the following assumptions:
1997 1996
Low High Low High
Discount Rate 6.09% 6.38% 6.74% 7.04%
Volatility 30% 60% 30% 60%
Option Life (Years) 5 9 5 9
<PAGE>
6. Stock Option Plan - Continued:
The weighted average fair value of options granted to other than
non-employee consultants during fiscal year 1997 and 1996 was in the
range of $3.82 to $7.31 and $1.17 to $2.21 per option, respectively. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for these awards
consistent with the method of FASB Statement No. 123, the Company's
reported net loss and loss per share for fiscal year 1997 and 1996 would
have been as follows:
Low High
1997 Net Loss $ 792,985 $ 802,995
1997 Loss Per Share (0.32) (0.33)
1996 Net Loss 555,414 556,991
1996 Loss Per Share (0.23) (0.23)
The Company applies Statement of Financial Accounting Standards No. 123
for stock options issued to non-employee consultants. In 1997, the
Company granted 5,000 options at exercise prices of $6.00 - $7.50 per
share and will record consulting expense as the options vest for the
difference between the exercise price and the market values at grant date
of $10.00.
7. Board Retainer Plan:
The Company does not pay cash compensation to outside members of the
Board of Directors or to members of its 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 1,000 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 credited 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, 1997, a
total of 57,000 shares had been granted under this Plan. Compensation
expense recognized in connection with such awards for the years ending
December 31, 1997 and 1996 was $83,000 and $133,834, respectively.
Unearned compensation of $202,688 remains to be recognized as expense
over future periods of service.
<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 payment of the 1993,
1994 and part of the 1995, 1996 and 1997 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.
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. The Company has a consulting agreement with Dr. Peck for 48
days of service per year for $50,000 per year which expires on December
31, 1999.
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.
<PAGE>
8. Related-Party Transactions - Continued:
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. At December 31, 1997, there are total
loans of $75,000 outstanding to these officers (Note 3).
In December, 1996, the Company entered into a consulting agreement,
terminable upon 90 days notice by either party, with a company whose
president is an officer of the Company. The Company is to be paid $5,000
monthly and could receive warrants for up to 20,000 shares of common
stock upon the achievement of certain milestones. Through December 31,
1997, the consultants had been paid $60,000 and were issued warrants for
6,000 shares of common stock (Note 5).
In 1997, the Company engaged the services of a printer in connection with
the offering. The printer is partially owned by the Company's Chief
Executive Officer. Through December 31, 1997, the printer has not
rendered any services, and accordingly, has not been paid.
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 sponsored certain research by the Company and
provided funding of $275,000 over a 12-month period, plus patent expenses
of approximately $35,000. The agreement with GI was not extended after
the initial 12-month period. The revenue under this contract was
recognized on a pro rata basis consistent with the period over which the
research was conducted as well as upon delivery of certain research
reports. Under the agreement, the Company is required to reimburse GI for
certain patent costs if GI does not exercise its option for an exclusive
license for the technology. As of December 31, 1997, GI has not exercised
their right for an exclusive license to this technology and such costs
are recorded as a liability.
<PAGE>
10. Risks and Uncertainties:
Approximately 61% of 1997 revenues and 80% of 1996 revenues consisted of
revenues related to a single sponsored research agreement which expired
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. 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.
11. Commitments:
The Company issued 1,000 shares of restricted common stock in exchange
for a patent in February, 1997. In addition to the issuance of stock, the
Company will be required to pay royalties of 2% of net sales, if any,
generated from the patented technology.
12 Subsequent Events:
Through March 27, 1998, the Company has received proceeds of $180,500 by
selling 18,050 units of common stock and Charitable Benefit Warrants in
an initial public offering at $10.00 per unit.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 1998
Unaudited
<TABLE>
<CAPTION>
Assets
Current Assets:
<S> <C>
Cash and cash equivalents $ 39,073
Accounts receivable 1,811
Prepaid expenses 140
Other current assets 500
------------------
Total current assets 41,524
Property and Equipment, net 30,349
Other Assets:
Patents and patents pending, net 280,466
Other, net 6,513
Total other assets 286,979
------------------
Total Assets $ 358,852
==================
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 61,721
Bridge loans payable to officers 250,000
Current portion of notes payable 8,975
Accrued expenses 48,501
Interest payable 1,797
------------------
Total current liabilities 370,994
Long-Term Liabilities:
Notes payable 620,535
Liability under research agreement 42,317
Deferred rent, including accrued interest 17,822
Deferred fees and salaries, including accrued interest 666,385
------------------
Total long-term liabilities 1,347,059
Total liabilities 1,718,053
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued and
outstanding 2,508,144 shares at September 30 25,081
Common stock warrants outstanding 35,494
Additional paid-in capital 1,571,322
Deficit accumulated during the development stage (2,649,623)
Less unearned compensation (341,475)
-------------------
Total capital deficiency (1,359,201)
-------------------
Total Liabilities and Capital Deficiency $ 358,852
===================
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
Nine Month Period Ended September 30, 1998
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of inception)
Nine Months Ended through
September 30, September 30,
__1998__ __1997__ ____1998____
Unaudited Unaudited
Revenues:
<S> <C> <C> <C>
Income under research agreement $ 0 $ 135,922 $ 275,001
Income from SBIR Grant 0 71,650 91,650
Interest income 367 9,223 23,334
Other income 3,257 2,752 17,805
------------------ ----------- ------------
Total revenues 3,624 219,547 407,790
------------------ ----------- ------------
Expenses:
Operating, general and administrative 307,097 290,271 1,405,038
Research and development 269,474 432,378 1,355,744
Interest 97,317 83,858 296,601
----------------- ------------- ------------
Total expenses 673,888 806,507 3,057,413
----------------- ------------- ------------
Net Loss $(670,264) $ (586,960) $ (2,649,623)
================== ============== =================
Basic and Diluted Net Loss per Share $ (0.27) $ (0.24)
================== ==============
Weighted Average Common Shares 2,482,687 2,456,412
================== ==============
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
Ixion Biotechnology, Inc.
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
March 25, 1993
Nine Months (Date of inception)
Ended September 30 through
__1998__ __1997__ September 30, 1998
Unaudited Unaudited
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net loss $(670,264) $(586,960) $ (2,649,623)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 8,412 8,542 32,812
Amortization 2,367 2,235 6,211
Amortization of debt discount 42,876 42,875 119,100
Stock warrants issued under license agreement - - 20,465
Stock options/warrants issued for consulting services - - 30,000
Stock compensation 68,274 121,640 325,087
Decrease (increase) in prepaid expenses and
other current assets 1,262 7,666 (465)
Decrease (increase) in accounts receivable (41) 3,637 (1,811)
Increase (decrease) in deferred revenue - (100,000) -
-
Increase (decrease) in liability under
research agreement - 42,317 42,317
Increase (decrease) in accounts payable and
accrued expenses 15,700 12,322 110,893
Increase in deferred fees and salaries 189,969 22,828 639,833
Increase in deferred rent 10,445 - 16,931
Increase in interest payable - 1,593 33,198
---------------------- ----------
Net cash used in operating activities (331,000) (421,305) (1,275,052)
---------------------- --------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (2,302) (5,758) (34,199)
Organization Costs - - (436)
Payments for patents and patents pending (62,154) (50,450) (271,924)
---------------------- ----------
Net cash used in investing activities (64,456) (56,208) (306,559)
---------------------- -----------
Cash Flows from Financing Activities:
Bridge loans payable to officers 175,000 - 280,307
Proceeds from issuance of convertible notes payable - - 787,270
Proceeds from issuance of common stock 275,500 - 698,200
Principal reductions in notes payable (6,482) (9,874) (17,452)
Deferred registration costs - IPO - (42,049) -
-
Payment of deferred registration costs - IPO (53,932) - (116,561)
Decrease (increase) in note receivable from shareholder - 6,000 -
-
Payment of loan costs - - (11,080)
------------------ --------- -----------
Net cash provided by (used in)
financing activities 390,086 (45,923) 1,620,684
------------------ ----------
Net Increase (Decrease) In Cash and Cash Equivalents (5,370) (523,436) 39,073
Cash and Cash Equivalents at Beginning of Period 44,443 611,539
---------------- --------
- -
Cash and Cash Equivalents at End of Period $ 39,073 $ 88,103 $ 39,073
============== ========= =========
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
(Nine Month Period Ended September 30, 1998)
1. Basis Of Presentation:
The accompanying unaudited condensed financial statements for the three and
nine months ended September 30, 1998 and 1997, and for the period March 25,
1993 (date of inception) through September 30, 1998 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. These interim financial statements should be
read in conjunction with the December 31, 1997 financial statements and
related notes included elsewhere in this prospectus. In our opinion, the
accompanying unaudited condensed financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary to
present fairly our financial position, results of operations, and cash
flows for the periods presented. The results of operations for the interim
period ended September 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
2. Income Taxes:
The components of our net deferred tax asset and the tax effects of the
primary temporary differences giving rise to our deferred tax asset are as
follows as of September 30, 1998:
<TABLE>
<S> <C>
Deferred compensation $263,000
Net operating loss carryforward 783,000
---------
Deferred tax asset 1,046,000
Valuation allowance $(1,046,000)
------------
Net deferred tax asset $ __0_
==============
</TABLE>
3. Stockholder's Equity
In December, 1997, we commenced the public offering of up to 400,000 Units
of newly-issued securities for an aggregate of $4,000,000. Each Unit
consists of one share of common stock, $0.01 par value, and a .25
Charitable Benefit Warrants. Each whole Charitable Benefit Warrant entitles
the holder to purchase one share of the common stock at a price of $20.00
per share. We require the proceeds of the public offering to meet its
planned operating requirements through December 31, 1999. We have received
proceeds of $285,500 through September 30, 1998. The offering will continue
until all Units have been sold or until December 10, 1998, unless sooner
terminated or extended. If the proceeds from the offering prove to be
insufficient, then we would be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners, or
through other sources.
There can be no assurance that we will be successful in obtaining the
required financing. Under current circumstances, our ability to continue as
a going concern depends upon obtaining additional financing.
Offering costs of $116,561 have been offset against the proceeds of the
offering through September 30, 1998.
In February of 1998, 8,400 shares of stock previously issued to an employee
in exchange for services to be rendered were returned to us when the
employee resigned. This resulted in a reversal of paid-in capital and
unearned compensation, but had no net effect on capital deficiency.
On July 1, 1998, we granted an additional 17,000 shares of stock under the
Board Retainer Plan. Compensation expense recognized in connection with
these awards for the nine months ended September 30, 1998 was $18,500 and
unearned compensation of $151,500 remains to be recognized.
4. Stock Options
On July 1, 1998, we granted ten-year options under the 1994 Stock Option
Plan to purchase 62,000 shares of common stock at an exercise price of
$10.00 per share. Stock options are exercisable only if vested. 12,500 of
such options, granted to members of the Scientific Advisory Board, vest
over one year; the remainder vest over five years. In addition, as of
September 30, 1998, 5,500 options previously granted to terminated
employees expired unexercised.
5. Related Party Transactions
In 1997, we engaged the services of a printer in connection with its public
offering. The printer is partially-owned by our President, who is also CEO
of the printer. Through September 30, 1998, the printer has charged $11,533
in connection with its services.
In addition, the Chairman and Chief Executive Officer and the President
have agreed to extend us not less than $150,000 and not less than $155,000,
respectively, in bridge loans. Interest on the bridge loans from officers
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, we borrowed a total of $250,000, which was still outstanding at
September 30, 1998.
6. Subsequent Events
Through November 11, 1998, we have received proceeds of $291,500 through
the sale of 29,150 units of common stock and Charitable Benefit Warrants in
its initial public offering at $10.00 per unit
On October 8, 1998, upon the expiration of our lease at the Biotechnology
Development Institute, we relocated to comparable rental facilities across
the street from its former location. The new lease will be for increased
space and rent and for a three-year term with two one-year renewal options.
The estimated annual payments under the new lease (including amortization
of tenant improvements and an emergency generator) will be approximately
$84,000 per year (not including utilities) compared to the current annual
rent (including utilities) of $43,200. We will continue to have access, as
a graduate affiliate, to the Biotechnology Development Institute's
specialized facilities, centralized equipment, and core laboratories.
Relocation will not materially affect our research and development
operations; however, we has incurred relocation expenses and will be
obliged to purchase or lease laboratory and office furnishings and
equipment. We estimate that the principal amount of such lease or purchase
is approximately $100,000.
<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 us. 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 our affairs since such date.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 6
Special Note Regarding
Forward-Looking Statements 12
Use of Proceeds 13
Dilution 14
Dividend Policy 14
Capitalization 15
Selected Financial Data 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17
Business 23
Management 42
Certain Relationships and
Related Party 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 58
Experts 58
Where You Can Get
More Information 58
Unit Purchase Agreement 59
Index to Financial Statements F-1
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.
150,000 Units
Minimum Purchase 50 Units
IXION
Each Unit Consisting of
One Share of Common Stock and
.25 Charitable Benefit Warrant
PROSPECTUS
1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Delaware law, a corporation may indemnify any person who was or is
a party or is threatened to be made a party to an action (other than an action
by or in the right of the corporation) by reason of his service as a director
or officer of the corporation, or his service, at the corporation's request,
as a director, officer, employee or agent of another corporation or other
enterprise, against expenses (including attorneys' fees) that are actually and
reasonably incurred by him ("Expenses"), and judgments, fines and amounts paid
in settlement that are actually and reasonably incurred by him, in connection
with the defense or settlement of such action, provided that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred
to above against Expenses in connection with the defense or settlement of an
action by or in the right of the corporation, provided that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests, if such person has been judged liable to the
corporation, indemnification is only permitted to the extent that the Court of
Chancery (or the court in which the action was brought) determines that,
despite the adjudication of liability, such person is entitled to indemnity
for such Expenses as the court deems proper. The General Corporation Law of
the State of Delaware also provides for mandatory indemnification of any
director, officer, employee or agent against Expenses to the extent such
person has been successful in any proceeding covered by the statute. In
addition, the General Corporation Law of the State of Delaware provides the
general authorization of advancement of a director's or officer's litigation
expenses in lieu of requiring the authorization of such advancement by the
board of directors in specific cases, and that indemnification and advancement
of expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement or otherwise.
The Certificate of Incorporation (the "Certificate") of the Company
provides that, to the fullest extent permitted by applicable law, as amended
from time to time, the Company will indemnify any person who was or is a party
or is threatened to be made a party to an action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was director, officer, employee or agent of the Company or
serves or served any other enterprise at the request of the Company.
In addition, the Certificate provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of the director's fiduciary duty. However, the Certificate
does not eliminate or limit the liability of a director for any of the
following reasons: (i) a breach of the director's duty of loyalty to the
Company or its stockholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or knowing violation of law; or (iii) a
transaction from which the director derived an improper personal benefit.
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.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration fee..........................................$ 1,818
Printing expenses............................................. 20,000
Distribution ................................................. 18,000
Advertising .................................................. 50,000
Fees and expenses of counsel.................................. 30,000
Fees and expenses of accountants.............................. 20,000
Premium on D & O insurance.................................... 25,000
Transfer agent and registrar fees............................. 4,000
Warrant agent fees............................................ 1,500
Blue sky fees and expenses.................................... 40,000
Miscellaneous................................................. 11,394
Total....................................................$221,712
Except for the SEC registration, all of the foregoing expenses have been
estimated. All expenses will be paid by the Company.
Item 26. Recent Sales of Unregistered Securities.
Set forth below is information as to securities sold by Ixion within the
past three years which were not registered under the Securities Act of 1933
(the "Act"). No
underwriters were involved in any of the sales so there were no underwriting
discounts or commissions. All outstanding securities are deemed to be
restricted securities for the purposes of the Act. All certificates
representing such issued and outstanding restricted securities of the Company
have been properly legended and the Company has issued "stop transfer"
instructions to its transfer agent with respect to such securities, which
legends and stop transfer instructions are presently in effect unless such
securities have been registered under the Securities Act or have been
transferred pursuant to an appropriate exemption from the registration
provisions of the Securities Act.
(a) On September 30, 1994, two directors and senior officers of the
Company, who may be deemed promoters, converted an aggregate of
$18,000 of cash loans made to the Company under the terms of a
subordinated convertible note agreement into a total of 900,000
shares of Common Stock, at a price of $0.02 per share, and the
Company's tax advisor was issued 5,000 shares of Common Stock in
exchange for services valued at $100 or $0.02 per share. The Company
issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
(b) Restricted shares of Common Stock have been issued to
Members of the Board of Directors, Members of the Scientific
Advisory Board, and key employees under the Company's Board
Retainer Plan as follows:
On September 30, 1994, 5,000 shares of Common Stock to a
director for service as a director valued at $100 or $0.02
per share.
On May 31, 1995, 10,000 shares of Common Stock (5,000 shares
to each of two directors) for services as directors valued
at an aggregate of $7,500 or $.75 per share.
On June 10, 1996, 34,000 shares of Common Stock (5,000
shares to each of two directors, 5,000 shares to each of two
members of the Scientific Advisory Board, for services as
directors or scientific advisors and 14,000 shares of Common
Stock to its Vice President - Research and Development as a
hiring bonus for services to be rendered) valued at an
aggregate of $92,000 (a portion of which is unearned
compensation) or $3.00 per share.
On September 15, 1996, 10,000 shares of Common Stock (5,000
shares to each of two members of the Scientific Advisory
Board) for services as scientific advisors valued at
$100,000 (a portion of which is unearned compensation) or
$10.00* per share.
On October 10, 1996, 5,000 shares of Common Stock to a
member of the Scientific Advisory Board for services as a
scientific advisor valued at $50,000 (a portion of which is
unearned compensation) or $10.00* per share.
On February 11, 1997, 10,000 shares to its Director of
Research, Oxalate Division, as a hiring bonus for services
to be rendered valued at $100,000 (a portion of which is
unearned compensation) or $10.00* per share.
On June 27, 1997, 7,000 shares of Common Stock (1,000 shares
to each of two directors, and 1,000 shares to each of five
members of the Scientific Advisory Board, for services as
directors or scientific advisors) valued at $70,000 (a
portion of which is unearned compensation) or $10.00* per
share.
On July 1, 1997, 3,000 shares to its Associate Director of
Research, Diabetes Division, as a hiring bonus for services
to be rendered (a portion of which is unearned compensation)
valued at $30,000 or $10.00* per share.
The Company issued the above securities without registration
in reliance upon the exemption provided by Section 4(2) of the
Act as a transaction to a limited number of investors which did
not involve a public offering, general solicitation, or general
advertisement and the exemption provided by Rule 701 promulgated
under the Act.
(c) On October 17, 1994, a director and senior officer of the
Company, who may be deemed a promoter, received 650,000 shares of
Common Stock in exchange for all his interest in certain oxalate
technology and his agreement to an exclusive consulting agreement
with the Company, valued at the price of $13,000 or $0.02 per
share. The Company issued the above securities without registration
in reliance upon the exemption provided by Section 4(2) of the Act
as a transaction to a limited number of investors which did not
involve a public offering, general solicitation, or general advertisement.
(d) On October 31, 1994, a consultant to the Company canceled $1,000
of deferred consulting fees in exchange for 10,000 shares of
Common Stock at the price of $0.10 per share. The Company
issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
(e) On November 10, 1994, 10 members of the immediate families of the
founders of the Company, as well as a partnership whose general
partners include a director and senior officer of the Company and
members of his immediate family, purchased a total of 140,000
shares of Common Stock for a price of $14,000 or $0.10 per share. The
Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement and in reliance upon
the exemption provided by Rule 504 of Regulation D of the Act as a sale
of securities which, together with all sales within 12 months, aggregated
less than $1,000,000.
(f) From March 20, 1995 to May 31, 1995, the Company sold an
aggregate of 500,000 shares of Common Stock to 26 accredited
investors and three unaccredited investors for an aggregate of
$375,000 or $.75 per share. The Company issued the above
securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement and in reliance upon
the exemption provided by Rule 504 of Regulation D of the Act as a sale
of securities which, together with all sales within 12 months, aggregated
less than $1,000,000.
(g) On September 21, 1995, the Company sold 3,000 shares of
Common Stock (together with 2,000 warrants to purchase Common
Stock at an exercise price of $2.00 per share expiring in 2000) to
an accredited investor for $5,000 in cash and a note due April
1997 for $6,000 or a price of $3.00 per share and $1.00 per
warrant. The Company issued the above securities without registration
in reliance upon the exemption provided by Section 4(2) of the Act as
a transaction to a limited number of investors which did not involve a
public offering, general solicitation, or general advertisement.
(h) Warrants have been issued to an institution in partial payment of
rent for the Company's facilities pursuant to the License
Agreement between the University of Florida Research Foundation,
Inc., and the Company as follows:
On November 11, 1995, the Company issued warrants to
purchase 7,608 shares of Common Stock at an exercise price
of $2.00 per share expiring in 2000 , valued at $1.00 per
warrant.
In August, October, and November, 1996, the Company issued
warrants to purchase an aggregate of 8,022 shares of Common
Stock at an exercise price of $2.00 per share expiring in
2000, valued at $1.35 per warrant.
The Company issued the above securities without registration in reliance
upon the exemption provided by Section 4(2) of the Act as transactions to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
(i) On June 30, 1996, two directors and senior officers of the
Company, who may be deemed promoters, converted an aggregate of
$16,158 of cash loans made to the Company under the terms of a
subordinated convertible note agreement into a total of 21,544
shares of Common Stock, at a price of $.75 per share. The Company
issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
(j) In October and November, 1996, the Company issued an
aggregate of $787,270 of Convertible Unsecured Notes due 2001 to
35 accredited and one unaccredited investors. The Notes are
convertible at any time prior to maturity into a maximum of
323,557 shares of Common Stock at conversion prices ranging from
$4.20 to $2.10. The conversion prices are based on the length of
time the investor holds the Notes prior to conversion.
The Company issued the above securities without registration in reliance
upon the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement and in reliance upon
the exemption provided by Rule 505 of Regulation D of the Act as a sale
of securities which, together with all sales within 12 months, aggregated
less than $5,000,000 and were made to fewer than 35 investors.
(k) On February 11, 1997, the Company issued 1,000 shares of Common
Stock to two inventors in exchange for an exclusive license of a
patent entitled "Method for the Selective Control of Weeds, Pests
and Microbes," valued at $7,500 or $7.50 per share. The Company
issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
(l) Warrants have been issued to Brandywine Consultants, Inc.,
pursuant to the Consulting Agreement between the Company and
Brandywine Consultants, Inc., dated December 12, 1996, for
certain milestones as follows:
On June 23, 1997, 3,000 warrants at an exercise price of
$5.00 per share of Common Stock, expiring June 2002.
On October 24, 1997, 3,000 warrants at an exercise price of
$5.00 per share of Common Stock, expiring October 2002.
The Company issued the above securities without registration in reliance
upon the exemption provided by Section 4(2) of the Act as a transaction to
a limited number of investors which did not involve a public offering,
general solicitation, or general advertisement.
* Based upon an assumed offering price of $10.00 per share.
Item 27. Exhibits
Exhibits marked by asterisk(s) have not been included with this Post
Effective Amendment, but instead have been incorporated by reference to other
documents filed by the Company with the SEC.
Exhibit Description
*****1.1 Agreement with Unified Management Corporation, dated March 18, 1998
*3.1 Certificate ofIncorporation 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, dated
*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
+10.33 Office Lease agreement with Echelon International Corporation dated
as of September 18, 1998
+10.34 Amendment No. 3 to Patent License Agreement with Research Component
with the University of Florida Research Foundation, Inc. relating
to Oxalobacter formigenes, dated December 17, 1998(1)
+10.35 BDI Graduate Membership Agreement with the Biotechnology
Development Institute dated November 5, 1998.
+10.36 Consulting Agreement with Amersham Pharmacia Biotech, Inc., dated
as of January 4, 1999.
+11.1 Statement regarding computation of earnings per share (included as
Note 1 in financial statements)
++24.1 Consent of Independent Accountants.
++24.2 Consent of Bruce Brashear, Esq.
+24.3 Consent of Thacher Proffitt & Wood
+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
* Incorporated by reference to Form SB-2, File No. 333-334765, dated
August 29, 1997.
** Incorporated by reference to Amendment 1 to Form SB-2, File No.
333-334765, dated November 7, 1997.
*** Incorporated by reference to Amendment 2 to Form SB-2, File No.
333-334765, dated December 2, 1997.
**** Incorporated by reference to Amendment 3 to Form SB-2, File No.
333-334765, dated December 9, 1997.
***** Incorporated by reference to Post Effective Amendment No. 1 to Form
SB-2, File No. 333-34765, dated January 23, 1998.
++ To be filed by Amendment
<PAGE>
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 12th day of February, 1999.
IXION BIOTECHNOLOGY, INC.
By: /s/ Weaver H. Gaines
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 February 12, 1999.
SIGNATURE TITLE
/s/ Weaver H. Gaines Chairman of the Board, Chief Executive
Weaver H. Gaines Officer, and Director
*
President, Chief Financial Officer and
Director
David C. Peck
/s/ Kimberly A. Ramsey Controller
Kimberly A. Ramsey
*
David M. Margulies Director *
Vincent P. Mihalik Director
/s/ Weaver H. Gaines* (attorney in fact) Weaver H. Gaines
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Weaver H. Gaines and David C. Peck, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of IXION
BIOTECHNOLOGY, INC.) to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ Karl-E. Arfors Director
Karl-E. Arfors
OFFICE LEASE
THIS OFFICE LEASE ("Lease") is entered into by and between ECHELON
INTERNATIONAL CORPORATION, a Florida corporation, its successors and assigns
("Landlord"), and IXION BIOTECHNOLOGY, INC., a Delaware corporation, its
permitted successors and permitted assigns ("Tenant"), effective as of September
18, 1998 ("Effective Date").
ARTICLE 1. SUMMARY OF LEASE PROVISIONS
1.1. BASIC DATA. Certain fundamental provisions of this Lease are presented
in this summary format in this Article to facilitate convenient reference by the
parties hereto. All references in this Lease to the following terms shall be
accorded the meanings or definitions given in this Article, as though such
meaning or definition were fully set forth throughout the text hereof, unless
such meanings are expressly modified, limited or expanded elsewhere in this
Lease. This Article, together with the terms herein referenced, shall constitute
an integral part of this Lease.
(a) "Additional Rent" shall be "Tenant's Proportionate Share of the
Operating Costs in Excess of the Operating Stop," as defined and discussed
in Sections 1.1(o), below and 3.2(b), below, and any and all other sums of
money or charges, other than Annual Gross Rent, required to be paid by
Tenant under this Lease, whether or not the same be so designated.
(b) "Annual Base Rent" shall equal the sum of (i) the "Annual Gross Rent"
and (ii) "Tenant's Proportionate Share of Operating Costs in Excess of the
Operating Stop".
(c) "Annual Gross Rent" shall be equal to the sum of (i) the Fixed Annual
Net Rent and (ii) the Operating Stop, at the rate as scheduled below each
and every Lease Year during the Term, as follows:
<TABLE>
<CAPTION>
Fixed Annual Estimated Estimated
Lease Term Net Rent Amortized Improvements Operating Stop Monthly Payment
<S> <C> <C> <C> <C>
1-12 $40,529.28 $10,232.64 $29,343.60 $6,675.46
12-24 $41,733.12 $10,232.64 $30,223.91 $6,849.14
25-36 $42,987.12 $10,232.64 $31,130.63 $7,029.20
</TABLE>
(note: The above schedule does not include any sales or use tax assessed on
rental, nor "Tenant's Proportionate Share of Operating Costs in Excess of
the Operating Stop" (as defined in Section 1.1(o), below), nor any
additional charges due for excess utility usage, as provided in Article 5,
below, nor parking, as provided in Article 18, below)
(d) "B.O.M.A." shall mean the standard method of floor measurement as
published by the Builders, Owners and Managers Association International
Reprint, ANSI/BOMA 265.1-1996. The rentable square footage of the Leased
Premises shall be calculated by its measurement pursuant to the guideline
of B.O.M.A., which shall also include a common area percentage add on
factor to the Leased Premises proportionate to the total area of the
Building.
(e) "Building" shall mean the building located on certain real property
located at 13709 Progress Boulevard, located in the Progress Center, in the
City of Alachua, Alachua County, Florida.
<PAGE>
(f) "Business Days" shall mean all days, except Saturdays, Sundays, New
Year's Day, President's Day, Memorial Day, Independence Day, Christmas Day,
Labor Day, Thanksgiving, and other recognized holidays.
(g) "Commencement Date" shall mean the earliest to occur of: (i) the date
on which Tenant opens up for business in and on the Lease Premises or any
portion thereof; or (ii)or the date of "Substantial Completion" of the
"Leasehold Work", as provided in the Work Agreement attached hereto as
Exhibit "B". Notwithstanding the foregoing, in the event that the Leasehold
Work has not been Substantially Completed by November 30, 1998, then, in
such event, Tenant shall have the right to terminate this Lease by written
notice to the other, whereupon all rights and liabilities arising hereunder
shall cease.
(h) "Default Rate" means interest at the highest rate permitted by law.
(i) "Landlord's Work" shall mean all work to be performed by Landlord to
complete the Leased Premises in substantial accordance with the Plans
attached as Exhibit "B".
(j) "Lease Year" shall mean each twelve (12)-month period beginning on the
Commencement Date and each anniversary thereof, provided the Commencement
Date is on the first day of a month. If the Commencement Date falls on a
day other than the first day of a month, then the first Lease Year shall
begin on the first day of the calendar month next following the
Commencement Date. If the Commencement Date falls on a day other than the
first day of a month, then the Term shall be extended by the period of time
("Partial Lease Year") from such Commencement Date through the end of the
calendar month in which the Commencement Date falls.
(k) "Leased Premises" shall be deemed to mean 3,744 square feet of usable
area, which area shall be located in the north wing substantially
identified by labeling on the floor plan attached hereto and made a part
hereof as Exhibit "A". The Leased Premises are designated as Suite 111.
(l) "Normal Business Hours" shall mean from 8:00 a.m. to 6:00 p.m. during
all Business Days.
(m) "Operating Costs" shall have the meaning set forth in Section 3.2 of
this Lease.
(n) "Operating Costs Stop" shall have the meaning set forth in Section 3.2
of this Lease.
(o) "Plans" shall mean the final Landlord approved plans and specifications
(working drawings) prepared by Landlord for the renovation, wiring, piping,
construction and completion of the Leased Premises attached as Exhibit "B".
(p) "Rent" shall mean the Fixed Annual Net Rent and Tenant's Proportionate
Share of Operating Costs (as defined in Section 3.2 below), and any
Additional Rent payable by Tenant to Landlord under this Lease.
(q) "Rent Commencement Date" shall mean (a) the date on which Tenant takes
possession of the Leased Premises; or (b) the Commencement Date, whichever
is earlier. Taking possession of the Leased Premises by Tenant shall be
deemed to establish conclusively that the Landlord's Work has been
substantially completed in accordance with the Plans, are suitable for the
purposes for which the Leased Premises are let, and that the Leased
Premises are in good and satisfactory condition as of the date possession
was so taken by Tenant.
(r) "Rentable Area" or "Rentable Square Footage" shall mean the total
rentable area (as it exists from time to time) based on the B.O.M.A.
method. Rentable Area of the Leased Premises is hereby deemed to mean 5,016
rentable square feet.
<PAGE>
28
(s) "Tenant's Proportionate Share" shall be a percentage, determined by
dividing the Rentable Square Footage in the Leased Premises by the number
of rentable square feet in the Building (based on t he B.O.M.A. method). In
the event of any change in the area of the Leased Premises (except a change
relating to relocation pursuant to Section 19.11) or the Building, Tenant's
Proportionate Share shall be adjusted to reflect such change or event on a
prorated, daily basis. (t) "Tenant's Proportionate Share of the Operating
Costs" shall have the meaning set forth in Section 3.2 below.
(u) "Term" shall mean three (3) Lease Years (plus Partial Lease Year, if
applicable) commencing on the Commencement Date and ending at 11:59 p.m. on
the last day of the third (3rd) Lease Year ("Expiration Date") or on such
earlier date in which the Term of this Lease shall expire or be canceled or
terminated pursuant to any of the conditions or covenants of this Lease or
pursuant to law. Tenant shall have two, one-year renewal options.
(v) "Use" shall mean general office or laboratory use including manufacture
of diagnostic kits and reagents, therapeutic compounds and cell lines, and
for no other purpose whatsoever.
ARTICLE 2. LEASED PREMISES AND TERM
2.1. Leased Premises. Subject to the rent, terms and conditions herein set
forth, Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
the Leased Premises, subject to the terms and provisions of this Lease to have
and to hold for the Term, unless the Term shall be sooner terminated as
hereinafter provided. In addition, as an appurtenance to this Lease, Tenant
shall have the general and non-exclusive right to use the Common Area subject to
the terms and conditions of this Lease. For purposes of this Lease, Common Area
shall include all areas, improvements, facilities and equipment from time to
time designated by Landlord for the general and nonexclusive common use or
benefit of Tenant, other tenants of the Building, Landlord, and their respective
officers, partners, directors, employees, agents, licensees, contractors,
customer and invitees, to the extent customers and invitees are under the
principals control or direction, including the following: (i) any areas in the
Building devoted to lobbies, conference rooms, hallways, elevators, rest rooms,
janitorial closets, mailrooms, and other similar facilities provided for the
common use or benefit of tenants generally and/or for the public located in the
Building (but shall not include any such areas designated for the exclusive use
or benefit of a particular tenant); (ii) portions of the Building used for
mechanical rooms, electrical facilities, telephone closets, fire towers and
building stairs (but shall not include any such areas designated for the
exclusive use or benefit of a particular tenant); (iii) elevator shafts, vents,
stacks, pipe shafts and vertical ducts; and (iv) those portions of the Building
and/or the Building Land which are provided and maintained for the common use
and benefit of Landlord and tenants of the Building only and employees and
invitees and licensees of Landlord and such tenants; including, without
limitation, all atriums, walkways, parking areas, and all streets, sidewalks and
landscaped areas comprising the Building Land.
2.2. Landlord's Reservation. Landlord shall retain absolute dominion and
control over the Common Area and shall operate and maintain the Common Area in
such manner as Landlord in its sole discretion, shall determine; provided,
however, such exclusive right shall not operate to prohibit Tenant from its
material benefit and enjoyment of the Lease Premises for the permitted Use as
defined in Section 1.1(v). Tenant acknowledges that without advance notice to
Tenant and without any liability to Tenant in any respect, Landlord shall have
the right to:
<PAGE>
(a) Close off any of the Common Area to whatever extent required in the
opinion of Landlord to prevent a dedication of any of the Common Area or
the accrual of any rights by any person or the public to the Common Area,
provided such closure does not materially deprive Tenant of the benefit and
enjoyment of the Leased Premises for its permitted use;
(b) Temporarily close any of the Common Area for maintenance, alteration or
improvement purposes;
(c) Select, appoint or contract with any person for the purpose of
operating and maintaining the Common Area, on such terms and conditions as
Landlord deems reasonable;
(d) Change the size, use, shape or nature of any such Common Area, provided
such change does not materially deprive Tenant of the benefit and enjoyment
of the Leased Premises. So long as Tenant is not thus deprived of the use
and benefit of the Leased Premises, Landlord will also have the right at
any time to change the arrangement or location of, or both, or to regulate
or eliminate the use of any concourse, or any elevator, stairs, toilet or
other public conveniences in the Building, without incurring any liability
to Tenant or entitling Tenant to any abatement of rent;
(e) Expand the existing Building or other buildings to cover a portion of
the Common Area, convert the Common Area to a portion of the Building or
other buildings, or convert any portion of the Building (excluding the
Leased Premises) or other building to Common Area. Upon erection or any
buildings or expansion of the Building, or change in Common Area, the
portion of the Building upon which such structures have been erected will
no longer be deemed to be a part of the Common Area. In the event of any
such changes in the size or use of a building or Common Area, Landlord may
make an appropriate adjustment in the rentable square feet of the Building
and a corresponding adjustment to Tenant's Proportionate Share;
(f) In addition to the other rights of Landlord under this Lease, Landlord
reserves to itself and its respective successors and assigns the right to:
(i) change the street address and/or name of the Building; (ii) erect, use
and maintain pipes and conduits in and through the Leased Premises; (iii)
grant to anyone the exclusive right to conduct any particular business or
undertaking in the Building; (iv) control the use of the roof and exterior
walls of the Building; and (vi) use Tenant's name in promotional materials
relating to the Building. Landlord may exercise any or all of the foregoing
rights without being deemed to be guilty of an eviction or disturbance or
interruption of the business of Tenant or Tenant's use or occupancy of the
Leased Premises.
2.3. Term. This Lease is effective and enforceable upon the date of
execution hereof by both parties ("Effective Date"). The Term of this Lease
shall commence on the Commencement Date as defined in Section 1, above, and
shall extend to the last day of the third (3rd) Lease Year (or the last day of
the first or second renewal term, as the case may be) at 12:00 a.m. midnight or
on such earlier date on which the term of this Lease may expire or be terminated
pursuant to the provisions of this Lease or pursuant to law. Promptly upon the
occurrence of the Commencement Date, the parties shall execute an instrument
confirming the Commencement Date and the expiration date of the initial term
hereof, but the failure of any party to do so shall not release any of the
parties from any of their obligations hereunder.
Tenant shall have the option to extend the term of this Lease for two
periods of one year each, upon condition there is no default at the commencement
of the extended terms. The extended terms shall be upon conditions, and terms
and rent determined and payable, as mutually agreed upon by Landlord and Tenant
at such time (which shall include a reduction in that component of Rent
attributable to amortization of improvements set forth in Section 1.1(b) above,
which shall have been amortized during the initial Term). Tenant shall exercise
each renewal option by notifying the Landlord in writing at least 90 days prior
to the expiration of the initial term or the first renewal term as the case may
be.
<PAGE>
ARTICLE 3. RENT
3.1. Annual Gross Rent and Annual Base Rent. Tenant agrees to pay to the
order of Landlord, without demand, set-off or deduction during the Term, the
Annual Base Rent, in an amount equal to the sum of the Annual Gross Rent,
specified in Section 1.1(b), and Tenant's Proportionate Share of Operating Costs
in Excess of the Operating Stop (as defined in Sections 1.1(p) and Section 3.2,
below). The Annual Gross Rent shall be due and payable in twelve (12) equal
monthly installments, in advance, commencing on the Commencement Date and
continuing on the first day of each and every subsequent calendar month during
the Term, in the amount as scheduled in Section 1.1(b); provided, however, that
the installment of the Annual Gross Rent payable for the first full calendar
month following the Commencement Date (and if the Commencement Date occurs on a
date other than on the first day of a calendar month, the installment of Annual
Gross Rent prorated from such date until the first day of the following month)
shall be due and payable at the time of execution and delivery of this Lease.
Tenant shall pay, as Additional Rent, all other sums due under this Lease.
Tenant shall pay the Annual Gross Rent, Tenant's Proportionate Share of
Operating Expenses in Excess of the Operating Stop, and all other Additional
Rent by good check or in lawful currency of the United States of America. All
forms of Rent due under this Lease shall be paid to Landlord at c/o Echelon Real
Estate Services, Inc., 13709 Progress Boulevard, Box 10, Alachua, FL 33615, or
such other location as Landlord may designate in writing from time to time.
3.2. Tenant's Proportionate Share of Operating Costs in Excess of the
Operating Stop3.2. Tenant's Proportionate Share of Operating Costs in Excess of
the Operating Stop.
(a) For the purpose of this Lease, the term "Operating Costs" shall mean
the total cost and expense (as hereinafter defined), incurred by Landlord
during any calendar year in owning, operating, managing, and maintaining
and repairing the Building, including, if the Rentable Area of the Building
is less than ninety-five percent (95%) occupied, all additional costs and
expenses of operation, management and maintenance of the Building which
Landlord determines that it would have paid or incurred during any calendar
year in which ninety-five percent (95%) of the rentable area of the
Building was occupied; (provided, however, if during any calendar year, the
total Operating Costs charged to tenants as "grossed up" exceeds 100
percent of the actual operating expenses paid by Landlord, then the amount
in excess of 100 percent due to such "grossing up" shall be returned to
such tenants according to their pro rata shares). Only those component
expenses that are affected by variations in occupancy levels shall be
grossed up. The items and charges comprising Operating Costs shall
specifically include, without limitation:
(i) landscaping and exterior pest control;
(ii) maintenance (including janitorial costs), repair and replacement
costs of the Buildings, and the cost of supplies, tools, materials, and
equipment for Buildings repairs and maintenance that, under GAAP, would
not be capitalized;
(iii) exterior window washing;
(iv) the cost of personnel (including a property manager and employees
supervised and reporting to such manager) necessary or convenient to
implement the services specified in this Lease, with all customary
employment and normal retirement benefits incident thereto, including
without limitation, pension and medical and life insurance benefits, and
security personnel, if such personnel are employed; all services,
supplies, repairs, replacements, rents, or other expenses for
maintaining, managing and operating the Buildings including parking and
common areas;
<PAGE>
(v) the cost of any capital equipment and improvements (including, but
not limited to, the heating, ventilating and air-conditioning system
serving the Buildings) and of the installation thereof that (1) are
primarily for the purpose of safety, saving energy, or reducing Operating
Costs of the Buildings or (2) may be required by a governmental law or
regulation not previously applicable to the Buildings or not in effect at
the time when it was constructed or (3) as may be required to comply with
the terms and provisions of the Americans with Disabilities Act ("Act")
and its regulations, to the extent the same were in effect as of the
Commencement Date but not enforced prior to the Commencement Date, (the
cost of such capital improvement items and installation shall be
amortized over such reasonable periods as Landlord shall determine,
together with interest on the unamortized amount at a fluctuating rate
per annum that is at all times equal to the prime interest rate for Chase
Manhattan Bank, or if unavailable, CitiBank or other similar banking
institution, as reported from time to time in the money rates column in
The Wall Street Journal);
(vi) all real property taxes and current installments of special
assessments which become due during the Term (and any tax or assessment
to the extent levied or assessed in lieu thereof) (with appropriate
proration for any partial calendar year) and all reasonable real estate
tax consultant expenses and attorneys' fees incurred for the purpose of
maintaining an equitable assessed valuation of the Leased Premises, AND
all current assessments levied by any property owner's association
governing and maintaining the land on which the Building is located; and
(vii) all insurance premiums Landlord is required to pay, including
public liability insurance and property damage and other insurance as is
customary for similar projects located in the Alachua area, with respect
to the Building; and,
(viii) an annual management fee equal to four percent (4%) of the Annual
Base Rent, payable in equal monthly installments of one twelfth of the
estimated annual fee, to be paid concurrently with the Tenant's payment
of its share of the remaining Operating Costs.
The term "Operating Costs" shall not include the following: repairs,
restoration or other work occasioned by fire, wind, the elements or other
casualty; income, capital stock, estate, inheritance and franchise taxes of
Landlord; expenses incurred in leasing to or procuring of lessees, leasing
commissions, advertising expenses and expenses for the renovating of space
for new lessees; interest or principal payments on any mortgage or other
indebtedness of Landlord; any depreciation allowance or expense (except as
expressly permitted hereinabove); and operating expenses which are the
responsibility of Tenant; ad valorem taxes and other taxes on the personal
property of Tenant located within the Leased Premises, to the extent the
same has not been paid for by Tenant directly.
Landlord shall have the right with regard to any and all management and
maintenance obligations of Landlord under this Lease, to contract with such
person(s) or entity or entities for the performance and accomplishment of
such of the obligations as Landlord shall deem proper, including entities
in which Landlord may hold an ownership or other interest, provided that
such entities charge the same competitive amounts as if this were a
third-party arms' length transaction. Landlord may incur certain operating,
management and maintenance obligations, costs and expenses pertaining to
the Leased Premises, together with or in combination with Landlord's
operations, repair, management and maintenance of other properties located
in the same development park or project. To the extent such costs and
expenses are shared costs or jointly billed to Landlord, Landlord agrees
that it shall apportion the costs and expenses among the Leased Premises
and the other properties subject to such services, repair or maintenance in
a fair and equitable fashion.
<PAGE>
(b) The parties each acknowledge that the Annual Gross Rent specified in
Section 3.1 above does not provide for escalating operating and maintenance
expenses, real estate taxes and utility costs which shall hereafter affect
the Leased Premises or the Building, in excess of an amount equal to $5.85
per rentable square foot ("Operating Stop"). Accordingly, Tenant shall pay
to Landlord, Tenant's Proportionate Share of the Operating Costs in excess
of the Operating Stop, as additional rent ("Additional Rent"), which amount
due shall be computed by multiplying Landlord's Operating Costs for the
calendar Year in question by Tenant's Proportionate Share, and deducting
therefrom an amount obtained by multiplying $5.85 by the total number of
rentable square feet in the Leased Premises. At Landlord's option, Tenant's
Proportionate Share of the Operating Costs in Excess of the Operating Stop
shall be paid by Tenant in monthly installments in such amounts as are
estimated and billed by Landlord at the beginning of each twelve (12) month
period commencing and ending on dates designated by Landlord, each
installment being due on the first (1st) day of each calendar month. Within
one hundred twenty (120) days, after the end of each calendar year, the
monthly installments paid or payable shall be adjusted between Landlord and
Tenant in accordance with the actual Operating Costs.
(c) Within one hundred twenty (120) days following the end of each year, or
as soon as reasonably practical, Landlord shall deliver Tenant an annual
itemized statement for Tenant's Proportionate Share of the Operating Costs
in Excess of the Operating Stop, certified by Landlord or its accountant
showing in reasonable detail the total Operating Costs actually incurred
for the preceding year and the method of calculation thereof. If Tenant's
Proportionate Share of the actual Operating Costs in Excess of the
Operating Stop exceeds the total of the estimated monthly payments made by
Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within thirty (30) days of the receipt of the statement. If
Tenant's Proportionate Share of the actual Operating Costs in Excess of the
Operating Stop is less than the total of the estimated monthly payments
made by Tenant for such year, then Landlord shall credit Tenant's account
(or, if at the end of the term of this Lease, pay Tenant) the amount of the
credit within thirty (30) days of the receipt of the statement. The
obligations of Tenant and Landlord to make payment adjustment required
under this Section shall survive the termination of this Lease. Failure of
Landlord to provide such statement within the time prescribed shall not
relieve Tenant of its obligations hereunder.
(d) Notwithstanding any other provision in this Lease, during the year in
which the Lease terminates, Landlord, prior to the termination date, shall
have the option to invoice Tenant for Tenant's Proportionate Share of the
Operating Costs in Excess of the Operating Stop based upon the previous
year's Operating Costs. Tenant's Proportionate Share of Operating Costs in
Excess of the Operating Stop in any Year during the Lease Term having less
than 365 days shall be appropriately prorated. If this Lease shall
terminate on a day other than the last day of a calendar year, the amount
of any Additional Rent payable by Tenant applicable to the year in which
such termination shall occur shall be pro rated on the ratio that the
number of days from the commencement of the calendar year to and including
the termination date bears to 365. The obligations of Tenant and Landlord
to make payment adjustment required under this Section shall survive the
termination of this Lease.
3.3. Late Payment Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other sums due hereunder after the expiration of
any applicable grace period will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Accordingly, other remedies for nonpayment of Rent notwithstanding,
and except as expressly provided herein, in the event any installment payment of
Annual Base Rent due Landlord hereunder shall not be paid within ten (10) days
after the due date, Tenant shall pay Landlord a late payment fee of five percent
(5%) of the unpaid past due amount, in addition to such other amounts owed under
this Lease. In addition, Tenant shall pay Landlord interest on any delinquent
payment due Landlord hereunder at the highest rate permitted by Florida Law, as
provided in Chapter 687, Florida Statutes ("Default Rate"); provided that
interest shall not be payable on late charges incurred by Tenant or on any
amounts upon which late charges are paid by Tenant to the extent such interest
would cause the total interest to be in excess of that legally permitted.
<PAGE>
3.4. Increase in Insurance Premiums. If an increase in any insurance
premiums paid by Landlord for the Building is caused by Tenant's use of the
Leased Premises, or if Tenant vacates the Leased Premises and causes an increase
in such premiums, then Tenant shall pay as Additional Rent the amount of such
increase to Landlord.
3.5. Security Deposit. Upon the full execution of this Lease and unless
waived by Landlord in writing, Tenant shall pay to Landlord a security deposit
in the amount of $0. The security deposit shall be held by Landlord for the
performance of Tenant's covenants and obligations under this Lease. It being
expressly understood that the security deposit shall not be considered an
advance payment of rental or a measure of Landlord's damage in case of default
by Tenant. Upon the occurrence of any event of default by Tenant or breach by
Tenant of Tenant's covenants under this Lease, Landlord may, from time to time,
without prejudice to any other remedy, use the security deposit to the extent
necessary to make good any arrears of rent, or to repair any damage or injury,
or pay any expense or liability incurred by Landlord as a result of the event of
default or breach of covenant, and any remaining balance of the security deposit
shall be returned by Landlord to Tenant upon termination of this Lease. If any
portion of the security deposit is so used or applied, Tenant shall upon ten
days written notice from Landlord, deposit with Landlord by cash or cashier's
check an amount sufficient to restore the security deposit to its original
amount.
3.6. Holding Over. In the event that Tenant does not vacate the Leased
Premises upon the expiration or termination of this Lease and continues to hold
over in possession of the Leased Premises without the written consent of
Landlord, Tenant shall be a tenant at will for the holdover period and all of
the terms and provisions of this Lease shall be applicable during that period,
including the obligation to pay Rent, except that Tenant shall pay Landlord as
an installment of the Annual Base Rent for the period of such holdover an amount
equal to two times (200%) the Annual Base Rent which would have been payable by
Tenant had the holdover period been a part of the original term of this Lease.
The rental payable during the holdover period shall be payable to Landlord on
demand.
3.7. Sales Tax. In addition to the Annual Gross Rent and the Additional
Rent to be paid by Tenant hereunder, Tenant shall be liable and pay to Landlord
all rental, sales and use taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Landlord by Tenant under
the terms of this Lease. Any such payment shall be paid concurrently with the
payment of the Rent or other charge upon which the tax is based as set forth
above.
3.8. Rights to Additional Rent. Landlord shall have the same rights and
remedies with respect to Additional Rent as with respect to Fixed Annual Net
Rent.
ARTICLE 4. OCCUPANCY AND USE
<PAGE>
4.1. Use. Tenant warrants and represents to Landlord that the Leased
Premises shall be used and occupied solely for the purposes set forth in Article
1 and for no other purposes whatsoever. Notwithstanding the foregoing, Tenant
shall not use the Leased Premises in violation of any exclusive uses heretofore
granted to other tenants in the Building. Landlord and Tenant acknowledge and
agree that Tenant's utilization of the Leased Premises for its permitted Use
does not violate any such exclusive use. Tenant shall occupy the Leased
Premises, conduct its business and control its agents, employees, invitees and
visitors (to the extent such invitees and visitors are within the Leased
Premises) in such a manner as is lawful, reputable and will not create a
nuisance. Tenant shall not permit any operation which emits any excessive or
offensive odor or matter which intrudes into other portions of the Building, or
outside of the Leased Premises, use any apparatus or machine which makes undue
noise or causes undue vibration in any portion of the Building or otherwise
materially interfere with, annoy or disturb any other lessee in its normal
business operations or Landlord in its management of the Building. Tenant shall
neither permit any waste on the Leased Premises nor allow the Leased Premises to
be used in any way which would, in the reasonable opinion of Landlord, be extra
hazardous on account of fire or which would in any way increase or render void
the fire insurance on the Building. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business in the Leased
Premises, Tenant shall, at its expense, duly procure and thereafter maintain
such license or permit and shall at all times comply with the terms and
conditions of same. Tenant shall not at any time knowingly suffer the Leased
Premises to be used or occupied in violation of (i) the Certificate of Occupancy
for the Leased Premises or for the Building, (ii) any of the provisions of this
Lease, or (iii) zoning ordinances, or (iv) Tenant's permits, or (v) any laws,
ordinances, orders, rules or regulations of governmental and quasi governmental
authorities having jurisdiction over the Building, or the operations or business
of Tenant.
4.2. Signs. Except as expressly permitted hereinafter, Tenant shall not
place any signs or other advertising matter or material on the exterior of the
Building, anywhere upon the Common Areas, or in any portion of the interior of
the Leased Premises which is visible beyond the Leased Premises, except those
signs submitted to Landlord in writing and approved by Landlord in writing, and
which signs are in conformance with Landlord's sign criteria established for the
Building. Landlord shall provide, at Landlord's expense, a directory in the
lobby of the Building listing all Building tenants, but shall have no obligation
to list any assignees or subtenants. If any prohibited sign, advertisement or
notice is exhibited by Tenant, Landlord shall have the right to remove the same,
and Tenant shall pay upon demand any and all expenses incurred by Landlord in
such removal, together with interest thereon at the Default Rate.
4.3. Compliance with Laws, Rules and Regulations. Tenant, at Tenant's sole
cost and expense, shall comply with all present and future laws, ordinances,
orders, and rules and regulations of all state, federal, municipal, and local
governments, departments, commissions, and boards having jurisdiction over the
Leased Premises, Tenant's business, or any activity or condition on or about the
Leased Premises, including, without limitation, all Environmental Laws and any
other laws relating to the improvements on the Leased Premises or the air, soil
or groundwater in and around the Leased Premises (collectively, the "Laws").
Tenant warrants that its business and all activities to be conducted or
performed in, on, or about the Leased Premises shall comply with all of the
Laws. Tenant agrees to change, reduce, or stop any such activity, or install
necessary equipment, safety devices, pollution control systems, or other
installations at any time during the Term hereof to so comply. Without
limitation to the foregoing, Tenant agrees:
(a) If, during the Term hereof, Landlord or Tenant is required to alter,
convert, or replace the HVAC system serving the Leased Premises in order to
comply with any of the Laws concerning indoor air pollution or quality, or
in order to meet any applicable limitation on, standard for, or guideline
relating to indoor air quality or the emission of any indoor air pollutant,
including, without limitation, those adopted by the Occupational Safety and
Health Administration, the American Society of Heating, Refrigeration, and
Air Conditioning Engineers, or the Environmental Protection Agency, Tenant
acknowledges and agrees that such costs of any such conversion or
replacement, including without limitation, the purchase and installation of
new equipment, and the alteration of existing HVAC equipment in the Leased
Premises to accommodate any new equipment, shall either be paid by Tenant
or shall be includable in the Operating Costs.
<PAGE>
(b) Tenant covenants and agrees, at its sole cost and expense, to comply
with Laws regarding the collection, sorting, separation, and recycling of
waste products, garbage, refuse, and trash. Tenant shall sort and separate
such waste products, garbage, refuse, and trash into such categories as
provided by law. Each separately sorted category of waste products,
garbage, refuse, and trash shall be placed in separate receptacles
reasonably approved by Landlord. Such separate receptacles may, at
Landlord's option, be removed from the Leased Premises in accordance with a
collection schedule prescribed by law. Landlord reserves the right to
refuse to collect or accept from Tenant any waste products, garbage,
refuse, or trash that is not separated and sorted as required by law, and
to require Tenant to arrange for such collection at Tenant's sole cost and
expense, utilizing a contractor satisfactory to Landlord. Tenant shall pay
all costs, expenses, fines, penalties, or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the
provisions of this Section, and, at Tenant's sole cost and expense, shall
indemnify, defend, and hold Landlord harmless (including legal fees and
expenses) from and against any actions, claims, and suits arising from such
noncompliance, utilizing counsel reasonably satisfactory to Landlord.
Landlord shall not be responsible for collection, storage, transportation
or disposal of any hazardous waste as defined under Environmental Law and
Tenant shall be solely responsible for such costs.
(c) Tenant will comply with the reasonable rules and regulations of the
Building adopted from time to time by Landlord, a current copy of which are
set forth on Exhibit "C" attached to this Lease. Landlord shall have the
right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed necessary for the safety, care,
cleanliness, preservation of good order and operation or use of the
Building or the Leased Premises. The Rules and Regulations, as changed in
accordance with this section from time to time, are hereinafter called the
"Rules and Regulations."
4.4. Warranty of Possession. Landlord warrants that it has the right and
authority to execute this Lease. Landlord covenants and agrees that, upon
Tenant's paying on a monthly installment basis the Annual Gross Rent, Tenant's
Proportionate Share of Operating Expenses in Excess of the Operating Stop, and
any other Additional Rent required hereunder and performing all of the other
covenants herein on its part to be performed, Tenant shall and may peaceably and
quietly hold and enjoy the Leased Premises without hindrance by Landlord or
persons claiming through or under Landlord (including, without limitation, any
mortgagee of Landlord), subject to the terms, covenants and conditions of this
Lease. Landlord shall not be responsible for the acts or omissions of any other
lessee or third party not claiming through or under Landlord that may interfere
with Tenant's use and enjoyment of the Leased Premises.
4.5. Inspection. Upon reasonable prior notice, Landlord and Landlord's
agents shall have the right during Normal Business Hours to enter the Leased
Premises, to examine the same, and to show them to prospective purchasers or
lenders of the Building, and to examine and correct any environmental
conditions. Upon reasonable prior notice (except in the case of an emergency),
Landlord and Landlord's agents shall have the right outside of Normal Business
Hours to enter the Leased Premises to make such repairs or alterations as
required under this Lease or as Landlord may reasonably deem necessary or
desirable, and Landlord shall be allowed to take all material into and upon the
Leased Premises that may be required therefore without the same constituting an
eviction of Tenant in whole or in part, and the Rent reserved herein shall in no
wise abate while said repairs or alterations are being made; provided, however,
if the necessity of such repairs do not arise due to the fault of Tenant and
Tenant is prevented from operating in the Leased Premises in whole or in part,
then in such event the Annual Gross Rent and all other charges shall be
proportionately abated during said period. During the twelve (12) months prior
to the expiration of the Term hereof, upon reasonable prior notice, Landlord may
during Normal Business Hours exhibit the Leased Premises to prospective tenants.
Nothing herein contained, however, shall be deemed or construed to impose upon
Landlord any obligation, responsibility or liability whatsoever, for the care,
maintenance or repair of the Leased Premises or the Building or any part
thereof, except as otherwise herein specifically provided. Notwithstanding the
foregoing, no prior notice shall be required to permit Landlord or its
authorized agents to enter the Leased Premises to supply janitorial service or
any other service to be provided by Landlord pursuant to this Lease; provided,
however, that with respect to any entry not pursuant to reasonable prior notice
(other than the supply of janitorial service), Landlord shall promptly provide
notice that it or its authorized agents entered the Leased Premises, setting
forth the date, time, and purpose of the entry. Landlord shall at all times have
and retain a key with which to unlock all of the doors in, upon and about the
Leased Premises. Tenant shall not change Landlord's lock system unless Tenant
provides Landlord with a pass key, or in any other manner prohibit Landlord from
entering the Leased Premises. Landlord shall have the right to use any and all
means which Landlord may deem proper to open any door in an emergency without
liability therefor.
ARTICLE 5. UTILITIES AND SERVICE
<PAGE>
5.1. Building Services. Landlord shall provide the Leased Premises with
trash removal service, elevator service, and with water and electricity for
lighting, receptacles for the operation of office machines and other incidental
uses during the term of this Lease. Tenant shall pay all telephone charges for
service to the Leased Premises. Landlord shall furnish Tenant hot and cold water
at those points of supply provided for general use of other tenants in the
Building. In addition, Landlord shall furnish central heating and air
conditioning in season during Normal Business Hours, and at temperatures and in
amounts as are in accordance with the standards of office buildings in the
Alachua County area, subject, however, to being in compliance with any
governmental regulations. Landlord shall also provide routine maintenance,
painting and electric lighting service for all public areas and special service
areas of the Building in the manner and to the extent deemed by Landlord to be
standard and in accordance with the standards of first class office buildings in
the Alachua County area. Landlord may, in its sole discretion, provide
additional services not enumerated herein. Landlord will not be liable to Tenant
or any other person, for direct or consequential damage, or otherwise, for any
failure to supply any heat, air conditioning, elevator, cleaning, lighting or
security or for any surges or interruptions of electricity, or other service
Landlord has agreed to supply during any period when Landlord uses reasonable
diligence to supply such services. Landlord reserves the right temporarily to
discontinue such services, or any of them, at such times as may be necessary by
reason of accident, repairs, alterations or improvements, strikes, lockouts,
riots, acts of God, governmental preemption in connection with a national or
local emergency, any rule, order or regulation, conditions of supply and demand
which make any product unavailable, Landlord's compliance with any mandatory or
voluntary governmental energy conservation or environmental protection program,
or any other happening beyond the control of Landlord. Landlord will not be
liable to Tenant or any other person or entity for direct or consequential
damages resulting from the admission to or exclusion from the Building of any
person. Landlord will not be liable for damages to persons or property or for
injury to, or interruption of, business for any discontinuance permitted under
this Section, nor will such discontinuance in any way be construed as an
eviction of Tenant or cause an abatement of rent or operate to release Tenant
from any of Tenant's obligations under this Lease. Landlord reserves the right
from time to time to make changes in the utilities and services provided by
Landlord to the Building provided such changes do not detract from the level of
the existing utilities and services.
5.2. Security and Theft or Burglary. Landlord shall not be liable to Tenant
for losses to Tenant's property or personal injury caused by criminal acts or
entry by unauthorized persons (other than the negligence or wilful misconduct of
Landlord, or Landlord's agents or contractors) into the Leased Premises or the
Building.
5.3. Janitorial Service. Landlord shall keep the Leased Premises and the
exterior and public areas of the Building cleaned and well maintained. Without
limiting the foregoing, Landlord shall provide, and shall include the cost
thereof in the Operating Costs, cleaning and janitorial services and window
cleaning services of a nature and of a quality equal to that of other general
office buildings in the Alachua County area, and the replacement of building
standard light bulbs and ballasts. Landlord shall not provide additional or
extra janitorial service to kitchens or storage areas included in the Leased
Premises.
5.4. Excessive Utility Consumption. Tenant shall pay all utility costs and
additional improvement costs occasioned by high electrical consumption
electrodata processing machines, advanced telecommunications equipment,
computers and other equipment of high electrical consumption, including without
limitation, the cost of installing, servicing and maintaining any special or
additional inside or outside riders, wiring or lines, meters or submeters,
transformers, poles, or air conditioning costs.
5.5. Window Covering. Landlord, at its option, may furnish and install
window coverings on all exterior windows to maintain a uniform exterior
appearance. Tenant shall not remove or replace these window coverings or install
any other window covering which would affect the exterior appearance of the
Building.
<PAGE>
5.6. Charge for Service. All costs of Landlord for providing the services
set forth in this Article 5 (except those charges paid by Tenant pursuant to
Section 5.4) shall be subject to the Additional Rent provisions in Section 3.2.
ARTICLE 6. REPAIRS AND MAINTENANCE
6.1. Landlord Repairs. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Leased
Premises or the Building during the term of this Lease except as are set forth
in this Lease. Landlord shall maintain only (a) the roof, structure, columns,
exterior walls and exterior windows, foundation, interior load-bearing walls and
demising walls and floors, in sound, watertight condition and good state of
repair; and (b) the elevators, and all Building systems and facilities
including, but not limited to, the base building electrical, water, gas, sewer,
life safety, mechanical and HVAC (including the Leased Premises' air handling
equipment, but excluding separate package air-conditioning systems specially
installed by or for Tenant for Tenant's sole use, if any) supplied to the Leased
Premises in good operating condition, maintenance and repair; and (c) the
sidewalks, curbs, driveways, parking areas (if any) and landscaping in good
condition and repair, open and free of debris or other obstruction. The Landlord
will also keep the public portions of the Building, toilets and common areas in
clean, sightly, good operating condition and repair. Landlord's cost of
maintaining and repairing the items set forth in this section are subject to the
Additional Rent provisions in Section 3.2. Landlord shall not be liable to
Tenant, except as expressly provided in this Lease, for any damage or
inconvenience, and Tenant shall not be entitled to any abatement or reduction of
rent by reason of any repairs, alterations or additions made by Landlord under
this Lease. Tenant understands and agrees that Landlord may, at any time or from
time to time during the term of this Lease, perform substantial renovation work
in and to the Building or the mechanical systems serving the Building (which
work may include, but need not be limited to, the repair or replacement of the
Building's exterior facade, exterior window glass, elevators, electrical
systems, air conditioning and ventilating systems, plumbing system, common
hallways, or lobby), any of which work may require access to the same from
within the Leased Premises. Tenant agrees that:
(a) Landlord shall have access to the Leased Premises at all reasonable
times, upon reasonable notice, for the purpose of performing such work;
and
(b) Landlord shall incur no liability to Tenant, nor shall Tenant be
entitled to any abatement of rent on account of any noise, vibration,
or other disturbance to Tenant's business at the Leased Premises
(provided that Tenant is not denied access to said Leased Premises)
which shall arise out of said access by Landlord or by the performance
by Landlord of the aforesaid renovations at the Building.
Landlord shall use reasonable efforts (which shall not include any obligation to
employ labor at overtime rates) to avoid disruption of Tenant's business during
any such entry upon the Leased Premises by Landlord. Landlord shall not be
liable to Tenant, except as expressly provided in this Lease, for any damage or
inconvenience, and Tenant shall not be entitled to any abatement or reduction of
rent by reason of any repairs, alterations or additions made by Landlord under
this Lease.
<PAGE>
6.2. Tenant Repairs. Tenant shall not suffer any damage, waste or
deterioration to occur to the Leased Premises and shall maintain the interior
non-structural portions of the Leased Premises and the fixtures and
appurtenances therein in good and sightly condition, and shall make all repairs
necessary to keep them in good working order and condition (including structural
repairs when those are necessitated by the negligence or willful misconduct of
Tenant or its agents, employees, invitees, licensees or visitors) ordinary wear
and tear and Acts of God excepted, and subject to the provisions of Articles 8
and 11 hereof. For purposes of this Lease, ordinary wear and tear shall not
include any environmental contamination in violation of any Environmental Law.
All repairs, replacements and restorations made by Tenant shall be equal in
quality and class to the originals thereof and shall be completed in compliance
with applicable law. Tenant covenants that any repairs or replacements (as the
case may be) required by the terms of this Lease to be made by Tenant shall be
commenced and completed expeditiously; provided, however, if Tenant fails to
make the repairs or replacements, in an emergency promptly after notice, or
otherwise fails to make the repairs or replacements within thirty (30) days
after notice or in the event that such repair or replacement is of such a nature
as cannot with diligent effort be cured within said thirty (30) day period,
Tenant shall have failed to commence to cure within said period or failed to
diligently prosecute remedial efforts to completion within a reasonable time
thereafter, then Landlord may, at its option, make the repairs or replacements,
and the cost of such repairs or replacements shall be charged to Tenant as
Additional Rent and shall become payable by Tenant with the payment of the rent
next due hereunder.
6.3. Request for Repairs. Tenant must notify Landlord of its request for
repairs or maintenance to the Leased Premises that are the responsibility of
Landlord pursuant to any provision of this Lease and such request must be made
to Landlord at the address provided for in the notice section.
6.4. Tenant Damages. At the termination of this Lease, by lapse of time or
otherwise, Tenant shall deliver the Leased Premises to Landlord in as good
condition as existed at the Commencement Date of this Lease, ordinary wear and
tear excepted. The cost and expense of any repairs necessary to restore the
condition of the Leased Premises shall be borne by Tenant. For purposes of this
Lease, ordinary wear and tear shall not include any environmental contamination
in violation of any Environmental Law.
ARTICLE 7. ALTERATIONS AND IMPROVEMENTS
7.1. Leasehold Improvements. If construction to the Leased Premises is to
be performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Leased Premises in
accordance with plans and specifications agreed to by Landlord and Tenant.
Within seven days of receipt of plans and specifications, Tenant shall execute a
copy of the plans and specifications and, if applicable, change orders setting
forth the amount of any costs to be borne by Tenant. In the event Tenant fails
to execute the plans and specifications and change order within the seven day
period, Landlord may, at its sole option, declare this Lease canceled or notify
Tenant that the Annual Base Rent shall commence on the completion date even
though the improvements to be constructed by Landlord may not be complete. Any
changes or modifications to the approved plans and specifications shall be made
and accepted by written change order or agreement signed by Landlord and Tenant
and shall constitute an amendment to this Lease. Notwithstanding anything
contained herein to the contrary, in the event that Tenant is not in default at
expiration of this Lease, Tenant shall be entitled to keep and remove the
emergency generator installed in the Leased Premises without additional charge
or cost to be paid to Landlord.
<PAGE>
7.2. Tenant Alterations. All additions, changes, improvements,
construction, or alterations by Tenant ("Alterations") must be in accordance
with the requirements of this Lease. In the event Tenant undertakes Alterations
following the Effective Date, Tenant must obtain the prior written consent and
approval of Landlord, which consent shall not be unreasonably withheld.
Landlord's approval of any such Alterations may also be conditioned upon
Landlord's approval of plans, contractors, contractor lien indemnification, and
terms of access for construction. Any Alterations to the Leased Premises made by
Tenant (to the extent that they cannot be removed without damage to the Leased
Premises) shall at once become the property of Landlord and shall be surrendered
to Landlord upon the termination of this Lease provided, however, Landlord, at
its option (upon written notice not less than 20 days prior to the end of the
Term or any renewal term), may require Tenant to remove and/or repair any
Alterations in order to restore the Leased Premises to the condition existing at
the time Tenant took possession, all costs of removal and/or repair and
restoration to be borne by Tenant. This clause shall not apply to moveable
equipment (including emergency power generators, autoclaves, water treatment
systems, etc.) or furniture owned by Tenant which may be removed by Tenant at
the end of the term of this Lease if Tenant is not then in default and if such
equipment and furniture are not then subject to any other rights, liens and
interests of Landlord. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
the Alterations and for final approval thereof upon completion and shall cause
the Alterations to be performed in a good and workmanlike manner in accordance
with the requirements of all applicable governmental authorities. All
Alterations shall be diligently performed in a good and workmanlike manner,
using materials and equipment at least equal in quality and class to the
original installations of the Leased Premises.
7.3. Liens. Nothing contained in this Lease shall be construed as a
consent on the part of the Landlord to subject the estate of Landlord to
liability under the Construction's Lien Law of the State of Florida, it being
expressly understood that the Landlord's estate or interest in the Leased
Premises or the Building shall not be subject to such liability, including any
liens of any nature arising by reason of Tenant's construction, alteration,
repair, restoration, replacement or reconstruction of any improvements on the
Leased Premises or by reason of any other act or omission of Tenant (or of any
person claiming by, through or under Tenant). All persons dealing with Tenant
are hereby placed on notice that such persons shall not look to Landlord or to
Landlord's credit or assets (including Landlord's interest in the Leased
Premises or any improvements constructed thereon) for payment or satisfaction of
any obligations incurred in connection with the construction, alteration,
repair, restoration, replacement or reconstruction thereof. Tenant shall
strictly comply with the Construction's Lien law of the State of Florida, as set
forth in Chapter 713, Florida Statutes, including, without limitation, the terms
of Florida Statutes 713.10, pursuant to which Tenant acknowledges Tenant shall
be responsible to provide such notice to any contractor dealing directly or
indirectly with Tenant in performing any such work on or within the Building or
any other area of Landlord's real property. This paragraph shall be construed so
as to prohibit, in accordance with the provisions of Chapter 713, Florida
Statutes, the interest of Landlord in the Leased Premises and Building being
subject to any lien for any improvements made by Tenant or any other person on
the Leased Premises or the Building. Notwithstanding the foregoing, Tenant, at
its expense, shall cause any lien filed against the Tenant's interest under this
Lease, the Leased Premises, the Building for work, services or materials claimed
to have been furnished to or for the benefit of Tenant to be satisfied or
transferred to bond within twenty (20) days after Tenant's having received
notice thereof. In the event that Tenant fails to satisfy or transfer to bond
such claim of lien within said twenty (20) day period, the Landlord may do so
and thereafter charge the Tenant as additional rent, all costs incurred by the
Landlord in connection with the satisfaction or transfer of such claim,
including attorneys' fees plus interest thereon at the Default Rate. Further,
Tenant agrees to indemnify, defend, and save the Landlord harmless from and
against any damage or loss incurred by the Landlord as a result of any such
contractor's Claim of Lien. This Section shall survive the termination of this
Lease.
ARTICLE 8. CASUALTY
8.1. Substantial Destruction. If the Leased Premises shall be substantially
damaged by fire, windstorm, or otherwise during the Lease Term, Landlord shall
have the right to either terminate this Lease, provided that notice thereof is
given to Tenant not later than one hundred twenty (120) days after such damage
or destruction, or to proceed to repair such damage and restore the Leased
Premises to substantially their condition at the time of such damage (but only
to the extent of Landlord's original obligation to construct pursuant hereto and
to the extent only of proceeds received by Landlord from its insurers. Tenant,
at its sole cost and expense, shall repair and restore whatever trade fixtures,
equipment and improvements it had installed prior to the damage or destruction.
The terms "substantially damaged" and "substantial damage," as used in this
Article, shall have reference to damage of such a character as cannot reasonably
be expected to be repaired or such that the Leased Premises cannot be restored
within ninety (90) days after the commencement of construction.
<PAGE>
8.2. Partial Destruction. If during the Term, the Leased Premises shall be
partially damaged (as distinguished from "substantially damaged") by fire or
other casualty, Landlord shall forthwith proceed to repair such damage and
restore the Leased Premises to substantially their condition at the time of such
damage (but only to the extent of Landlord's original obligation to construct
pursuant hereto and to the extent only of proceeds received by Landlord from its
insurerers), except Tenant, at its sole cost and expense, shall repair and
restore whatever trade fixtures, equipment and other improvements it had
installed prior to the damage or destruction (but only to the extent of proceeds
received by Tenant from its insurers).
8.3. Abatement of Rent. If the provisions of Subsection 8.1 or 8.2 of this
Article 8 shall become applicable, the Annual Gross Rent and all other charges
specified in this Lease shall be abated or equitably reduced proportionately
during any period in which, by reason of such damage or destruction (i) there is
substantial interference with the operation of the business of Tenant in the
Leased Premises, or (ii) in the case of Section 8.2, Landlord shall fail to make
repairs by reason of the failure to receive insurance proceeds, such abatement
or equitable reduction shall continue for the period commencing with such
destruction or damage and ending with the completion by Landlord of such work of
repair and/or restoration as Landlord is obligated to do. In the event of the
termination of this Lease pursuant to this Section 8, this Lease, and the Term
hereof, shall cease and come to an end as of the date of such damage or
destruction. Any Annual Gross Rent or other charges paid in advance by Tenant
shall be promptly refunded by Landlord.
8.4. Landlord's Limitation of Obligation. Despite anything contained in
this Lease to the contrary, and without limiting Landlord's right or remedies
hereunder:
(a) If damage or destruction occurs to the Leased Premises or any part
thereof by reason of any cause in respect of which there are no
proceeds of insurance available to Landlord, or
(b) If the proceeds of insurance are insufficient to pay Landlord for the
costs of rebuilding or making fit the Leased Premises), or
(c) If any mortgagee or other person entitled to the proceeds of insurance
does not consent to the payment to Landlord of such proceeds for such
purpose, or
(d) If in Landlord's reasonable opinion any such damage or destruction is
caused by any fault, neglect, default, negligence, act, or omission of
Tenant, or those for whom Tenant is in law responsible, or any other
person entering upon the Leased Premises under express or implied
invitation of Tenant,
then Landlord may, without obligation or liability to Tenant, terminate
this Lease on 30 days' written notice to Tenant and all Rent shall be
adjusted as of, and Tenant shall vacate and surrender the Leased Premises
on such termination date.
8.5. Landlord's Right to Terminate. In the event that the Building has been
damaged or destroyed by fire or other casualty to the extent that the cost of
restoration of the Building will exceed a sum constituting sixty percent (60%)
of the total replacement cost thereof, Landlord shall have the right to
terminate this Lease provided that notice thereof is given to Tenant not later
than sixty (60) days after such damage or destruction and Landlord elects not to
restore the Building and terminates all other leases for space in the Building.
ARTICLE 9. INSURANCE
<PAGE>
9.1. Tenant's Insurance. Tenant shall, at its sole expense, maintain in
effect at all times during the Term insurance coverage with limits not less than
those set forth below with insurers licensed to do business in the state of
Florida: a) Workers Compensation Insurance - statutory limits as required by
State law, and as same may be amended from time to time; b) Employer's Liability
Insurance - minimum limit $500,000; and c) Commercial General Liability
Insurance, with a combined single limit of $1,000,000 per occurrence and general
aggregate limits of $3,000,000. These policies shall be endorsed to include
Landlord and Landlord's mortgagee, if any, as an additional insured, state that
the insurance is primary over any insurance carried by Landlord, and the
commercial general liability policy shall be written on a standard Insurance
Services Office, Inc. (ISO) policy form with a 1988 or later edition date or its
equivalent. The policy must be written on an occurrence basis and include
Coverage A (Bodily Injury and Property Damage Liability), Coverage B (Personal
and Advertising Injury Liability) and Coverage C (Medical Payments). Upon
Tenant's default in obtaining or delivering the policy or certificate for any
such insurance or Tenant's failure to pay the charges therefor, Landlord may,
upon ten (10) days notice to Tenant, procure or pay the reasonable charges for
any such policy or policies (for not more than a 12 month period) and charge the
Tenant therefor plus interest thereon at the Default Rate as additional rent.
The limits of insurance specified in this Section may be adjusted upward by
Landlord not more than once every three (3) years in the event that Landlord
shall reasonably determine that because of any unexpected rates of inflation the
limits specified offer inadequate protection to Landlord; provided, however, any
such upward adjustment shall not exceed the then coverage customarily maintained
for similar premises in Alachua area.
9.2. Tenant's Personal Property Insurance. Tenant shall at all times during
the term hereof and at its cost and expense, maintain in effect policies of
insurance covering all of Tenant's personal property, trade fixtures and
equipment located in the Leased Premises, in an amount equal to their full
replacement value, providing protection against any peril included within the
standard classification of "Fire and Extended Coverage", together with insurance
against sprinkler damage, vandalism, theft and malicious mischief.
9.3. Landlord's Insurance. Landlord, as a portion of the Operating Costs,
shall maintain at all times during the term of this Lease: a) standard all-risk
fire and casualty insurance, covering the Building in amounts at least equal to
the full replacement cost of the Building at the time in question, but in no
event less than such coverage as is required to avoid co-insurance provisions;
b) comprehensive public liability insurance; (c) employer's liability insurance;
d) worker's compensation insurance in statutory limits; and, e) such other
insurance coverage as is customarily carried in respect of comparable Buildings.
The limits set forth in subsections b, c, and d of this section may be set or
adjusted by Landlord from time to time during the Term hereof to at least such
minimum limits and coverage customarily maintained for similar premises in the
Alachua area.
9.3. General Requirements. All policies of insurance required under this
article shall provide that they will not be cancelled upon less than thirty (30)
days prior written notice to Landlord and Tenant. Tenant shall furnish to
Landlord a certificate or certificates of insurance certifying that the
insurance coverage required is in force, upon request. The coverage shall be
issued by companies licensed to do business in the State of Florida and rated
A:VIII or better in Best's Insurance Guide (or similar rating in an equivalent
publication if no longer published) and shall otherwise be reasonably
satisfactory to the parties. Not less than thirty (30) days prior to expiration
of the coverage, renewal policies or certificates of insurance evidencing
renewal shall be provided. Any insurance required by the terms of this Lease may
be under a blanket policy (or policies) covering other properties of Tenant
and/or its related or affiliated corporations. If such insurance is maintained
under a blanket policy, the respective party shall procure and deliver to the
other party a statement from the insurer or general agent of the insurer setting
forth the coverage maintained and the amount thereof allocated to the risk
intended to be insured hereunder.
ARTICLE 10. INDEMNIFICATION
<PAGE>
10.1. Tenant's Indemnification. Tenant shall indemnify, defend and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense in connection with loss of life, personal injury and/or
damage to or destruction of property arising from or out of any occurrence in,
upon or at the Leased Premises, or the occupancy or use by Tenant of the Leased
Premises or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees, servants, subtenants or
concessionaires. In case Landlord shall be made a party to any such litigation
commenced by or against Tenant, then Tenant shall protect and hold Landlord
harmless and pay all costs and attorney's fees incurred by Landlord in
connection with such litigation, and any appeals thereof.
10.2. Landlord Not Liable. Except for the negligence or intentional
misconduct of Landlord or its agents, employees, invitees, licensees or
visitors, Tenant agrees Landlord shall not be liable to Tenant, Tenant's
employees, agents, invitees, licensees or visitors, or to any other person, for
an injury to person or damage to property on or about the Leased Premises caused
by any act or omission of Landlord, its agents, servants or employees, or of any
other person entering upon the Leased Premises under express or implied
invitation by Tenant, or caused by the improvements located on the Leased
Premises becoming out of repair, the failure or cessation of any service
provided by Landlord (including security service and devices), or caused by
leakage of gas, oil, water or steam or by electricity emanating from the Leased
Premises.
10.3. Landlord's Indemnification.
(a) Landlord shall indemnify, defend and save Tenant harmless from and
against any and all claims, actions, damages, liability and expense in
connection with loss of life, personal injury and/or damage to or
destruction of property arising from or out of any occurrence in, upon or
at the Leased Premises occasioned wholly or in part by any act or omission
of Landlord, its agents, contractors, employees, servants, subtenants or
concessionaires. In case Tenant shall be made a party to any such
litigation commenced by or against Landlord, then Landlord shall protect
and hold Tenant harmless and pay all costs and attorney's fees incurred by
Tenant in connection with such litigation, and any appeals thereof.
(b) Landlord shall indemnify, protect, defend and hold Tenant harmless from
and against any and all claims, demands, losses, liabilities and penalties
(including, without limitation, reasonable attorneys' fees at all trial and
appellate levels, whether or not suit is brought) arising directly or
indirectly from or out of or in any way connected with: (a) the presence of
any Hazardous Substances (as hereinafter defined) in the Building, caused
by the acts of Landlord, its agents or employees; or (b) any violation or
alleged violation of any Environmental Law (as hereinafter defined) in the
Building, caused by the acts of Landlord, its agents or employees.
10.4. Tenant Not Liable. Except for the negligence or intentional
misconduct of Tenant or its agents, employees, invitees, licensees or visitors,
Landlord agrees Tenant shall not be liable to Landlord, Landlord's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to person or damage to property on or about the Leased Premises caused by any
act or omission of Tenant, its agents, servants or employees, or of any other
person entering upon the Leased Premises under express or implied invitation by
Tenant.
ARTICLE 11. CONDEMNATION
<PAGE>
11.1. Substantial Taking. If, after the Commencement Date and before the
termination of this Lease: (i) any portion of the Leased Premises is taken by
eminent domain or conveyed in lieu thereof; or (ii) as a result of a taking by
eminent domain or the action of any public or quasi-public authority or a
conveyance in lieu thereof, the means of ingress or egress to and from the
Building is so permanently altered as to materially and adversely affect the
flow of traffic in, to, from or about the Building; then, in any of the
foregoing events, the Lease Term shall, at the option of Tenant, cease and
terminate as of the day possession shall be taken by the acting governmental or
quasi-governmental authority (the "Date of Taking"). Such option to terminate
shall be exercisable by Tenant giving written notice to Landlord on or before
thirty (30) days after the Date of Taking, which notice shall provide for a
termination date (the "Termination Date") not later than ninety (90) days after
the Date of Taking and Tenant shall pay Rent up to the Termination Date, and
Landlord shall refund such Annual Gross Rent and other payments as shall have
been paid in advance and which cover a period subsequent to the Termination
Date. In the event Tenant does not terminate this Lease, Landlord shall promptly
and diligently restore the Building and the Leased Premises and the Building and
Common Areas to as near to their condition prior to such taking or conveyance as
is reasonably possible, and, during the course of such restoration, there shall
be a fair and equitable abatement of all Annual Gross Rent and other charges,
taking into account the extent to which Tenant shall be required to close down
all or a portion of its operations until restoration has been completed; and,
after such restoration, there shall be fair and equitable abatement of Annual
Gross Rent and other charges on a permanent basis, taking into account the
reduction in the size of the Leased Premises, reduction in Common Areas, and the
like. If fifty percent (50%) or more of the rentable area in the Building is
taken by eminent domain or conveyed in lieu thereof, then Landlord shall have
the right to terminate this Lease by giving written notice to Tenant on or
before thirty (30) days after the Date of Taking; provided that Landlord also
terminates all Leases for premises within the Building.
11.2. Restoration. If any portion of the Leased Premises shall be so taken
or conveyed and this Lease is not terminated, then the Lease Term shall cease
only with respect to that portion of the Leased Premises so taken or conveyed,
as of the day possession shall be taken, and Tenant shall pay Annual Gross Rent
and all other payments up to that day, with an appropriate refund by Landlord of
such Rent as may have been paid in advance for a period subsequent to the date
of the taking of possession and, thereafter, the Annual Gross Rent and all other
payments shall be equitably adjusted. Landlord shall, at its expense, make all
necessary repairs or alterations so as to constitute the remaining portion of
the Leased Premises a complete architectural unit. It is understood and agreed
that Tenant shall not have the right to claim damages for the value of its
leasehold estate, nor shall Tenant have the right to share in any award granted
to Tenant, nor shall Tenant have the right to claim damages that in any way may
be in derogation of Landlord's award.
ARTICLE 12. ASSIGNMENT OR SUBLEASE
12.1. Landlord Assignment. Landlord shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
in the Building. Any such sale transfer or assignment shall operate to release
Landlord from any and all liabilities under this Lease arising after the date of
such sale, assignment or transfer, provided such transferee or assignee assumes
such liabilities in writing. The acceptance of rent by any such transferee or
assignee shall constitute assumption of such liabilities.
12.2. Tenant Assignment.
(a) Tenant shall not assign, in whole or in part, this Lease, or allow it
to be assigned, in whole or in part, by operation of law or otherwise or
mortgage or pledge the same, or sublet the Leased Premises, in whole or in
part, without the prior written consent of Landlord, which shall not
unreasonably be withheld (except that the Lease may be assigned without
consent to a company which has acquired all or substantially all of the
stock or assets of Tenant and further provided that the acquiring company
has expressly assumed all obligations of tenant under this lease), and in
no event shall any such assignment or sublease ever release Tenant or any
guarantor from any obligation or liability hereunder.
<PAGE>
(b) If Tenant desires to assign or sublet all or any part of the Leased
Premises, it shall so notify Landlord at least thirty days in advance of
the date on which Tenant desires to make such assignment or sublease.
Tenant will simultaneously with such request give Landlord (i) the name and
address of the proposed assignee or subtenant, (ii) the terms of the
proposed assignment or sublease, (iii) reasonably satisfactory and complete
information about the nature, financial condition, business and business
history of the proposed assignee or subtenant, and its proposed initial use
of the Leased Premises, and (iv) a fee in the amount of One Thousand and
No\100 Dollars ($1,000.00) to reimburse Landlord for all its expenses
including, without limitation, reasonable attorneys fees associated with
Tenant's request to assign, sublet or otherwise encumber the Leased
Premises under the terms of the Lease. The consent by Landlord to any
assignment or subletting shall not constitute a waiver of the necessity for
such consent to any subsequent assignment or subletting. Within fifteen
days after Landlord's receipt of Tenant's proposed assignment or sublease
and all required information concerning the proposed sublessee or assignee,
Landlord shall have the following options: (1) as to a requested sublease
with a sublease term that coincides with ninety-five percent or more of the
remaining term of this Lease, cancel this Lease as to the Leased Premises
or portion thereof proposed to be sublet (provided, however, that Tenant
shall have ten (10) days to nullify Landlord's cancellation of this Lease
by written notice to Landlord that it is withdrawing the sublease request);
(2) consent to the proposed assignment or sublease, and, if the rent due
and payable by any assignee or sublessee under any such permitted
assignment or sublease (or a combination of the rent payable under such
assignment or sublease plus any bonus or any other consideration or any
payment incident thereto) exceeds the rent payable under this Lease for
such space, Tenant shall pay to Landlord all such excess rent and other
excess consideration, less Tenant's reasonable expenses incurred in
connection with such subletting, including without limitation, reasonable
brokerage commissions, improvements allowances, and alteration costs,
within ten days following receipt thereof by Tenant; or (3) refuse, in
Landlord's reasonable judgment, to consent to the proposed assignment or
sublease, which refusal shall be deemed to have been exercised unless
Landlord gives Tenant written notice providing otherwise. Upon the
occurrence of an event of default, if all or any part of the Leased
Premises are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or provided by law may, at its option,
collect directly from the assignee or sublessee all rents becoming due to
Tenant by reason of the assignment or sublease. Any collection directly by
Landlord from the assignee or sublessee shall not be construed to
constitute a novation or a release of Tenant or any guarantor from the
further performance of its obligations under this Lease. Tenant shall
deliver to Landlord within twenty (20) days after any assignment or
subletting a copy of the executed assignment or sublease agreement. Any
assignment or sublease shall provide that the assignee or subtenant shall
comply with all applicable terms and conditions of this Lease to be
performed by Tenant hereunder. The permitted use of the Leased Premises
shall not change in connection with any assignment or sublease.
ARTICLE 13. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
13.1. Rights of Mortgagee. Tenant hereby acknowledges and agrees that this
Lease is and shall be subject and subordinate to the lien of any existing or
future mortgage or deed of trust encumbering all or any part of the Building, or
any part thereof. Notwithstanding the foregoing, Tenant shall, within 10 days of
Landlord's request, execute such subordination instruments as may be requested
by a lienholder to document the subordination of this Lease to any mortgage lien
encumbering the Building or any part thereof. Furthermore, Tenant will, upon
request of the lienholder, be a party to an agreement acknowledging and agreeing
that, if such lienholder succeeds to the interest of Landlord, Tenant will
recognize said lienholder (or successor in interest of the lienholder) as its
landlord under the terms of this Lease. Tenant hereby constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute any such instrument on behalf
of Tenant, provided a copy of such instrument is promptly delivered to Tenant.
<PAGE>
ARTICLE 14. LANDLORD'S LIEN
14.1. Liens. Nothing contained in this Lease shall be construed as a
consent on the part of the Landlord to subject the estate of Landlord to
liability under the Construction Lien Law of the State of Florida, it being
expressly understood that the Landlord's estate shall not be subject to such
liability. Tenant shall strictly comply with the Construction Lien law of the
State of Florida, as set forth in Chapter 713, Florida Statutes. Notwithstanding
the foregoing, Tenant at its expense, shall cause any lien filed against the
Tenant's interest under this Lease, the Leased Premises, the Building or the
Common Area for work, services or materials claimed to have been furnished to or
for the benefit of Tenant (other than on account of the Landlord's Work) to be
satisfied or transferred to bond within twenty (20) days after Tenant's having
received notice thereof. In the event that Tenant fails to satisfy or transfer
to bond such Claim of Lien within said twenty (20) day period, the Landlord may
do so and thereafter charge the Tenant as additional rent, all costs incurred by
the Landlord in connection with the satisfaction or transfer of such claim,
including attorneys' fees plus interest thereon at the Default Rate. Further,
the Tenant agrees to indemnify, defend, and save the Landlord harmless from and
against any damage or loss incurred by the Landlord as a result of any such
mechanic's Claim of Lien. This Section shall survive the termination of this
Lease.
ARTICLE 15. DEFAULT AND REMEDIES
15.1. Default by Tenant. The following shall be deemed to be events of
default by Tenant under this Lease: (i) Tenant shall fail to pay any installment
of Annual Gross Rent, any installment of Tenant's Proportionate Share of
Operating Costs in Excess of the Operating Stop or reconciliation thereof, any
other Additional Rent, or any other charge or assessment against Tenant pursuant
to the terms hereof when due and shall not cure such failure within ten (10)
days of such due date; (ii) Tenant shall fail to comply with any term,
provision, covenant, agreement or warranty made under this Lease by Tenant,
other than the payment of any installment of Annual Gross Rent, any installment
of Tenant's Proportionate Share of Operating Costs in Excess of the Operating
Stop or reconciliation thereof, any other Additional Rent or other charge or
assessment payable by Tenant, and shall not cure such failure within thirty (30)
days after written notice thereof to Tenant; (iii) a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or substantially all of Tenant's assets is filed against Tenant in any
court pursuant to any statute either of the United States or of any state and
Tenant fails to secure or diligently proceed to secure a discharge thereof
within sixty (60) days, or if Tenant voluntarily files a petition in bankruptcy
or makes an assignment for the benefit of creditors or petitions for or enters
into an arrangement with creditors; or (iv) Tenant shall do or permit to be done
anything which creates a lien upon the Leased Premises for work performed by,
through or under Tenant which Tenant fails to remove or bond off within thirty
(30) days after written notice thereof.
15.2. Remedies for Tenant's Default.
<PAGE>
(a) Upon the occurrence of any event of default set forth in this Lease,
Landlord, besides other rights or remedies that it may have and without
prior notice (except as specified in Subsection 15.1 above), shall have the
right to (i) terminate Tenant's right of continued possession of the Leased
Premises and declare the entire remaining unpaid Rent for the balance of
the then existing Term of this Lease to be immediately due and payable
forthwith and take action to recover and collect the same either by
distress or otherwise, but in the event Landlord is able to relet the
Leased Premises during such periods from time to time, Tenant shall consent
to such reletting and Tenant shall be entitled to a credit against such
damages in the amount of the rents and other sums received by Landlord from
any such reletting of the Leased Premises, less any reasonable costs
incurred by Landlord in connection with the repossessing of the Leased
Premises, including, without limitation, reasonable attorneys' fees,
brokerage commissions and any costs of allowance, repairs or alterations,
or (ii) terminate this Lease, in which event Tenant shall immediately
surrender the Leased Premises to Landlord, or (iii) terminate Tenant's
right of continued possession of the Leased Premises and from time to time,
without terminating this Lease, relet the Leased Premises or any part
thereof for the account and in the name of Tenant, for any such lease term
or terms and conditions as Landlord, in its reasonable discretion, may deem
advisable, and with the right to make alterations, additions and repairs to
the Leased Premises deemed by Landlord to be necessary in conjunction with
such reletting. Notwithstanding any other remedy set forth in this Lease,
in the event Landlord has made rent concessions of any type or character,
or waived any base rent, and Tenant fails to take possession of the Leased
Premises on the commencement or completion date or otherwise defaults at
any time during the term of this Lease, the rent concessions, including any
waived base rent, shall be cancelled and the amount of the base rent or
other rent concessions shall be due and payable immediately as if no rent
concessions or waiver of any base rent had ever been granted. A rent
concession or waiver of the base rent shall not relieve Tenant of any
obligation to pay any other charge due and payable under this Lease
including without limitation any sum due under Section 2. Notwithstanding
anything contained in this Lease to the contrary, this Lease may be
terminated by Landlord only by mailing or delivering written notice of such
termination to Tenant, and no other act or omission of Landlord shall be
construed as a termination of this Lease.
(b) Should Landlord terminate Tenant's right of possession of the Leased
Premises pursuant to Subsection (a) (iii) above, then Tenant shall pay to
Landlord, within ten (10) days of Landlord's demand, all of the following:
(i) any unpaid Rent and other charges to be paid by Tenant hereunder up to
the date when Landlord shall have so terminated Tenant's right of
possession, plus interest thereon at the Default Rate from the due date
together with the initial leasehold or tenant improvements or allowances
incurred by Landlord in connection with the execution of this Lease
(prorated for the unexpired portion of the Term, such that Tenant does not
have to pay for that portion attributable to the period prior to such
Default); (ii) the reasonable costs of recovering possession of the Leased
Premises and any reasonable legal fees and expenses directly related to the
breach, the recovery of possession, and the collection of unpaid Rent and
other charges; (iii) the reasonable costs incurred by Landlord in repairing
and restoring the Leased Premises to the condition which same were to have
been surrendered to Landlord at the expiration of the Lease term or to a
condition required to lease premises to a new tenant; (iv) the reasonable
costs of removing any of Tenant's property from the Leased Premises and, if
same be stored, the reasonable cost of transporting and storing same (if
Landlord shall store such property in the Building then Landlord shall be
entitled to a reasonable storage fee hereunder); and (v) all reasonable
brokerage fees and commissions and allowances (prorated for the unexpired
portion of the Term) incurred by Landlord in reletting the Leased Premises.
(c) Rents received by Landlord from any reletting pursuant to Subsection
(a)(iii) above, shall be applied first to the payment of any of the items
enumerated in Subsection (b) above, in such order as Landlord shall deem
appropriate, and second to the payment of rent and other sums due and
unpaid by Tenant hereunder as of the date of Landlord's receipt of said
rents. The residue, if any, shall be held by Landlord and applied in
payment of future rent or damages in the event of termination as the same
may become due and payable hereunder.
(d) No such reletting of the Leased Premises by Landlord pursuant to
Subsection (a) (iii) above shall be construed as an election on its part to
terminate this Lease unless a notice of such intention be given by Landlord
to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction; and notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach provided it has not been cured.
<PAGE>
(e) Should Landlord at any time terminate this Lease for any breach
pursuant to Subsection (a)(ii) above, then in addition to any other remedy
Landlord may have by reason of such breach, Landlord shall have the right
to recover from Tenant all or any of the following: (i) any unpaid rent and
other charges to be paid by Tenant hereunder up to the date of termination,
plus interest thereon at the Default Rate from the due date; (ii) the
reasonable costs of recovering possession of the Leased Premises and
collecting said arrearages in rent and other charges, including any
reasonable legal fees and expenses directly related to the breach, the
recovery of possession, and the collection of unpaid Rent and other charges
to be paid by Tenant and the total cost of brokerage commissions and
initial leasehold or tenant improvements or allowances incurred by Landlord
in connection with the execution or renewal of this Lease (prorated for the
unexpired portion of the Term) ; (iii) costs, as reasonably estimated by
Landlord which would be incurred in repairing or restoring the Leased
Premises to the condition in which the same were to have been surrendered
to Landlord at the expiration of the Lease term; (iv) the reasonable costs
of removing any of Tenant's property from the Leased Premises, and, if same
be stored, the reasonable cost of transporting and storing same (if
Landlord shall store such property in the Building then Landlord shall be
entitled to a reasonable storage fee hereunder); (v) all brokerage fees and
commissions (prorated for the unexpired portion of the Term)incurred by
Landlord in reletting the Leased Premises; and (vi) compensation for the
loss of profits occasioned by the breach and resultant termination of this
Lease, which loss the parties agree shall be determined by calculating the
total amount of Rent to be paid by Tenant, and any other charges to be paid
by Tenant, as if this Lease had not been terminated, from the date of
termination to the expiration date and deducting therefrom the fair market
rent value of the Leased Premises for a like period expected to be
collected by Landlord during such period. (f) Landlord shall have the right
to recover, in execution of judgment(s) rendered in legal proceedings or
otherwise, either jointly or from time to time severally, the applicable
sums specified in clauses (i) through (v) of Subsection (b) and clauses (i)
through (vi) of Subsection (e), and Landlord's recovery of one or more of
such sums shall not constitute a waiver of Landlord's right to recover from
Tenant the remaining sum(s).
(g) Tenant hereby waives all rights of redemption, now or hereafter
granted, to the extent such rights may be lawfully waived.
(h) Pursuit of any of the foregoing remedies shall not preclude pursuit of
any other remedy herein provided or any other remedy provided by law or at
equity, nor shall pursuit of any remedy herein provided constitute an
election of remedies thereby excluding the later election of an alternate
remedy, or a forfeiture or waiver of any Annual Gross Rent, Tenant's
Proportionate Share of Operating Costs in Excess of the Operating Stop or
other Additional Rent or other charges and assessments payable by Tenant
and due to Landlord hereunder or of any damages accruing to Landlord by
reason of violation of any of the terms, covenants, warranties and
provisions herein contained. All of Tenant's and Landlord's obligations
under this Section shall survive the termination of this Lease.
(i) Notwithstanding anything herein to the contrary, in the event that
Tenant abandons the Leased Premises for a continuous period of three weeks
or more for any reason other than casualty or condemnation or force majeure
not relating to Tenant's business operations, Landlord shall have the sole
and exclusive remedy to terminate this Lease without prior notice.
"Abandon" means the vacating of all or substantially all of the Leased
Premises by Tenant, whether or not Tenant is in default of the rental
payments due under this Lease or any other provision of this Lease.
In addition to Landlord's remedies under this Article 15, Landlord may, at its
sole discretion and without notice, invoke the following provisions:
(a) Upon a Tenant's bankruptcy, this Lease and all rights of Tenant
hereunder shall automatically terminate with the same force and effect as
if the date of any such event were the date stated herein for the
expiration of the Term, and Tenant shall vacate and surrender the Leased
Premises, but shall remain liable as herein provided. Landlord reserves any
and all remedies provided herein or at law or in equity.
<PAGE>
(b) If this Lease is not terminated in accordance with subsection (a) above
because such termination is not allowed under the Bankruptcy Code
(hereinafter defined), upon the filing of a petition by or against Tenant
under the Bankruptcy Code, Tenant, as debtor and as debtor in possession,
and any trustee who may be appointed, agree:
(1) to perform promptly each and every obligation of Tenant under this
Lease until such time as this Lease is either rejected or assumed by
order of a United States Bankruptcy Court or other United States Court of
competent jurisdiction; or deemed rejected by operation of law, pursuant
to 11 U.S.C. ss. 365(c)(4);
(2) to pay monthly in advance on the first day of each month as
reasonable compensation for use and occupancy of the Leased Premises an
amount equal to all Annual Base Rent and all other Additional Rent;
(3) to reject or assume this Lease within sixty (60) days of the filing
of such petition under Chapter 7 of the Bankruptcy Code or within thirty
(30) days of the filing of a petition under any other Chapter;
(4) to give Landlord at least forty-five (45) days prior written notice
of any proceeding relating to any assumption of this Lease;
(5) to give Landlord at least thirty (30) days prior written notice of
any abandonment of the Leased Premises; (6) to be deemed conclusively to
have rejected this Lease in the event of the failure to comply with any
of the above;
(7 to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and
hearing of the entry of same; and
(8 that this is a "lease of real property" as such term is used in the
Bankruptcy Code.
(c) Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord hereunder, whether or not
expressly denominated as Rent, shall constitute "rent" for the purposes of
Section 502(b)(7) of the Bankruptcy Code, including, without limitation,
reasonable attorneys' fees incurred by Landlord by reason of Tenant's
bankruptcy.
(d) Nothing contained in this Section 15.3 shall be deemed in any manner to
limit Landlord's rights and remedies under the Bankruptcy Code, as
presently existing or as may hereafter be amended. In the event that the
Bankruptcy Code is interpreted or amended during the term of this Lease to
so permit, or is superseded by an act so permitting, the following
additional acts shall be deemed an event of default under this Lease: (i)
if Tenant is adjudicated insolvent by the United States Bankruptcy Code or
(ii) if a petition is filed by or against Tenant under the Bankruptcy Code
and such petition is not vacated within one hundred twenty (120) days. In
either of such events, this Lease and all rights of Tenant hereunder shall
automatically terminate with the same force and effect as if the date of
either such event were the date stated herein for the expiration of the
Term, and Tenant shall vacate and surrender the Leased Premises, but shall
remain liable as herein provided. Landlord reserves any and all rights and
remedies provided herein or at law.
ARTICLE 16. TENANT'S REPRESENTATIONS
<PAGE>
16.1. Tenant's Representations. Tenant, in order to induce Landlord to
enter into this Lease, hereby represents:
(a) That Tenant has full power and authority to conduct its business as
presently conducted and to enter into this Lease. That this Lease has been
duly authorized, executed and delivered by Tenant and constitutes and legal
and binding obligation of Tenant.
(b) That, to Tenant's knowledge, no litigation or proceedings (or
threatened litigation or proceeding or basis therefor) exists which could
materially and adversely affect the ability of Tenant to perform its
obligations under this Lease or which would constitute a default on the
part of Tenant under this Lease, or which would constitute such a default
with the giving of notice or lapse of time, or both.
(c) That Tenant is in compliance with Environmental Law at all of its
facilities and locations.
ARTICLE 17. REAL ESTATE COMMISSION
17.1. Brokers. Except for Echelon Real Estate Services, Inc. ("Broker"),
Landlord and Tenant hereby represent and warrant, each to the other, that they
have not disclosed this Lease or the subject matter hereof to, and have not
otherwise dealt with, any broker, finder or any other person, firm, corporation
or other legal entity so as to create any legal right or claim of whatsoever
kind or nature for a commission or similar fee or compensation with respect to
the Leased Premises or this Lease. Landlord and Tenant hereby indemnify each
other against, and agree to hold each other harmless from, any liability or
claim (and all expenses, including attorneys' fees, incurred in defending any
such claim or in enforcing this indemnity) for a real estate brokerage
commission or similar fee or compensation arising out of or in any way connected
with any claimed dealings with the indemnitor and relating to the Leased
Premises or this Lease. Landlord and Tenant each acknowledge that Echelon Real
Estate Services, Inc., licensed under Chapter 475, Florida Statutes, represents
Landlord in connection with the procurement of Tenant and the negotiation of the
terms of this Lease and shall be compensated by Landlord pursuant to a separate
agreement. The provisions of this Section shall survive the expiration or sooner
termination of this Lease.
ARTICLE 18. DELETED
ARTICLE 19. OTHER PROVISIONS
19.1. Hazardous Substances.
<PAGE>
(a) Hazardous Substances. The term "Hazardous Substances," as used in this
Lease shall mean all substances, pollutants, contaminants, chemicals, wastes,
products or other materials listed, designated or otherwise determined to be
hazardous, toxic, dangerous or injurious to human health, safety or the
environment by any agency, court or executive pursuant to or which are otherwise
regulated or controlled by Environmental Law. By way of example and without
limitation, the term shall include all hazardous substances defined under 40
C.F.R. Part 302, all hazardous wastes defined by 40 C.F.R. Parts 260 and 261 and
similar rules and their successors as well as all petroleum and petroleum
products, asbestos, PCB's, nuclear and radioactive material, including naturally
occurring radioactive materials. As used in this Lease, the term "Environmental
Law" shall mean all laws and regulations relating to environmental protection,
growth management, planning, wetlands or other protected habitat, protected
species, historical and archeological resources, zoning, human health, welfare
and/or safety applicable to the Tenant, its operations or the Leased Premises or
any activities on, in or under the Leased Premises now or hereafter, including,
but not limited to, the federal Resource Conservation and Recovery Act, the
federal Toxic Substances Control Act, the federal Comprehensive Environmental
Response, Compensation and Liability Act, the federal Clean Water Act, the
federal Clean Air Act, Chapters 163, 373, 376, and 403 Florida Statutes or the
laws of other states as applicable, law relating to and rules of the local
governments including county land development codes and other federal, state,
regional, and local laws and rules, codes, ordinances, regulations, guidelines,
plans, orders, and directives of governmental authorities and agencies with
jurisdiction over or which are otherwise applicable to the Tenant, its
operations, activities or business, or the Leased Premises.
(b) Tenant Restrictions. Tenant shall not cause or permit:
(i) Any violation of Environmental Law on, under, or about the Leased
Premises, or arising from Tenant's use or occupancy of the Leased
Premises, including, but not limited to, outdoor or indoor air
quality, soil and ground water conditions; or
(ii) The use, generation, release, manufacture, refining, production,
processing, storage, treatment or disposal of any Hazardous Substance on,
under, or about the Leased Premises, or the transportation to or from the
Leased Premises of any Hazardous Substance, except as specifically set
forth in Exhibit "D", which shall be in strict compliance with all
Environmental Law. Tenant shall update this exhibit on a periodic basis
prior to any material or substantial change in the items or matters listed
thereon, and shall not engage in such uses or use any such matters on the
revised exhibit unless and until it has been approved by Landlord in the
exercise of its reasonable discretion, which shall not be unreasonably
withheld, conditioned or delayed.
(c) Environmental Clean-up.
(i) Tenant shall, at Tenant's own expense, comply with all
Environmental Law regulating the use, generation, storage,
transportation, treatment or disposal of Hazardous Substances.
(ii)Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all
requirements of Environmental Law.
(iii) Should any governmental entity or any third party demand that any
environmental investigation, environmental survey, contamination
assessment plan, preliminary contamination assessment plan,
remedial action plan, cleanup plan or other removal, remedial
action or other environmental corrective action be conducted or
prepared or that a clean-up, removal, remedial action or other
environmental corrective action be undertaken because of any
deposit, spill, discharge, or other release of Hazardous Substances
or other violation of Environmental Law that occurs during the term
of this Lease at or from the Leased Premises, or which arises at
any time from Tenant's use or occupancy of the Leased Premises,
then Tenant shall, at Tenant's own expense, prepare and submit the
required plans and all related bonds and other financial
assurances; and Tenant shall carry out all such actions plans to
the satisfaction of the authorities under Environmental Law and
Landlord.
(iv) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation, treatment or disposal of Hazardous
Substances that is requested by Landlord. If Tenant fails to fulfill any
duty imposed under this Section (c) within a reasonable time, Landlord may
do so; and in such case, Tenant shall cooperate with Landlord in taking all
necessary actions, including , but not limited to, the preparation of all
documents Landlord deems necessary or appropriate, and Tenant shall execute
all documents promptly upon Landlord's request. No such action by Landlord
and no attempt made by Landlord to mitigate damages under any Law shall
constitute a waiver of any of Tenant's obligations under this Section (c)
or an assumption of liability by Landlord.
<PAGE>
(v) Tenant's obligations and liabilities under this Section (c) shall
survive the expiration of this Lease.
(d) Tenant's Indemnity.
(i) Tenant shall indemnify, defend, and hold harmless Landlord, the
manager of the property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from
all liabilities, obligations, penalties, fines, claims, litigation,
demands, defenses, judgments, suits, proceedings, actions, costs,
disbursements or expenses of any kind or of any nature whatsoever
(including without limitation, attorneys' and experts' fees and
disbursements whether at trial, during arbitration or mediation or
on appeal) arising out of or in any way connected with any deposit,
spill, discharge, or other release of Hazardous Substances or any
violation of Environmental Law that occurs during the term of this
Lease, at or from the Leased Premises, or which arises at any time
from Tenant's use or occupancy of the Leased Premises, or from
Tenant's failure to provide all information, make all submissions,
and take all steps required by Environmental Law.
(ii)Tenant's obligations and liabilities under this Section (d) shall
survive the expiration of this Lease.
19.2. Radon Gas. Radon is a naturally occurring radioactive gas that, when
it has accumulated in a Building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from the county
health public health unit.
19.3. Americans with Disabilities Act. Tenant covenants and agrees, at its
expense without reimbursement or contribution by Landlord, to keep, maintain,
alter and replace, if necessary, the interior non-structural portions of the
Leased Premises so as to maintain compliance of same with the Americans with
Disabilities Act of 1990, 42 U.S.C. 12101 et seq. (the "Act"), as amended from
time to time, and all rules and regulations promulgated to further the purpose
of and to enforce the Act (the "ADA").
ARTICLE 20. MISCELLANEOUS
20.1. Waiver. Failure of Landlord or Tenant to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Landlord or Tenant shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any one
or more of the remedies set forth in Article 15 above shall not preclude pursuit
of any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver
of any rent or damages accruing to Landlord or Tenant by reason of the violation
of any of the terms, provisions or covenants of this Lease. Failure by Landlord
or Tenant to enforce one or more of the remedies provided upon an event of
default shall not be deemed or construed to constitute a waiver of the default
or of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease. Without limiting the generality of the
foregoing, no action taken or not taken by Landlord or Tenant under the
provisions of this Section or any other provision of this Lease (including, by
way of example rather than of limitation, the Landlord's acceptance of the
payment of rent after the occurrence of any event of default) shall operate as a
waiver of any right to be paid a late charge or of any other right or remedy
which the either party hereto would otherwise have against the other party on
account of such event of default under the provisions of this Lease or
applicable law (each party hereto hereby acknowledging that, in the interest of
maintenance of good relations between Landlord and Tenant, there may be
instances in which the other party chooses not immediately to exercise some or
all of its rights on the occurrence of an event of default).
<PAGE>
20.2. Attorney's Fees. In the event that it shall become necessary for
either Landlord or Tenant to employ the services of attorneys to enforce any of
their respective rights under this Lease or to collect any sums due to them
under this Lease or to remedy the breach of any covenant of this Lease on the
part of the other to be kept or performed, the nonprevailing party (Tenant or
Landlord as the case may be) shall pay to the prevailing party such reasonable
fees as shall be charged by the prevailing party's attorneys for such services,
including services at all trial and appellate levels and post judgment
proceedings and such prevailing party shall also have and recover from the
nonprevailing party (Landlord or Tenant as the case may be) all other costs and
expenses of such suit and any appeal thereof or with respect to any postjudgment
proceedings.
20.3. Successors. This Lease shall be binding upon and inure to the benefit
of Landlord and Tenant and their respective heirs, personal representatives,
successors and assigns.
20.4. Captions. The captions appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
20.5. Notice. Any notice, demand, consent, approval or other communication
to be given to or served upon any party hereto, in connection herewith, must be
in writing, and may be given by facsimile transmission, certified mail or
guaranteed overnight delivery service, return receipt requested. If a notice is
delivered by United States Mail, it shall be deemed to have been given and
received two (2) days following the deposit of a certified letter containing
such notice, properly addressed, with postage prepaid, with the United States
Mail. If delivered by facsimile transmission or by guaranteed overnight delivery
service, it shall be deemed to have been given and received the same day that
the notice is faxed or delivered into the custody of the overnight delivery
service. If the notice is given otherwise than by certified mail, facsimile
transmission or guaranteed overnight delivery service, it shall be deemed to
have been given when delivered to and received by the party to whom it is
addressed. Notices shall be given to the parties hereto at the following
addresses:
To Landlord: ECHELON INTERNATIONAL CORPORATION
One Progress Plaza, Suite 1500
St. Petersburg, Florida 33701
Attention: Mr. Darryl LeClair
Facsimile Number: (813) 824-6750
Copy To: Echelon Real Estate Services, Inc.
13709 Progress Boulevard, Box 10
Alachua, Florida 32615
Attention: Ms. Sandy Burgess
To Tenant: IXION BIOTECHNOLOGY, INC.
13709 Progress Boulevard, Box 13
Alachua, FL 32615
Attention: General Counsel
and Bruce Brashear, Esq.
926 NW 13th Street
Gainesville, Florida 32601
<PAGE>
Either party hereto may, at any time by giving five (5) business days' written
notice to the other party hereto, designate any other address in substitution of
the foregoing address to which notice shall be given and other parties to whom
copies of all notices hereunder shall be sent.
20.6. Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application for such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
20.7. Landlord's Liability. Tenant shall look solely to (i) the estate and
property of the Landlord in the Building and the Building Land, (ii) the rents
and other income (including, without limitation, insurance proceeds payable to
Landlord) from the Building receivable by Landlord, and (iii) the consideration
received by Landlord from the sale of all or any part of the Building, for the
collection of any judgment, or in connection with any other judicial process,
requiring the payment of money by Landlord in the event of any default by
Landlord with respect to any of the terms, covenants and conditions of this
Lease to be observed and performed by Landlord, and no other property or estates
of Landlord shall be subject to levy, execution or other enforcement procedures
for the satisfaction of Tenant's remedies and rights under this Lease. The
provisions of this Section are not designed to relieve Landlord from the
performance of any of its obligations hereunder, but rather to limit Landlord's
liability in the case of a recovery of a money judgment against Landlord. The
foregoing limitation shall not apply to or limit any injunctive or other
equitable declaratory or other forms of relief that Tenant may be entitled to.
The word "Landlord" as used in this Lease shall mean only the owner from time to
time of Landlord's interest in this Lease. In the event of any assignment of
Landlord's interest in this Lease, the assignor shall no longer be liable for
the performance or observation of any agreements or conditions on the part of
Landlord to be performed or observed subsequent to the effective date of such
assignment provided the assignee specifically assumes all such obligations.
20.8. Estoppel Certificates. Tenant agrees at any time and from time to
time, upon not less than fifteen (15) days prior written request of Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified, and
stating the modifications), the date to which the rental and other charges have
been paid in advance, if any, and whether or not any violations are in existence
as of the date of said statement, that Tenant has accepted possession of the
Leased Premises, the date on which the term commenced; and, as to whether, to
the best knowledge, information and belief of the signer of such certificate,
the other party is then in default in performing any of its obligations
hereunder (and, if so, specifying the nature of each such default); and as to
any other fact or condition with respect to this Lease reasonably requested by
the other party hereto or such other addressee, it being intended that any such
statement delivered pursuant to this Section may be relied upon by any
prospective purchaser of the fee or mortgagee or assignee of any mortgage upon
the fee.
20.9. No Recording. Tenant shall not record this Lease or any memorandum or
short form hereof without the written consent and joinder of Landlord.
20.10. Waiver of Jury Trial. The parties hereto waive trial by jury in
connection with any proceedings or counterclaims brought by either of the
parties hereto against the other.
<PAGE>
20.11. Relocation Option. In the event Landlord determines to lease the
Leased Premises to a third party or utilize the same for other purposes during
the term of this Lease, Tenant agrees to relocate to other space in the Building
designated by Landlord upon sixty (60) days prior written notice to Tenant,
provided such other space is of equal or larger size than the Leased Premises.
Landlord shall pay all out-of-pocket expenses of any such relocation, including
the expenses of moving and reconstruction of all Tenant's furnishings and
Landlord furnished improvements. In the event of such relocation, this Lease
shall continue in full force and effect without any change in the terms or
conditions of this Lease, but with the new location substituted for the old
location set forth in Section 1.1 of this Lease and modification to the rental
terms, as appropriate, due to modification in the sized of the Leased Premises.
20.12. Corporate Authority. If Tenant executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Tenant does hereby
personally represent and warrant that Tenant is a duly authorized and existing
corporation, that Tenant is qualified to do business in the state in which the
Leased Premises are located, that the corporation has full right and authority
to enter into this Lease, and that each person signing on behalf of the
corporation is authorized to do so. In the event any representation or warranty
is false, all persons who execute this Lease shall be liable, individually, as
Tenant.
20.13. Financial Reports. Within 15 days after Landlord's request, Tenant
will furnish Tenant's most recent audited financial statements (including any
notes to them) to Landlord, or, if no such audited statements have been
prepared, such other financial statements (and notes to them) as may have been
prepared by an independent certified public accountant, or, failing those,
Tenant's internally prepared financial statements, certified by Tenant. Landlord
agrees that it will not disclose any aspect of such information which Tenant
designates as confidential except: (i) to Landlord's lenders or prospective
purchasers of the Building; (ii) in litigation; and (iii) if required by court
order.
20.14. Time of Essence. Time is of the essence of each and every provision and
term of this Lease.
20.15. Exhibits and Riders. Incorporated into this Lease by reference.
Exhibit A - Floor Plan of Leased Premises
Exhibit B - Tenant Improvement Specifications
Exhibit C - Rules and Regulations
Exhibit D - Permitted Environmental Matters
20.16. Complete Understanding.16. Complete Understanding. This Lease
represents the complete understanding between the parties hereto as the subject
matter hereof, and supersedes all prior written or oral negotiations,
representations, warranties, statements or agreements between the parties hereto
as the same. No inducements, representations, understandings or agreements have
been made or relied upon in the making of this Lease, except those specifically
set forth in the provisions of this Lease. Neither party hereto has any right to
rely on any other prior or contemporaneous representation made by anyone
concerning this Lease which is not set forth herein. This Lease may not be
altered, waived, amended or extended except by an instrument in writing signed
by Landlord and Tenant. Landlord and Tenant acknowledge that each of them and
their counsel have had an opportunity to review this lease and that this lease
will not be construed against Landlord merely because Landlord has prepared it.
20.17. Governing Law. This Lease shall be governed in all respects by the laws
of the State of Florida.
ARTICLE 21. SIGNATURES
In Witness Whereof, this Lease was executed as of "Effective Date" as
specified hereinabove.
WITNESSES:
TENANT:
IXION BIOTECHNOLOGY, INC.
<PAGE>
By:__________________________________
Weaver H. Gaines
Its: Chairman and Chief
Executive Officer
(Corporate Seal)
Date:_____________________, 1998
WITNESSES: LANDLORD:
ECHELON INTERNATIONAL CORPORATION
By:
Darryl A. LeClair, President
Date:______________________, 1998
<PAGE>
EXHIBIT "A"
FLOOR PLAN OF LEASED PREMISES
<PAGE>
EXHIBIT "B"
LEASED PREMISES IMPROVEMENTS
1. This Agreement sets forth the terms and conditions governing the design,
permitting and construction of the leasehold improvements ("Landlord's Work") to
be installed in the Leased Premises in accordance with the Floor Plan, which is
hereby approved by Tenant.
2. Landlord shall pay all costs of construction of the Landlord's Work directly
to the contractor or materialmen, which costs may consist of: (i) governmental
agency plan check, permit and other fees (including any changes required by any
governmental entity or authority having jurisdiction thereof); (ii) sales and
use taxes; and (iii) the costs of materials and labor incurred in connection
with the Landlord's Work performed consistently with the floor plan.
3. "Substantial Completion" of the Leased Premises shall be conclusively deemed
to have occurred as soon as the Landlord's Work has been constructed in
accordance with the approved floor plan. The issuance of a temporary certificate
of occupancy by the proper governmental entity shall not be required for
Substantial Completion but, if granted, shall be deemed conclusive evidence that
Substantial Completion has occurred. Notwithstanding the above, the Leased
Premises shall be considered Substantially Complete even though (a) there remain
to be completed in the Leased Premises punch list items, including but not
limited to minor or insubstantial details of construction, decoration or
mechanical adjustment, the lack of completion of which will not materially
interfere with Tenant's permitted use or occupancy of the Leased Premises (which
items shall be completed within a reasonable time, not to exceed thirty (30)
days, and/or (b) there is a delay in the Substantial Completion of the Leased
Premises due to a delay caused by Tenant.
4. Tenant has reviewed and inspected the condition of the Building and Leased
Premises and agrees to accept the same, as to be improved by the Landlord's
Work. The taking of possession of the Leased Premises by Tenant shall constitute
an acknowledgment by Tenant that the Leased Premises are in good condition.
5. The following is a list of Landlord's Work:
Clean and repaint cabinets.
Patch and paint all walls.
Clean tile floors and replace damaged tiles as needed.
Install Carpet in lab offices.
Remove walls and electrical devices in furnace rooms.
Install (7) 110V and (1) 208V emergency outlets and hook them into
emergency generator as shown on floor plan.
Install emergency generator.
Add communication and electric outlets as shown on floor plan.
<PAGE>
Install central vacuum lines (if central building vacuum pump is
available) or install individual vacuum lines for tenant provided pumps.
Interior piping for Gas outlets as shown on floor plan.
Total project costs: $38,990
Tenant allowance 12,540
Amount amortized in Lease 26,458 (amortized over 36 mths
10% = $2.04/sq ft or
$10,232.64/year)
Landlord's Work does not include DI water system or hookup, or any hookup
or related charges for natural gas service.
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
1. Landlord agrees to furnish Tenant two keys without charge. Additional keys
will be furnished at a nominal charge. Tenant shall not change locks or
install additional locks on doors without prior written consent of
Landlord. Tenant shall not make or cause to be made duplicates of keys
procured form Landlord without prior approval of Landlord. All keys to
Leased Premises shall be surrendered to Landlord upon termination of this
Lease.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Leased Premises
for Tenant to Landlord for Landlord's approval before performance of any
contractual service. Tenant's contractors and installation technicians
shall comply with Landlord's rules and regulations pertaining to
construction and installation. This provision shall apply to all work
performed on or about the Leased Premises, including installation of
telephone, telegraph equipment or any other physical portion of the Leased
Premises or Building.
3. Tenant shall not at any time occupy any part of the Leased Premises or
Building as sleeping or lodging quarters.
4. Tenant shall not place, install or operate on the Leased Premises or in any
part of the Building any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about the
Leased Premises or Building any explosives, gasoline, kerosene, oil, acids,
caustics, or any flammable, explosive or hazardous material without written
consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the Leased Premises or the Building
regardless of whether such loss occurs when the area is locked against
entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Leased Premises or Building.
7. Employees of Landlord shall not receive or carry messages for or to any
Tenant or other person or contract with or render free or paid services to
any Tenant or to any of Tenant's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, elevators, hallways or stairways shall be blocked or obstructed or
any rubbish, litter, trash, or material of any nature placed, emptied or
thrown into these areas or such area used by Tenant's agents, employees or
invitees at any time for purposes inconsistent with their designation by
Landlord.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or by the defacing or injury of any part of
the Building shall be borne by the person who shall occasion it. No person
shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
<PAGE>
12. Tenant and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Landlord. Tenant shall not leave
any vehicle in a state of disrepair (including without limitation, flat
tires, out of date inspection stickers or license plates) on the Leased
Premises or Building. If Tenant or its employees, agents or invitees park
their vehicles in areas other than the designated parking areas or leave
any vehicle in a state of disrepair, Landlord, after giving written notice
to Tenant of such violation, shall have the right to remove such vehicles
at Tenant's expense.
<PAGE>
13. Parking is prohibited in areas not striped for parking, in aisles, where
"No Parking" signs are posted, on ramps, in cross hatched areas, and in
other areas as may be designated by Landlord. Parking stickers or other
forms of identification supplied by Landlord shall remain the property of
Landlord and not the property of Tenant and are not transferable., Every
person is required to park and lock his vehicle. All responsibility for
damage to vehicles or persons is assumed by the owner of the vehicle or its
driver.
14. Movement in or out of the Building of furniture or office supplies and
equipment, or dispatch or receipt by Tenant of any merchandise or materials
which requires use of elevators or stairways, or movement through the
Building entrances or lobby, shall be restricted to hours designated by
Landlord. All such movement shall be under supervision of Landlord and
carried out in the manner agreed between Tenant and Landlord by
prearrangement before performance. Such prearrangement will include
determination by Landlord of time, method, and routing of movement and
limitations imposed by safety or other concerns which may prohibit any
article, equipment or any other item from being brought into the Building.
Tenant assumes, and shall indemnify Landlord against, all risks and claims
of damage to persons and properties arising in connection with any said
movement.
15. Landlord shall not be liable for any damages from the stoppage of elevators
for necessary or desirable repairs or improvements or delays of any sort or
duration in connection with the elevator service.
16. Tenant shall not lay floor covering within the Leased Premises without
written approval of the Landlord. The use of cement or other similar
adhesive materials not easily removed with water is expressly prohibited.
17. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building.
18. Landlord reserves the right to exclude from the Building, between the hours
of 6:00 p.m. and 8:00 a.m. on weekdays and at all hours on Saturday, and
all hours on Sunday and legal holidays, all persons who are not known to
the Building security personnel and who do not present a key or other
appropriate authorization to the Building signed by the Tenant. Each Tenant
shall be responsible for all persons for whom it supplies a key.
19. There shall be no smoking in any area inside the Building.
20. It is Landlord's desire to maintain in the Building, the highest standard
of dignity and good taste consistent with comfort and convenience for
Tenant. Any action or condition not meeting this high standard should be
reported directly to Landlord. Your cooperation will be mutually beneficial
and sincerely appreciated. Landlord reserves the right to make such other
and further reasonable rules and regulations as in its judgement may from
time to time be necessary, for the safety, care and cleanliness of the
Leased Premises and for the preservation of good order therein.
<PAGE>
EXHIBIT "D"
PERMITTED ENVIRONMENTAL MATTERS
NOTE: Certain portions of this document have been omitted based on a request
for confidential treatment. The non-public information has been filed
with the Securities and Exchange Commission. Omitted portions are
designated with asterisks ("*").
Amendment No. 3
This Amendment No. 3 dated December 17, 1998, is between the University
of Florida Research Foundation, Inc., a not-for-profit corporation duly
organized and existing under the laws of the State of Florida and having its
principal office at 223 Grinter hall, Gainesville, Florida 32611-2037 ("UFRFI"),
and Ixion Biotechnology, Inc., a corporation duly organized under the laws of
Delaware, and having its principal office at 13709 Progress Boulevard, Box 13,
Alachua, Florida 32615 ("Ixion").
WITNESSETH
WHEREAS, UFRFI and Ixion entered into a License Agreement dated January
11, 1995 relating to UF Case No. 1203 "Oxalate Diagnostic Kit and Formyl-CoA
Transferase Gene from Oxalobacter Formigenes," UF Case No. 0973 "Reducing
Oxalate Poisoning in Vertebrates Using Genetically Engineered Organisms
Expressing Cloned Oxalate Degrading Enzymes," and the parent patent application
"Materials and Methods for Detection of Oxalate," USSN 08/262,424, filed June
20, 1994, and
WHEREAS, UFRFI and Ixion amended Section 3.2(b) of such License
Agreement on December 20, 1995, to substitute the development of a working model
of a molecular probe to detect Oxalobacter Formigenes, rather than a working
model of a urine oxalate development kit, as part of Ixion's diligence
obligation (such License Agreement as amended being herein referred to as the
"License Agreement"); and
WHEREAS, UFRFI and Ixion amended Appendix A, Appendix B, Section 1.6,
Section 4.1 (c), and Section 4.1 (d) in an Amendment No. 2, dated October 9,
1996; and
WHEREAS, through a mutual error, Section 4.1 (c) in Amendment No. 2
incorrectly identified a Running Royalty in the amount of ********************
of the Licensed Products or Licensed Processes; and
WHEREAS, UFRFI and Ixion desire to amend the License Agreement to
correct such error and to the benefit of both parties;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the parties agree to Amendment No. 3 as follows:
1. Section 4.1 (c) is amended by deleting ***** and substituting ****** such
that Section 4.1 (c) reads as follows:
(1) A Running Royalty in an amount equal to ***** of the Net Sales of the
Licensed Products or Licensed Processes used, leased, or sold by or for
Ixion; and (1)
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this Agreement as of the day and year first set forth above.
University of Florida Research Ixion Biotechnology, Inc.
Foundation, Inc.
By: _____________________________ By:
--------------------------
Ronald M. Kudla, Ph.D., MBA Weaver
H. Gaines
Director, Office of Chairman and
Technology Licensing Chief
Executive Officer
Reviewed by UFRFI's attorney (not a signatory to this Agreement):
By:
Gregory A. Nelson, ESQ
Ixion Grad Membership.doc
BDI Graduate Membership Agreement
between and
Biotechnology Development Institute (BDI) Ixion
University of Florida 13709 Progress Blvd.
12085 Research Drive Box 13
Alachua, FL 32615 Alachua, FL 32615
I. This agreement is made as of the 5th of November, 1998, the effective date,
between representatives of the parties named above. This agreement is for
the purpose of the development of mutually beneficial biotechnology
business collaborations and is subject to the terms and conditions
contained herein. These parties have a mutual interest the advancement of
Ixion, Inc.'s business and scientific goals, and the development of the
biotechnology industry in North Florida, which is the basis for this
agreement.
II. In furtherance of this agreement, the BDI agrees to:
a) Provide limited and prioritized access to the facilities of the
BDI including common use scientific equipment specified by the
graduate member, meeting space, and related infrastructure under
the terms and conditions in accordance with, and outlined in
section IV, part (c) and section III, part (e) of this agreement.
b) Provide limited and prioritized access to the BDI library,
computer facilities, and business assistance services as outlined
and in accordance with section IV, part (c) indicated below.
c) Provide access to the Core Facilities of the Interdisciplinary
Center for Biotechnology Research through its commercial
subsidiary, The Comprehensive Biotechnology Resource, at a Special
Graduate Member Rate.
d) Provide limited access to BDI Internet services for the first year
following graduation from the BDI's incubator program.
III. The Graduate Member agrees to:
a) Provide a Graduate Membership Fee in the amount of $1000.00. The
effective period of this agreement commences on November 5th, 1998
and will end on November 4th, 1999.
b) Furnish full payment of the above fee with this executed agreement
to the Biotechnology Development Institute, 12085 Research Drive,
Alachua, FL 32615. Make Checks payable to the University of
Florida Research Foundation, Inc.
c) Make a good faith effort to use the BDI services and facilities
specifically and exclusively for the advancement of its business
development goals and those of the BDI members, as outlined in the
Graduate Member Application.
d) Offer access to services, product or research to licensees of the
BDI and/or the Biotechnology Program for a nominal fee or free of
charge. The services, products or research to be provide by the
Graduate Member shall be: Chairman will continue as advisor to
BDI.
e) Provide the Incubator Manager or his designee with a list of
equipment and services, reflecting needed frequency of use by the
Graduate Member, to be attached to the Graduate Membership
Agreement.
IV. The parties mutually agree that:
a) This program shall be conducted by the Biotechnology Development
Institute in accordance with the laws, rules, and regulations of
the State of Florida, the Board of Regents, the State University
System, and the University of Florida.
b) The Graduate Membership fee is non-refundable, and that continued
participation in the program is at the sole discretion of the BDI
Incubator Manager and the Biotechnology Program Administration.
c) The Graduate Member's access to BDI services and facilities will
be restricted to available resources, and at lower priority,
available only after the BDI's primary commitment to the resident
licensees has been met. Access to BDI resources will be restricted
to normal business hours.
d) Graduate Members have no permanent space assignment within the BDI.
e) No advertising, publicity, or news release containing any
reference to the Biotechnology Development Institute or the
University of Florida or the Graduate Member shall be used by
either party without mutual agreement.
f) This Agreement may be renewed or extended by written mutual
agreement of the parties.
For The Biotechnology For the Graduate Member:
Development Institute:
- ---------------------- Date -------------------------- Date
Janis N. Sherrard Weaver H. Gaines
Associate Director Chairman & Chief Executive
Biotechnology Program
<PAGE>
Attachment
EQUIPMENT AND SERVICES
Various pieces of common equipment subject to the restrictions in section IVc of
the BDI Graduate Membership Agreement.
Attachment I
Work Plan for IXION BIOTECHNOLOGY Inc.
Product code # 44-8501-04
January 4, 1999
Study
Amersham Pharmacia Purification Center propose to IXION BIOTECHNOLOGY Inc.
The study will include:
1. The sample material consist of two bacterial proteins expressed in
E. Coli. Sample materials are cell pastes. The study includes
studies of both proteins.
2. method scouting to determine the best chromatography medium for
the sample at the scale of operation required to process
preparative quantities of sample material.
3. optimization of the chromatography separation step (s) with
regards to sample load, binding conditions and elution conditions.
4. work will be carried out using Amersham Pharmacia Biotech media.
5. all work will be carried out at IXION BIOTECHNOLOGY Inc. and
Amersham Pharmacia Biotech.
6. all work will be carried out under the terms of the consultancy
agreement between Amersham Pharmacia Biotech Inc. and IXION
BIOTECHNOLOGY Inc.
Summary
Study #: 44-8501-04
Chromatography medium: Amersham Pharmacia will provide chromatography media
and columns for initial experiments.
Estimated Duration: 20 person working days
Estimated Price: $800 (per day or $4,000 per 5 days) Consultation fee.
The consultation fee does not include any taxes which
may be applicable to the study. If the study has not
been completed within 20 person working days,
Amersham Pharmacia will consult with IXION
BIOTECHNOLOGY Inc. and obtain approval in advance
with respect to continuing the study.
Expenses: IXION BIOTECHNOLOGY Inc. will pay for the buffers and
related consumables used. Amersham Pharmacia will
provide the necessary chromatography equipment.
<PAGE>
CONSULTING AGREEMENT
This agreement is entered into effective as of the 4th day of January,
1999, by and between AMERSHAM PHARMACIA BIOTECH INC., a Delaware corporation
with offices at 800 Centennial Avenue, Piscataway, New Jersey, 08855-1327
("AMERSHAM PHARMACIA") and IXION BIOTECHNOLOGY Inc., a corporation with an
address at 12085 Research Drive, Alachua, Florida 32615 ("CLIENT")
WHEREAS, AMERSHAM PHARMACIA through the Consulting Team (as defined in
Article II below) is prepared to provide consulting services in matters relating
to a study on the process scale purification of CLIENT provided samples
containing bacterial proteins. CLIENT is prepared to engage AMERSHAM PHARMACIA
to provide such services, all as further set forth herein.
NOW THEREFORE, in consideration of the above premises and the mutual
promises and covenants contained herein, the parties agree as follows:
ARTICLE I - ENGAGEMENT
1.1 AMERSHAM PHARMACIA agrees to perform certain consulting services
for "CLIENT" in connection with the work plan (the "Work") outlined in the Work
Plan dated September 28, 1998, (the "Work Plan") attached hereto as Attachment
I, for the compensation discussed below. The Work Plan shall be deemed a
constituent part of this Agreement. The Work relates to a study on the
purification of CLIENT provided samples containing bacterial proteins.
ARTICLE II - THE CONSULTING TEAM
2.1 AMERSHAM PHARMACIA shall furnish one or more of AMERSHAM
PHARMACIA's employee "Staff Experts" with the necessary qualifications to carry
out the Work.
ARTICLE III - COOPERATION BETWEEN PARTIES/RESULTS OF WORK
3.1 CLIENT recognizes that while the recommendations and advice
provided by AMERSHAM PHARMACIA pursuant to this Agreement are made in good faith
and on the basis of information known to AMERSHAM PHARMACIA at the time,
achievement of CLIENT's goals must depend, among other things, on the complete
and effective cooperation of CLIENT and CLIENT's staff.
3.2 AMERSHAM PHARMACIA shall provide CLIENT with a written report of
all data generated.
3.3 In view of Section 3.1, except for losses due to AMERSHAM PHARMACIA
's negligence, AMERSHAM PHARMACIA makes no guaranty or warranty of any kind
whatsoever with respect to CLIENT's use of the results of the Work, nor shall
AMERSHAM PHARMACIA have any liability for any special, indirect, incidental
consequential or punitive damages of any kind in connection with AMERSHAM
PHARMACIA's rendering of services or failure to render services pursuant to this
Agreement and/or arising out of the sale, use or inability to use any CLIENT
product by any person, including, without limitation, loss of profits, damages
to business reputation, and costs incurred in replacing related materials.
ARTICLE IV - COMPENSATION AND PAYMENT
4.1 AMERSHAM PHARMACIA shall receive payment for the study, consulting
services performed for CLIENT during the 20 day period at the rate of $800 USD
per day.
4.2 CLIENT shall pay AMERSHAM PHARMACIA fees for the services rendered
hereunder as follows:
<PAGE>
(a) $800.00 per person for each standard eight-hour work day
of consulting by Staff Experts. Including Staff Experts' use of Amersham
Pharmacia Purification Center facilities (Piscataway, New Jersey),
chromatography and electrophoresis equipment, columns, media and related
consumables. The estimated duration of the work is twenty (20) days; should
additional time be necessary, AMERSHAM PHARMACIA shall consult with CLIENT and
obtain its approval before spending additional time.
(b) The fee structure and fee payment schedule for any
additional work shall be mutually agreed to in writing by AMERSHAM PHARMACIA and
CLIENT prior to the start of such work, respectively. Amersham Pharmacia has no
obligation to perform any additional work unless a fee structure and fee payment
schedule has been agreed to in advance with respect to such work.
ARTICLE V - INTELLECTUAL PROPERTY RIGHTS
This agreement shall not be construed as a License or other transfer of
right granted by AMERSHAM PHARMACIA, CLIENT shall not acquire any such rights
under this Agreement in any existing copyrights, patents, inventions, trade
secrets, technical information, technical data, trade marks, service marks or
trade names (the "Rights") of AMERSHAM PHARMACIA. AMERSHAM PHARMACIA and CLIENT
however agree that the inventorship of any inventions that may arise from this
Agreement and the rights of such inventorship shall be determined in accordance
with the patent laws of the United States. AMERSHAM PHARMACIA and CLIENT further
agree, that the CLIENT shall have at least a royalty free license to practice
any developments or inventions that are the sole result of this Agreement. For
the duration of this Agreement and thereafter, CLIENT agrees not to engage in
any acts that would be deemed to be a disparagement AMERSHAM PHARMACIA's
reputation or products.
ARTICLE VI - TERM AND TERMINATION
6.1 This Agreement shall become effective on the date first above
written and shall continue in effect for the duration of the Work (the "Term"),
unless terminated as provided. This Agreement may be terminated by either party
at any time during the Term, upon written notice to the other party by reason of
any default or breach of this Agreement by the other party.
6.2 Neither the termination nor non-renewal of this Agreement shall
release CLIENT from the obligation to pay any sum that may be owing to AMERSHAM
PHARMACIA (whether then or thereafter due) or operate to discharge any liability
that had been incurred by CLIENT prior to any such termination. Except as
qualified by the preceding sentence, neither party shall, by reason of the
termination or non-renewal of this Agreement be liable to the other for any
damages (whether direct, consequential, incidental, or other including, without
limitation, expenditures, loss of profit or projected profits of any kind
whatsoever), sustained by reason of any such termination.
ARTICLE VII - CONFIDENTIALITY
7.1 AMERSHAM PHARMACIA and CLIENT each agree that any material or
information made available by it to the other in connection with this Agreement
and the Work shall be held in strict trust and confidence by the disclosee, its
employees, agents and representatives and will not be used for any purpose
except in relation to this Agreement and the Work. The disclosee, its employees,
agents and representatives, will not copy, reproduce, reveal or disclose any
such material or information to any person or entity other than its employees,
agents and representatives who reasonably have a need to possess knowledge
thereof. The foregoing restrictions shall not apply to a disclosee (or its
employees, agents and representatives) where the particular information or
material obtained by it from the discloser pursuant to this Agreement: (i) was
known to disclosee prior to the receipt thereof from the discloser; (ii) was at
the time of disclosure by the discloser patented or otherwise a matter of public
knowledge through no fault of the disclosee; (iii) was or hereafter is obtained
by the disclosee from a third party under no duty of confidentiality to the
discloser; (iv) can be proven by written records, to have been independently
developed by the disclosee without the aid, application or use in any way of
information or material obtained by the discloser pursuant to this Agreement; or
(v) as may be required by applicable law or as ordered by a court of competent
jurisdiction, but only upon written notice to discloser.
<PAGE>
7.2 The obligations contained in this Article VII will survive any
termination of this Agreement.
ARTICLE VIII - INDEMNIFICATION
8.1 CLIENT shall defend, indemnify and hold AMERSHAM PHARMACIA and each
of AMERSHAM PHARMACIA's employees, agents, officers, directors, shareholders,
affiliates and subsidiaries, harmless from, against, for and in respect of any
and all damages, losses, liabilities, obligations, costs and expenses (including
without limitation, reasonable attorneys' fees) arising out of any claims,
suits, actions or proceedings relating in any manner to AMERSHAM PHARMACIA's
rendering of services pursuant to this Agreement; providing that CLIENT's
obligations under this Section 8.1 shall not apply to the extent that such
claims, suits, actions or proceedings are directly attributable to any
negligence or misconduct on the part of AMERSHAM PHARMACIA or its employees or
agents. CLIENT shall promptly notify AMERSHAM PHARMACIA in writing of the
assertion of any such claim, suit, action, at CLIENTS cost.
The provisions of this Section 8.1 shall survive termination of this Agreement.
ARTICLE IX - RELATIONSHIP OF THE PARTIES
9.1 Independent Contractors. CLIENT and AMERSHAM PHARMACIA are
independent contractors under this Agreement. Nothing contained herein is
intended, nor is to be construed so as to constitute either party as partners or
joint venturers with respect to this Agreement. Neither party shall have any
express or implied right or authority to assume or create any obligations on
behalf of or in the name of the other party or to bind the other party to any
other contract, agreement, or undertaking with any third party.
9.2 Employee Status. Nothing contained herein is intended or is to be
construed so as to constitute any Consulting Team member as an employee of
CLIENT. CLIENT shall have no responsibility for the payment of any such person's
salary and fringe benefits and for withholding and payment of all taxes as may
be required by federal, state and local law.
ARTICLE X - MISCELLANEOUS PROVISIONS
10.1 Entire Agreement. This Agreement sets forth the entire
understanding between the parties with respect to the matters dealt with herein.
Neither party has made nor relied upon any warranties or representations not
specifically set forth in this Agreement. No modification of any of the
provisions contained herein may be made except in writing, in each instance
signed by and on behalf of the party against whom enforcement shall be sought
hereof.
10.2 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that neither party may assign, except to an affiliated entity, its rights or
obligations hereunder unless it shall have first received the written consent of
the other party, which consent shall not be unreasonably withheld.
10.5 Notices. Any notice required or permitted under this Agreement
shall be deemed to have been properly given to a party if made by United States
registered or certified mail, postage prepaid, or by personal delivery to the
party at its respective address as listed below, or such other address as such
party shall designate by written notice to the other party hereunder. The
delivery of said notice to the appropriate party shall be deemed the date on
which the notice has been received.
10.4 Arbitration. Any controversy or claim arising out of or in any way
relating to this Agreement shall be settled in the State of New Jersey in
accordance with the rules of the American Arbitration Association and the award
or decision made by the arbitrator(s) designated by the American Arbitration
Association shall be binding upon the parties hereto and a judgment consistent
therewith may be entered in any court of competent jurisdiction. Service of
process in any action instituted to enforce an arbitration award or decision
shall be proper and effective if made in accordance with Section 10.5 hereof.
<PAGE>
10.5 New Jersey Law to Govern. This Agreement shall be construed with,
and the rights and obligations of the parties shall be determined by, the
internal laws of the State of New Jersey, without regard to its conflict of laws
provisions.
If to CLIENT to: If to AMERSHAM PHARMACIA to:
IXION BIOTECHNOLOGY, Inc. Amersham Pharmacia Biotech Inc.
13709 Progress Blvd., Box 13 800 Centennial Avenue
Alachua, FL 32615 Piscataway, New Jersey 08854-1327
Attention: Weaver H. Gaines Attention: Dr. Peter M. Moore
Chairman and CEO and Director
with a copy to:
Andrew Rackear
Amersham Pharmacia Biotech Inc.
General Counsel
800 Centennial Avenue
Piscataway, New Jersey 08854-1327
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
AMERSHAM PHARMACIA BIOTECH INC.
ATTEST/WITNESS
By: /s/ D.W. Dally
Title: V.P. Finance
Date: January 13, 1999
ATTEST/WITNESS
By: /s/ Weaver H. Gaines IXION BIOTECHNOLOGY, INC.
Title: Chairman and CEO
Date: January 3, 1999
February 11, 1999
Ixion Biotechnology, Inc.
12085 Research Drive
Alachua, FL 32615
Re: Post Effective Amendment No. 2 to
Ixion Biotechnology, Inc.
Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as special tax counsel to Ixion Biotechnology,
Inc., a Delaware corporation (the "Company"), in connection with the preparation
and filing with the Securities and Exchange Commission of (i) Amendment No. 1 to
the Registration Statement on Form SB-2 (the "Registration Statement") for the
registration under the Securities Act of 1933, as amended, of the Common Stock
(the "Common Stock") and Charitable Benefit Warrants (the "Charitable Benefit
Warrants") specified therein, to be issued by the Company ("Amendment No. 1") ,
and (ii) Post Effective Amendment No. 2 to the Registration Statement
("Amendment No. 2" and, together with Amendment No. 1, the "Amendments") .
<PAGE>
Ixion Biotechnology, Inc.
February 11, 1999
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Amendments and the prospectus
(collectively, the "Prospectus") that constitutes part of the Amendments, the
forms of Charitable Warrant Agreement and Charitable Benefit Warrant filed as
exhibits thereto and such corporate records, agreements, documents and other
instruments, and have made such inquiries of such officers and representatives
of the Company, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted
originals, the conformity to original documents of documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents. We have further assumed that the Common Stock, the Charitable
Warrant Agreement and the Charitable Benefit Warrants as executed and delivered
by the requisite signatories thereto will conform in substance and form in all
material respects to the respective forms thereof examined by us.
The terms of the Common Stock, the Charitable Warrant Agreement,
and the Charitable Benefit Warrants, which are set forth in the Prospectus, are
incorporated herein by reference.
Our opinion is also based upon currently applicable provisions of
the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated
thereunder, judicial authority and administrative rulings and other authority
that we consider relevant, as in effect on the date hereof, any of which may be
changed at any time with retroactive effect (referred to herein as the "Law").
Our opinion does not foreclose the possibility of a contrary determination by
the Internal Revenue Service or by a court of competent jurisdiction, or of a
contrary position by the IRS or Treasury Department in regulations or rulings
issued in the future.
Based on the foregoing, as of the date hereof we are of the
opinion that the statements contained in the Prospectus under the caption
"Certain U.S. Federal Income Tax Consequences," insofar as such statements
constitute matters of law or legal conclusions with respect thereto and except
to the extent qualified therein, are correct in all material respects.
We emphasize that the foregoing is based upon the Law as of the
date hereof and the facts and assumptions recited or referred to hereinabove, a
change, variation or difference in any of which could affect the conclusions
stated herein. This firm undertakes no obligation to update this opinion in the
event that there is either a change in the Law, facts or documents on which this
opinion is based.
We consent to the use of this opinion as an exhibit to Amendment
No. 2 and to the reference to our firm under the caption "Legal Matters" in the
Prospectus. This opinion may not be used for any other purpose and may not
otherwise be relied upon by, or disclosed to, any other person, quoted, or
referred to.
Very truly yours,
/S/
Thacher Proffitt & Wood
