<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1998
REGISTRATION NO. 333-60055
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SENSUS DRUG DEVELOPMENT CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 74-2716835
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
98 SAN JACINTO BOULEVARD, SUITE 430
AUSTIN, TEXAS 78701
(512) 487-2000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
JOHN A. SCARLETT, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SENSUS DRUG DEVELOPMENT CORPORATION
98 SAN JACINTO BOULEVARD, SUITE 430
AUSTIN, TEXAS 78701
(512) 487-2000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ROBERT J. BRIGHAM, ESQ. ALAN L. JAKIMO, ESQ.
MATTHEW W. SONSINI, ESQ. BROWN & WOOD LLP
COOLEY GODWARD LLP ONE WORLD TRADE CENTER
FIVE PALO ALTO SQUARE NEW YORK, NEW YORK 10048-0557
3000 EL CAMINO REAL (212) 839-5300
PALO ALTO, CALIFORNIA 94036
(650) 843-5000
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the registration statement becomes effective.
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, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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. [_]
----------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The complete
U.S. Prospectus follows immediately. Following the U.S. Prospectus are certain
pages of the International Prospectus, which include an alternate front cover
page, a section titled "Certain United States Federal Tax Considerations for
Non-United States Holders," an alternate underwriting section and an alternate
back cover page. All other pages of the U.S. Prospectus and the International
Prospectus are identical.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 1, 1998
PROSPECTUS
3,000,000 SHARES
[LOGO OF SENSUS]
SENSUS DRUG DEVELOPMENT CORPORATION
COMMON STOCK
----------
All of the 3,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), offered hereby are being offered by Sensus Drug Development
Corporation, a Delaware corporation ("Sensus" or the "Company"). Of the
3,000,000 shares of Common Stock offered hereby, 2,400,000 shares are being
offered for sale initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 600,000 shares are being offered for
sale initially in a concurrent offering outside the United States and Canada by
the International Managers (the "International Offering" and, together with the
U.S. Offering, the "Offerings.") The initial public offering price and the
underwriting discount per share will be identical for both Offerings.
See "Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for information related
to the factors to be considered in determining the initial public offering
price of the Common Stock. The Company has applied to have the Common Stock
approved for inclusion on the Nasdaq National Market under the symbol "SDDC."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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- -------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........... $ $ $
- -------------------------------------------------------------------------------
Total(3)............ $ $ $
- -------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $830,000.
(3) The Company has granted the U.S. Underwriters and the International
Managers options to purchase up to an additional 360,000 shares and 90,000
shares of Common Stock, respectively, in each case exercisable within 30
days after the date hereof, solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
----------
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCBOSTON ROBERTSON STEPHENS
----------
The date of this Prospectus is , 1998.
<PAGE>
[A silhouette of a patient with acromegaly is depicted, showing enlarged hands
and feet, thickened brow and protruding jaw. A graphic depicts the cause of
acromegaly to be a tumor of the pituitary gland, leading to excess secretion
of growth hormone and production of Insulin-like Growth Factor-I. The
associated consequences of increased growth hormone and Insulin-like Growth
Factor-I levels are demonstrated with graphics of the principal organs
affected in acromegaly--an enlarged heart, the potential for colon cancer,
bone and cartilage changes and a diseased pancreas associated with diabetes.]
[A graphic shows the effect of Trovert in blocking the action of growth
hormone and thus decreasing the production of Insulin-like Growth Factor-I in
these patients.]
[CAPTION FOR ARTWORK:]
Acromegaly is characterized by excess levels of Insulin-like Growth Factor
("IGF-I"), which result from excess secretion of growth hormone ("GH") by non-
malignant pituitary tumors. The most common symptoms of acromegaly are soft-
tissue swelling, abnormal growth of the hands and feet, sweating and
headaches. Acromegaly is also associated with other serious health
consequences, including diabetes mellitus and increased risk of cardiovascular
disease and cancer. Sensus' first drug candidate, Trovert, has been
genetically engineered to interfere with GH action and thus cause a reduction
in IGF-I production. Based on the results of Phase II clinical trials, Sensus
believes that Trovert may offer a significantly improved efficacy and side-
effect profile compared to existing drug therapies for acromegaly. Trovert is
currently being tested in a Phase III clinical trial. There can be no
assurance that the clinical trial program for Trovert will be completed in a
timely manner with a successful demonstration of safety and effectiveness or
that Sensus will receive regulatory approval of Trovert for commercial
marketing.
Sensus(TM), Trovert(TM), the Sensus Drug Development Corporation logo and
the Trovert logo are trademarks of the Company. All other brand names or
trademarks appearing in this Prospectus are the property of their respective
holders.
--------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," "Special Note Regarding Forward-Looking
Statements" and Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes (i) that the Underwriters' over-allotment option will not be exercised,
(ii) a 1-for-3.5 reverse split of the Company's Common Stock and the Company's
Preferred Stock, $0.001 par value per share ("Preferred Stock"), to be effected
prior to the closing of the Offerings, and (iii) the conversion of all shares
of the Preferred Stock into Common Stock upon the closing of the Offerings. See
"Description of Capital Stock" and "Underwriting."
THE COMPANY
Sensus is an emerging pharmaceutical company that is developing drugs to
treat endocrine and metabolic diseases and disorders. The Company's first drug
candidate, Trovert (B2036PEG), belongs to a novel class of compounds called
growth hormone antagonists ("GHAs") that inhibit the action of growth hormone
("GH"). Trovert is initially targeted for the treatment of acromegaly, a
disease caused by excess GH, and certain complications associated with
diabetes. The Company is currently conducting a multi-center Phase III clinical
trial of Trovert for post-surgical treatment of acromegaly and intends to file
for U.S. regulatory approval for this indication in the second half of 1999 and
for European regulatory approval in the first quarter of 2000. In addition, the
Company is currently conducting an initial Phase II clinical trial of Trovert
for diabetic retinopathy, the leading cause of blindness in the United States.
Acromegaly results from excess secretion of growth hormone by non-malignant
pituitary tumors. Over-secretion of GH stimulates liver and other cells to
produce excess levels of Insulin-like Growth Factor-I ("IGF-I"), previously
known as somatomedin-C, resulting in the manifestations of the disease. These
manifestations include soft-tissue swelling, abnormal growth of the hands and
feet, overgrowth of bone and cartilage in the face and other parts of the body,
and enlargement of body organs, including the liver, spleen, kidneys and heart.
Acromegaly is associated with significantly increased mortality due to
cardiovascular disease and cancer. The primary goal of existing treatments for
acromegaly is to reduce GH and IGF-I levels to normal in order to reduce the
morbidity and mortality associated with this disease. While the primary
treatment for acromegaly is surgical removal of the pituitary tumor, many
patients, particularly those with large tumors, also require post-surgical drug
therapy, radiation therapy, or both.
Sensus estimates that in North America, Europe and Japan there are currently
more than 40,000 diagnosed acromegalics, with approximately 20,000 who receive
drug therapy. The most widely used of the drugs currently approved for
acromegaly include certain somatostatin analogs that inhibit the secretion of
GH. A significant portion of acromegalic patients treated with somatostatin
analogs, however, do not respond to these drugs, and a substantial portion
experience gastrointestinal and other adverse reactions ("side effects"). Based
on the results of its Phase II clinical trials, Sensus believes that Trovert
may offer a significantly improved efficacy and side-effect profile compared to
drugs currently approved for acromegaly.
The Company is pursuing acromegaly as an initial indication for Trovert
because: (i) Trovert may prove to be more effective and be accompanied by
significantly fewer side effects than currently approved drugs in a large
portion of acromegalic patients; (ii) the disease mechanism for acromegaly is
well understood; (iii) IGF-I levels are easily measured and accurately reflect
the severity of the patient's disease, which should facilitate clinical
development of Trovert; (iv) acromegaly is a chronic disease frequently
requiring long-term medical therapy; (v) Trovert's current designation by the
U.S. Food and Drug Administration (the "FDA") as an "Orphan Drug" for the
treatment of acromegaly may provide certain regulatory, marketing and tax
benefits to the Company; and (vi) treatment of acromegaly in the United States
and Europe is primarily provided at a limited number of medical centers and
thus represents a niche market that can be accessed with a relatively small
sales force.
The Company believes that Trovert may also be effective in treating certain
complications associated with Type 1 and Type 2 diabetes and may have the
potential to treat certain cancers. In April 1998, Sensus began an initial
Phase II clinical trial in patients with diabetic retinopathy. In 1999, Sensus
plans to begin an initial Phase II
3
<PAGE>
clinical trial in patients with diabetic nephropathy, a disease that leads to
kidney failure. The Company currently is conducting preclinical studies on the
effects of Trovert and other GHAs on cancer. In addition to Trovert, Sensus has
several other growth hormone antagonists in pre-clinical development.
Sensus' management has significant experience in drug development, enabling
the Company to manage effectively the pre-clinical studies and clinical trials
of its drug candidates conducted by third-party research organizations. The
Company has licensed Trovert and other GHA technologies from Genentech, Inc.
("Genentech") and Ohio University's Edison Biotechnology Institute ("OU/EBI").
Sensus intends to sell its proposed products for niche market indications (such
as acromegaly) using a small direct sales force. The Company will seek
marketing or distribution partners for those indications which are likely to
require substantial expenditures for clinical development or sales and
marketing (such as certain complications associated with diabetes). Sensus
currently outsources the production of Trovert to a contract manufacturing
organization and anticipates that, if the drug is approved for sale by the FDA
and other regulatory authorities, commercial quantities will be produced by one
or more contract manufacturers.
The Company's objective is to establish a leading position in the treatment
of endocrine and metabolic diseases and disorders. The Company intends to
achieve this objective by: (i) gaining regulatory approvals initially in the
United States and the European Union for the use of Trovert in the post-
surgical treatment of acromegaly; (ii) retaining commercial rights to Trovert
and other products for niche market indications and establishing a small direct
sales force focused on the acromegaly market; (iii) managing the clinical and
regulatory development of Trovert and other drugs internally; (iv) outsourcing
manufacturing; (v) developing Trovert for additional indications through
clinical trials and obtaining related regulatory approvals; and (vi) acquiring
and in-licensing additional products and technologies.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company..... 3,000,000 shares
Common Stock to be outstanding after the
Offerings (1).......................... 9,594,380 shares
Use of proceeds......................... The net proceeds to be received by the
Company from the Offerings will be
used for the Phase III clinical trial
of Trovert, commercialization of
Trovert (including process
development, the manufacturing of
product for sale and the establishment
of a direct sales and marketing
organization), additional research and
development activities and for working
capital and general corporate purposes
(including repayment of debt). See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol.. SDDC
</TABLE>
- --------
(1) Based on the number of shares outstanding as of September 14, 1998.
Excludes (i) 434,992 shares of Common Stock subject to outstanding options
issued under the Company's 1996 Stock Option Plan, as amended (the "1996
Stock Option Plan"); (ii) 51,426 shares of Common Stock subject to other
outstanding options; and (iii) 122,856 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants. See "Management--Employee
Benefit Plans," "Description of Capital Stock" and "Underwriting."
RISK FACTORS
Purchasers of Common Stock in the Offerings should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus prior to making an investment decision.
See "Risk Factors."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION SIX MONTHS ENDED INCEPTION
(JUNE 23, 1994) YEAR ENDED DECEMBER 31, JUNE 30, (JUNE 23, 1994)
TO DECEMBER 31, -------------------------- ----------------- TO JUNE 30,
1994 1995 1996 1997 1997 1998 1998
--------------- ------- ------- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues .............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Expenses:
Research and
development ......... 110 3,322 5,021 10,965 2,775 8,029 27,447
General and
administrative ...... 390 1,127 1,097 1,597 761 1,513 5,724
----- ------- ------- -------- ------- -------- --------
Total expenses ........ 500 4,449 6,118 12,562 3,536 9,542 33,171
----- ------- ------- -------- ------- -------- --------
Loss from operations .. (500) (4,449) (6,118) (12,562) (3,536) (9,542) (33,171)
Interest income
(expense), net ....... (17) (83) (35) 73 (33) (174) (235)
----- ------- ------- -------- ------- -------- --------
Net loss .............. $(517) $(4,532) $(6,153) $(12,489) $(3,569) $ (9,716) $(33,406)
===== ======= ======= ======== ======= ======== ========
Pro forma basic and
diluted net loss per
share (1) ............ $ (2.87) $ (1.48)
======== ========
Shares used to compute
pro forma basic and
diluted net loss per
share (1) ............ 4,354 6,569
======== ========
PRO FORMA
ACTUAL AS ADJUSTED
JUNE 30, JUNE 30,
1998 1998 (2)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................................. $ 3,774 $ 42,167
Working capital ........................................................ 921 39,314
Total assets ........................................................... 6,048 42,678
Total debt ............................................................. 1,600 --
Deficit accumulated during the development stage ....................... (33,406) (33,406)
Total stockholders' equity ............................................. 1,470 39,700
</TABLE>
- --------
(1) Pro forma basic and diluted net loss per share reflects the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock. See
Note 1 of Notes to Financial Statements for a description of the shares
used in calculating pro forma basic and diluted net loss per share.
(2) Presented on a pro forma as adjusted basis to give effect to (i) the
conversion of all outstanding shares of Preferred Stock into an aggregate
of 4,652,710 shares of Common Stock upon completion of the Offerings and
(ii) the issuance of 3,000,000 shares of Common Stock by the Company at the
assumed initial public offering price of $14.00 per share (the midpoint of
the estimated range of the initial public offering price) and the
application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully
the following factors, together with the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risk and uncertainty. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth below and other
factors discussed elsewhere in this Prospectus. See "Special Note Regarding
Forward-Looking Statements."
UNCERTAINTIES RELATED TO CONDUCTING CLINICAL TRIALS AND CLINICAL TRIAL RESULTS;
DEPENDENCE ON SINGLE DRUG CANDIDATE
Trovert is Sensus' first drug candidate, and acromegaly is the Company's
initial target indication for this drug. The Company has not yet completed the
clinical trial program for Trovert or any other product and, accordingly, has
not begun to market or generate revenue from the commercialization of any
products. The Company's clinical trial program for Trovert includes a Phase III
clinical trial for acromegaly that began in July 1998 and an additional
clinical trial for acromegaly expected to begin in the first quarter of 1999.
No assurance can be given that the Company will successfully complete its
clinical trial program for Trovert in a timely manner and with a successful
demonstration of safety and effectiveness. While the results of initial
clinical trials can often be encouraging, such results are not necessarily
predictive of the results obtained from subsequent and more extensive testing.
Historically, many pharmaceutical companies have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials.
The rate of completion of any clinical trial depends upon a number of factors,
including subject enrollment in the trial. Delays in subject enrollment can
result in increased costs and trial delays. Furthermore, a clinical trial may
have to be suspended or terminated prior to completion if the subjects
participating in the trial are experiencing a high rate of side effects or are
being exposed to unacceptable health risks, or if other regulatory requirements
are not being satisfied. Sensus' failure to complete its clinical trial program
of Trovert for acromegaly in a timely manner and with a successful
demonstration of safety and effectiveness would have a material adverse effect
on the Company's business, financial condition and results of operations.
The remainder of the Company's drug candidates are still in research and
development or pre-clinical studies. Any additional product candidates will
require significant research, development, pre-clinical and clinical testing,
regulatory approval and expenditures of resources prior to commercialization.
The Company expects, therefore, to be dependent on completing the clinical and
regulatory development of Trovert and generating revenues from the sale of
Trovert while it continues the research and clinical and regulatory development
of its other drug candidates. There can be no assurance that the Company will
be successful in its efforts to develop Trovert for other indications, such as
diabetic retinopathy, diabetic nephropathy and cancer. Although the Company is
currently seeking to develop other drug candidates and to expand the number of
drug candidates it has under development, there can be no assurance that it
will be successful in such development or expansion. If Trovert does not
successfully complete clinical testing and meet applicable regulatory
requirements, or is not successfully manufactured or marketed, the Company may
not have the financial resources to continue research and development of other
product candidates. See "--No Assurance of Marketing Approval; Government
Regulation" and "Business--Acromegaly" and "--Diabetes."
NO ASSURANCE OF MARKETING APPROVAL; GOVERNMENT REGULATION
The Company's research and development activities, pre-clinical studies,
clinical trials, and the manufacturing and marketing of its products are
subject to extensive regulation by the FDA and regulatory authorities outside
the United States. Satisfying the regulatory requirements for approval of a
drug takes many years and requires the expenditure of substantial resources.
Although the FDA may be consulted in developing protocols for clinical trials,
there is no assurance that the FDA will accept the clinical trials as adequate
or well-controlled or accept the results of those trials. Data obtained from
pre-clinical and clinical activities are
6
<PAGE>
susceptible to varying interpretations which could delay, limit or prevent FDA
regulatory approval. Similarly, the FDA may determine that product candidates
are not eligible for or will not receive expedited review, whether or not the
FDA has previously indicated that such product candidates may be eligible for
expedited review. In addition, delays or rejections may result from changes in
FDA policies about drug approval during the period of product development.
Similar delays may also be encountered in other countries. There can be no
assurance that regulatory review will be conducted in a timely manner or that
regulatory approval will be obtained for any drugs developed by the Company,
including Trovert. Moreover, if regulatory approval for a product candidate is
granted, the approval may entail limitations on the indicated uses for which it
may be marketed. Further, even if regulatory approval is obtained, a marketed
drug, its bulk chemical supplier, its manufacturer and its manufacturing
facilities are subject to continual review and periodic inspections, and
discovery of previously unknown problems with a product, supplier, manufacturer
or facility may result in restrictions on the sale of the Company's products,
including a withdrawal of such products from the market. Failure to comply with
the applicable regulatory requirements can, among other things, result in
fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution. Further, additional government
regulation may be established which could prevent or delay regulatory approval
of the Company's products.
The Company believes that regulatory approvals for the New Drug Application
("NDA") in the United States and Marketing Authorization Application ("MAA") in
the European Union that the Company plans to file for Trovert for treatment of
acromegaly will involve, among other uncertainties, the resolution of several
key assumptions. First, the Company believes that the respective regulatory
authorities will be able to determine the approvability of Trovert for
acromegaly using reduction of IGF-I levels and/or the number of subjects who
achieve normalization of IGF-I levels as the principal clinical endpoint,
rather than improvement of clinical symptoms (such as soft tissue swelling,
sweating and headaches). This belief is based on the central role played by
excess IGF-I in the pathology of acromegaly, the technical difficulties
inherent in measuring clinical symptoms of the disease, the criteria that
regulatory authorities have historically used in approving somatostatin
analogs, and discussions between the Company and representatives of the Food
and Drug Administration and the Committee for Proprietary Medicinal Products
("CPMP") of the European Medicines Evaluation Agency ("EMEA"). Second, the
Company believes that, based on clinical experience to date, the elevated GH
levels that may remain in Trovert-treated patients will not result in
resurgence or growth of the patient's pituitary tumor or have other serious
side effects that would, if present, have a significant adverse impact on the
assessment of the safety of Trovert. Third, the Company believes that questions
regarding the possible accumulation of Trovert metabolites in the patient and
possible side effects due to the presence of polyethylene glycol polymers on
Trovert will not significantly delay the approval of the NDA or MAA if Trovert
is otherwise determined to be safe and effective. Fourth, based on comparisons
of the results obtained in Trovert clinical trials to date with historical
responses of patients to somatostatin analogs, the Company believes Trovert can
be shown in an open-label trial to be at least as effective as such
somatostatin analogs. Based on discussions with representatives of the CPMP,
the Company believes such an outcome will satisfy the CPMP's request for a
study that will evaluate the place of Trovert in the treatment of acromegaly
relative to currently approved products. In the event that any uncertainties
relating to these assumptions are not resolved in the Company's favor, the
Company could be required to conduct additional preclinical studies or clinical
trials before regulatory approval is granted, thereby significantly delaying
any such approval. In addition, the Company could receive regulatory approvals
for Trovert with unfavorable labeling requirements, placing Trovert at a
relative disadvantage compared to other drugs used for the treatment of
acromegaly, or the product could be determined to be non-approvable by one or
more regulatory agencies.
Trovert has qualified for Orphan Drug designation in the United States with
respect to the treatment of acromegaly. No assurance, however, can be given
that the Company will be the first applicant to obtain FDA approval for the use
of a GHA to treat acromegaly. If a competitor obtains Orphan Drug designation
of its GHA product for acromegaly and then is the first to obtain FDA approval
of its NDA for this indication, the competitor would be entitled to seven years
of marketing exclusivity during which the FDA generally could not approve the
Company's NDA. There also can be no assurance that the potential benefits
provided by the Orphan Drug Act will not be significantly limited by amendment
by the United States Congress or reinterpretation by the FDA. See "Business--
Government Regulation" and "--Clinical Development and Regulatory Program for
Trovert."
7
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RELIANCE ON CONTRACT MANUFACTURERS; SCARCITY OF RAW MATERIALS
The Company does not operate its own manufacturing facilities and relies
instead on contract manufacturers to produce its proposed products for
research, pre-clinical studies and clinical trials. The Company believes that
there are relatively few contract manufacturers that are capable of
manufacturing the Company's proposed products, including Trovert, and currently
only one manufacturer, Covance Biotechnology Services Inc. ("CBSI"), is
producing Trovert for the Company's research, pre-clinical studies and clinical
trials. The Company has not signed an agreement for the supply of the
commercial quantities of Trovert required for market launch and ongoing
commercial sales. Moreover, the Company believes that CBSI does not currently
have the capacity to supply quantities of Trovert sufficient to satisfy
anticipated demand in the year following market launch. Although the Company
has identified a limited number of additional contract manufacturers that it
believes are capable of manufacturing Trovert, there can be no assurance that
the Company will be able to enter into manufacturing agreements on a timely
basis on acceptable terms or at all. The supply of Trovert for its market
launch and commercialization will require the Company and CBSI to implement
certain increases in scale and related manufacturing and process improvements,
and to establish an internal quality assurance program to support the contract
production and testing of Trovert. No assurance can be given that these
increases in scale, related improvements and quality assurance program will be
successfully implemented, and failure to do so could result in a delay of
market launch, higher cost of goods or an inadequate supply of drug to meet
market demand if regulatory approval is obtained.
The Company will also need to undertake further testing of the stability of
Trovert as a bulk drug substance and final drug product. While the Company
believes that future stability studies will support an acceptable shelf life,
there can be no assurance that Trovert will have adequate stability in its
current formulation.
Furthermore, the proposed products under development by the Company have
never been manufactured on a commercial scale, and there can be no assurance
that such products can be manufactured at a cost or in quantities necessary to
make them commercially viable. The production of Trovert requires certain key
raw materials for which there are a limited number of suppliers, and there can
be no assurance that such raw materials will be supplied on acceptable terms in
quantities that are adequate to produce Trovert for clinical trials or on a
commercial scale. If the Company should encounter delays or difficulties in its
relationship with CBSI or any other manufacturers, the Company's pre-clinical
and clinical testing schedule could be delayed, resulting in delays in the
submission of applications for regulatory approval or the market introduction
of its products. Any such delays, shortages of supply, or shelf life problems
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Process Development and
Manufacturing."
LIMITED SALES AND MARKETING EXPERIENCE; LACK OF DISTRIBUTION CAPABILITY;
DEPENDENCE ON FUTURE COLLABORATORS
The Company has not previously sold, marketed or distributed any products. To
market and sell any products directly, the Company must develop a sales and
marketing organization with technical expertise and supporting distribution
capability. Significant additional expenditures, management resources and time
will be required for the Company to develop a sales and marketing organization
and supporting distribution capability. The Company intends to market Trovert
directly for the treatment of acromegaly in the United States and Europe and to
enter into marketing agreements with one or more parties for other indications,
territories and drug candidates. To the extent that the Company enters into
marketing or distribution arrangements with third parties, any revenues the
Company receives will depend upon the efforts of these parties and may be less
than the Company would otherwise receive if it marketed the product through its
own sales force. The amount and timing of funds and other resources to be
devoted under such arrangements will be controlled by the other parties and
will be subject to financial and other difficulties that the other parties may
experience. There can be no assurance that the Company will be able to
establish in-house marketing, sales and distribution capabilities or
relationships with third parties, or that it will be successful in gaining
market acceptance for its products. To the extent that the Company enters into
co-promotion or other licensing arrangements, any revenues received by the
Company will depend upon the efforts of third parties, and there can be no
assurance that such efforts will be successful. There can be no assurance that
any third party will market the Company's products successfully or that any
third-
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party collaboration will be on terms favorable to the Company. If the Company's
marketing partner does not market a product successfully, the Company's
business could be adversely affected. There can be no assurance that the
Company will be able to enter into one or more collaborative marketing
agreements, or that it or its collaborators, if any, will be successful in
gaining marketing acceptance for any products that the Company may develop. The
Company's failure to establish marketing capabilities or to enter into
marketing arrangements with third parties would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Sales and Marketing."
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT;
UNCERTAINTY OF FUTURE PROFITABILITY
The Company is at an early stage of development and currently has no marketed
products. To date, the Company has been engaged in research and development
activities and has not generated any revenues from the sale of products or
otherwise. The Company has incurred significant operating losses since
inception. As of June 30, 1998, the Company had an accumulated deficit of
approximately $33.4 million. The process of developing the Company's products
requires significant research and development, pre-clinical testing and
clinical trials, as well as regulatory approvals. In addition,
commercialization of the Company's drug candidates will require manufacturing
scale-up and certain other activities related to manufacturing and the
establishment of a sales and marketing organization. These activities, together
with the Company's general and administrative expenses, are expected to result
in operating losses for the foreseeable future. In addition, the Company's
results of operations will for the next several years be dependent upon the
approval and sale of a single proposed product, Trovert, for the treatment of
acromegaly. The Company's ability to achieve profitability is dependent, in
part, on its ability to successfully complete development of its proposed
products, obtain required regulatory approvals and manufacture and market its
products directly or through partners. There can be no assurance that the
Company will achieve revenues or profitability in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company may be required to raise substantial additional capital over a
period of several years in order to develop and commercialize its products. The
Company's future capital requirements will depend on numerous factors,
including the costs associated with developing, manufacturing and
commercializing its products, developing a direct marketing and sales force,
maintaining existing, or entering into future, licensing and distribution
agreements, protecting intellectual property rights, expanding facilities and
consummating possible future acquisitions of technologies, products or
businesses. The Company may consume available resources more rapidly than
currently anticipated, resulting in the need for additional funding sooner than
originally planned. The Company may be required to raise additional capital
through a variety of sources, including the public equity market, private
equity financings, collaborative arrangements, and public or private debt.
There can be no assurance that additional capital will be available on
favorable terms, if at all. If adequate funds are not available, the Company
may be required to significantly reduce or refocus its operations or to obtain
funds through arrangements that may require the Company to relinquish rights to
certain of its products, technologies or potential markets, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that additional capital is raised through
the sale of equity, the issuance of such securities would result in ownership
dilution to the Company's existing stockholders. To the extent such capital is
raised through borrowings or the sale of securities with liquidation or
redemption rights senior to the Company's Common Stock, such borrowings or
issuance could result in the reduction or elimination of assets ultimately
available for distribution to Common stockholders. See "--Uncertainty of
Protection of Patents and Proprietary Rights" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on the ability of its
licensors to obtain patents and the Company's ability to license or acquire the
rights to additional patents, maintain trade secrets and operate without
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infringing the proprietary rights of others, both in the United States and in
other countries. Pursuant to the OU/EBI License Agreement, Sensus has acquired
an exclusive license to certain U.S. and foreign patents and pending patent
applications relating to certain GHA technologies. Pursuant to the Genentech
Agreement, the Company has acquired an exclusive license, under specified
patents and patent applications, to products containing certain GHAs for use
in the treatment, diagnosis or prevention of particular GH-related diseases.
The OU/EBI License Agreement and the Genentech Agreement contain continuing
performance obligations of the Company. While the Company believes that to
date it has complied with such obligations, there can be no assurance that the
Company will be able to do so in the future. The termination of either
agreement could have a material adverse effect on the Company's ability to
commercialize Trovert and other GHAs. See "Business--Strategic Licensing
Agreements."
The patent positions of biotechnology and pharmaceutical companies can be
highly uncertain and involve complex legal and factual questions, and
therefore the breadth of claims allowed in biotechnology and pharmaceutical
patents and their enforceability cannot be predicted. Therefore, there can be
no assurance that additional patents will issue in respect of applications
that have been licensed by the Company or that any patent will issue on
technology arising from additional research being funded or licensed by the
Company. Further, there can be no assurance that any patents or proprietary
rights owned by or licensed to the Company will not be challenged,
invalidated, circumvented, or rendered unenforceable. The invalidation,
circumvention or unenforceability of one or more patents or proprietary rights
owned by or licensed to the Company could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, there can be no assurance that the claims in any existing or
subsequently issued patent will be sufficient to protect the Company's
products or that such patent will not be challenged, invalidated, held
unenforceable or circumvented, or that the rights granted thereunder will
provide proprietary protection or competitive advantages to the Company. In
this regard, the Company is aware that certain claims in certain patents
licensed from OU/EBI may be susceptible to challenge. The Company believes
that claims in an allowed patent application licensed from OU/EBI would not be
susceptible to a similar challenge. OU/EBI has petitioned to withdraw this
application from issuance in order to obtain broader claim coverage. While the
Company expects the U.S. Patent and Trademark Office to permit this patent
application to be allowed again with claims of at least the scope originally
allowed, the possibility exists that the U.S. Patent and Trademark Office, in
the course of continued prosecution, could identify a new ground for
rejection. Although no assurance can be given, the Company believes the
aforementioned challenge, even if successful with respect to the issued
patents, would not have a material adverse effect on the Company's business,
financial condition and results of operations.
The commercial success of Sensus also will depend, in part, on the Company's
not infringing patents issued to others and not breaching the technology
license agreements pursuant to which intellectual property utilized in any of
the Company's products is licensed by the Company. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions
have filed patent applications or received patents in the areas of the
Company's programs or in the broad area of biotechnology. Some of these
applications or patents may limit or preclude the Company's patents or patent
applications, or conflict in certain respects with claims made under the
Company's patents or patent applications. Such a conflict could result in a
significant reduction of the coverage of the Company's patents or patent
applications, if issued. Where patents exist or if patents are issued that are
infringed by the manufacture, use or sale of any of the Company's products,
the Company may be required to obtain licenses to these patents or to develop
or obtain alternative technology. If any licenses are required, there can be
no assurance that the Company will be able to obtain them on commercially
favorable terms, if at all. The Company's breach of an existing license or
failure to obtain a license to technology required to commercialize its
products could have a material adverse impact on the Company. Litigation,
which could result in substantial costs to the Company, may also be necessary
to enforce any patents issued to or licensed by the Company, or to determine
the scope and validity of third-party proprietary rights. If a third party
prepares and files a patent application in the United States that claims
technology also claimed by a patent or patent application of the Company or
that claims technology that is obvious from that claimed by the Company's
patents or patent applications, the Company may have to participate in
interference proceedings declared by the Patent and Trademark Office ("PTO")
to determine priority of invention, which could result in
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substantial costs to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology. Patents or patent
applications licensed to the Company, by different licensors, that might be
considered to claim the same invention or obvious variations of the same
invention, including the GHA-related applications and patents licensed from
Genentech and OU/EBI, also may become involved in interference proceedings that
could be costly for the Company, and that could result in the loss of some or
all of the involved patent rights. Any such interference proceeding or
infringement litigation may adversely affect the Company's ability to obtain
additional capital to fund its operations. See "--Future Capital Needs;
Uncertainty of Additional Funding."
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Sensus protects its proprietary technology and processes, in part,
by confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. See "Business--Strategic Licensing Agreements" and
"--Patents and Proprietary Rights."
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The pharmaceutical industry is intensely competitive and the Company is
pursuing areas of product development in which there is potential for extensive
technological innovation in relatively short periods of time. Rapid
technological change or developments by others may result in the Company's
technologies or potential products becoming obsolete or noncompetitive. The
Company's competitors may succeed in developing technologies or products that
are more effective than those of the Company. Many companies, including
biotechnology, chemical and pharmaceutical companies, are actively engaged in
the research, development and sale of products that may compete with the
Company's development programs for the treatment of acromegaly and certain
complications of diabetes. Many of these companies have substantially greater
financial, technical and marketing resources than the Company. In addition,
some of these companies have considerable experience in pre-clinical studies,
clinical trials and other regulatory approval procedures. Moreover, certain
academic institutions, governmental agencies and other research organizations
are conducting research and developing technology in areas in which the Company
is working. These institutions may market competitive commercial products based
on this technology directly or through joint ventures and may license this
technology to third parties for further development and commercialization.
There can be no assurance that the Company's competitors will not develop more
efficacious or more affordable products, or achieve earlier product
development, patent protection, regulatory approval or product
commercialization than the Company.
Among the drug products that compete, or are being developed to compete, in
the Company's targeted markets, particularly acromegaly, are somatostatin
analogs, dopamine agonists and somatostatin receptor type-specific agonists.
Currently, approximately 80% of acromegalic patients utilizing drug therapy are
treated with Sandostatin, either as monotherapy or in combination with a
dopamine agonist. Sandostatin is a somatostatin analog that is administered by
subcutaneous injection three times each day. A longer-acting form of
Sandostatin, Sandostatin LAR ("Sandostatin LAR"), which requires monthly
intramuscular injections, has been approved and launched in several countries
in Europe, and the NDA for Sandostatin LAR was recently submitted to the FDA.
The efficacy and side-effect profile of Sandostatin LAR appears to be very
similar to Sandostatin. Somatuline lanreotide ("Somatuline") is another long-
acting somatostatin analog. Somatuline works by the same mechanism as
Sandostatin and requires intramuscular injections every 7 to 14 days.
Somatuline has been approved in four European countries, and is being tested in
a Phase III clinical trial program in the United States for the treatment of
acromegaly. Dopamine agonists are another class of drugs used for treating
acromegaly. Dopamine is a neurotransmitter that is produced in the brain and
acts as a hormone. Parlodel bromocriptine ("Parlodel") is a dopamine agonist
that reduces GH secretion in some patients but normalizes GH and IGF-I levels
in less than 20% of patients. Side effects of Parlodel include headaches, nasal
stuffiness, nausea, vomiting and depression, causing the product to be used
infrequently today. Dostinex cabergoline ("Dostinex"), a more specific dopamine
agonist, is currently being studied in acromegaly but is not approved in the
United States. Certain somatostatin receptor
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type-specific agonists are under development at several companies. These
somatostatin agonists are specific for one of the several known subtypes of the
somatostatin receptor. It is possible that some of the side effects of the
current somatostatin agonists may be avoided and their efficacy may be enhanced
by use of such a receptor type-specific product. The Company also is aware of a
Japanese company that is developing a GHA based on a mutated form of GH
originally discovered in a child afflicted with dwarfism. There can be no
assurance that, if approved, the Company's products will compete successfully
against existing drugs or new drugs that may be developed by others or that the
Company will be able to price its products at the same level as these existing
or new drugs. See "Business--Acromegaly--Current Treatments" and "--
Competition."
DEPENDENCE ON THIRD PARTIES TO CONDUCT PRE-CLINICAL STUDIES AND CLINICAL TRIALS
The Company relies and will continue to rely on third party contract research
organizations and other research institutions to conduct its pre-clinical
studies and clinical trials. Dependence on such third parties may result in
delays in completing, or the failure to complete, such trials if such third
parties fail to perform under their agreements with the Company or fail to meet
regulatory standards in the performance of their obligations under such
agreements. Moreover, a significant portion of the Company's research and
development is, or will be, conducted under sponsored research programs with
several teaching hospitals, universities and other research institutions. The
Company depends on the availability of the principal investigator for each such
program, and the Company cannot assure that these individuals or their research
staffs will be available to conduct research and development. In the case of
acromegaly, there is a particularly small number of physicians and research
staffs who specialize in treating this disease. Furthermore, the Company's
academic collaborators are not employees of the Company. As a result, the
Company has limited control over their activities and can expect that only
limited amounts of their time will be dedicated to Company activities. The
Company's academic collaborators may have relationships with other commercial
entities, some of whom are known to compete with the Company. In addition, the
Company may encounter significant delays in introducing its products into
certain markets or find that the development, manufacture or sale of its
products in such markets is adversely affected by the absence of certain
collaborative or contractual agreements. See "--Reliance on Contract
Manufacturers; Scarcity of Raw Materials," "Business--Strategic Licensing
Agreements" and "--Patents and Proprietary Rights."
DEPENDENCE ON, AND NEED TO ATTRACT AND RETAIN, KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its scientific
and management staff. The Company also relies on consultants and advisors,
including its scientific advisors, to assist the Company in formulating its
research and development strategy. Attracting and retaining qualified
personnel, consultants and advisors will be critical to the Company's success.
To pursue its product development and marketing plans, the Company will need to
hire additional qualified scientific personnel to perform research and
development, as well as personnel with expertise in clinical testing,
government regulation, manufacturing and marketing. Expansion in product
development, sales and marketing is also expected to require the addition of
management personnel and the development of additional expertise by existing
management personnel. The Company faces competition for qualified individuals
from numerous pharmaceutical and biotechnology companies, universities and
other research institutions. Competition for qualified personnel is intense,
and the process of hiring such qualified personnel is often lengthy. There can
be no assurance that the Company can retain and recruit such personnel on a
timely basis, if at all. The Company's management and other employees may
voluntarily terminate their employment with the Company at any time. The loss
of the services of key personnel, or the inability to attract and retain
additional qualified personnel, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
MANAGEMENT OF GROWTH
The Company's success will depend in significant part on the expansion of its
operations and the effective management of growth, which will place significant
demands on the Company's management, operational and financial resources. To
manage such growth, the Company must expand its facilities, augment its
operational, financial and management systems and hire and train additional
qualified personnel. The Company's failure to
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manage growth effectively would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Future
Operations" and "Business."
RISKS OF INTERNATIONAL OPERATIONS
The Company expects that international operations will contribute
significantly to the Company's success. International operations are subject to
a number of risks, including government regulation, political and economic
instability or conflicts, trade restrictions, changes in tariffs and taxes,
difficulties in staffing and managing international operations, problems in
establishing or managing distributor relationships and general economic
conditions. In addition, fluctuations in the value of foreign currencies
relative to the U.S. dollar may adversely affect the Company's business,
financial condition and results of operations. See "Business--Sales and
Marketing."
HEALTH CARE REIMBURSEMENT; GOVERNMENTAL REFORMS
The Company's ability to commercialize its products successfully in the
United States, Europe and other jurisdictions, if regulatory approval of such
products is obtained, will depend in part and may depend significantly on the
extent to which reimbursement for the costs of such products and related
treatments will be available to recipients from government health
administration authorities, private health care insurers, health maintenance,
managed care and similar organizations. Third-party payers are increasingly
challenging the pricing of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that coverage will be available to
users of any of the Company's proposed products that are approved and marketed.
In the United States, government and other third-party payers are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new products approved for marketing. If third-party
reimbursement is not available for the Company's proposed products or is
inadequate, the market acceptance of these products could be adversely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
The trend toward managed health care in the United States, the growth of
organizations such as HMOs, and legislative proposals to reform health care and
government insurance programs could adversely affect the amount of
reimbursement available from governmental or private payers for pharmaceutical
products or could affect the ability to set prices for newly approved
therapeutic products, such as those proposed by the Company. It is uncertain
what proposals will be adopted or what actions governmental or private payers
for health care goods and services may take in response to proposed or actual
legislation in the United States or other important markets. The Company cannot
predict the outcome of health care reform proposals or the effect any such
reforms may have on the Company's business. See "Business--Government
Regulation."
HAZARDOUS MATERIALS
The Company's research and development activities involve the use of
hazardous materials, chemicals and/or various radioactive compounds by its
contractors, and the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. The Company's contractors
may incur substantial costs to comply with environmental regulations, which
costs may be passed on to the Company.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
Clinical trials, manufacturing, marketing and sales of potential products by
the Company or its future strategic alliance partners, if any, may expose the
Company to liability claims from the use of such products. Although the Company
carries product liability insurance to cover its clinical trials, there can be
no assurance that the Company or its future strategic alliance partners will be
able to retain such insurance or, if retained, that sufficient insurance
coverage can be acquired at an acceptable cost. Furthermore, the Company's
product liability insurance does not cover the commercialization of its drug
candidates, and there can be no assurance that the
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Company will be able to obtain such coverage on acceptable terms, or at all. An
inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent
or inhibit the commercialization of products developed by the Company or its
strategic alliance partners. A successful product liability claim or recall
would have a material adverse effect on the Company's business, financial
condition and results of operations. While the Company may be entitled to
indemnification against losses by its strategic alliance partners, there can be
no assurance that this indemnification would be available or adequate should
any such claim arise.
POTENTIAL ADVERSE EFFECTS OF YEAR 2000 PROBLEM
Many currently installed computer systems and software programs were designed
to use only a two-digit date code field. These date code fields will need to
accept four digit entries to distinguish 21st Century dates from 20th Century
dates. Until the date code fields are updated, the systems and programs could
fail or give erroneous results when referencing dates following December 31,
1999. Such failure or errors could occur prior to the actual change in century.
The Company relies on commercially available computer applications to manage
and monitor its accounting and administrative functions. In addition, the
Company's suppliers and service providers (including financial institutions)
are reliant upon computer applications, some of which may contain software that
may fail as a result of the upcoming change in century, with respect to
functions that materially affect their interactions with the Company. The
Company is currently assessing whether any of its suppliers or service
providers will be adversely affected by the upcoming change in century. The
Company does not currently have in place any contingency plans for its
operations if Year 2000 issues are not resolved in time or if such issues go
undetected. Failure of the Company's software or that of its suppliers or
service providers, to resolve such issues in a timely manner, could have a
material adverse impact on the Company's business, financial condition and
result of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Potential Adverse Effects of Year 2000
Problem."
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of the Offerings, the Company's principal stockholders,
executive officers and directors together will beneficially own approximately
57.8% of the outstanding shares of Common Stock (55.2% if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders,
if acting together, will be able to control matters requiring approval by the
stockholders of the Company, including approvals of amendments to the Company's
Certificate of Incorporation, certain mergers, a sale of all or substantially
all of the assets of the Company, going private transactions and other
fundamental transactions. In addition, the Company's Certificate of
Incorporation, as it is proposed to be amended and restated concurrently with
the closing of this Offering (the "Restated Certificate"), does not provide for
cumulative voting with respect to the election of directors. Consequently, the
present directors and executive officers of the Company, together with the
Company's principal stockholders, will be able to control the election of the
members of the Board of Directors of the Company (the "Board of Directors").
Such a concentration of ownership may have the effect of delaying or preventing
a change in control of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over current
market prices. See "Principal Stockholders."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE; ANTI-TAKEOVER PROVISIONS
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and to
fix the rights, preferences and privileges of, and issue up to 5,000,000 shares
of, Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock, rights to purchase
Preferred Stock or additional shares of Common Stock may have the effect of
delaying or preventing a change in control of the Company. In addition, the
possible issuance of Preferred Stock or additional shares of Common Stock could
discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay for shares of the Company's Common Stock.
Further, the Restated Certificate provides that any
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action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of the stockholders of
the Company may be called only by the Chairman of the Board of Directors, the
Chief Executive Officer of the Company or by the Board of Directors pursuant to
resolution adopted by a majority of the total number of authorized directors.
These and other provisions contained in the Restated Certificate and the
Company's Bylaws, as well as certain provisions of Delaware law, could delay or
make more difficult certain types of transactions involving an actual or
potential change in control of the Company or its management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices) and may limit the ability of
stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of the Company's Common Stock. See
"Description of Capital Stock."
BROAD DISCRETION IN APPLICATION OF NET PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $14.00 per share
(the midpoint of the estimated range of the initial public offering price), are
estimated to be $38.2 million ($44.1 million if the Underwriters' over-
allotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses. The Company intends to use the net
proceeds from the Offerings principally for the Phase III clinical trial of
Trovert, commercialization of Trovert (including process development, the
manufacturing of product for sale and the establishment of a direct sales and
marketing organization), additional research and development activities and for
working capital and general corporate purposes (including repayment of debt).
The Company's management and Board of Directors will have broad discretion with
respect to the application of such proceeds, and the amounts and timing of the
expenditures for these purposes may vary significantly depending on numerous
factors, such as the status of the Company's research and development efforts,
the regulatory approval process, technological advances, determinations as to
commercial potential, the terms of collaborative agreements entered into by the
Company, if any, and the status of competitive products and technologies. See
"Use of Proceeds."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offerings. The initial public offering
price, which was determined by negotiations between the Company and the
Underwriters, will not necessarily be indicative of the market price at which
the Common Stock of the Company will trade after the Offerings. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. In addition, in recent years the stock market in
general, and the shares of biotechnology companies in particular, have
experienced extreme price fluctuations. These broad market and industry
fluctuations may have a material adverse effect on the market price of the
Common Stock. In the future, the Company's operating results may vary from the
expectations of public market analysts and investors, and, as a result, the
price of the Common Stock would be materially and adversely affected.
Announcements of technological innovations or new commercial products by the
Company or its competitors, disputes or other developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding new products or technologies under development by the Company, its
licensors or its competitors, general market conditions, quarterly fluctuations
in the Company's revenues and financial results, as well as the other factors
described in these "Risk Factors" and elsewhere in this Prospectus, may have a
significant impact on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and lock-up agreements pursuant to
which all directors, officers and substantially all of the stockholders of the
Company have agreed not to sell or otherwise dispose of any of their shares for
180 days from
15
<PAGE>
the date hereof without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). However, Merrill Lynch may at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. As a result of such restrictions, and based upon the
number of shares outstanding on September 14, 1998, on the date of this
Prospectus 54,313 shares of the Company's Common Stock, other than the
3,000,000 shares offered hereby, will be eligible for sale pursuant to Rule 144
promulgated under the Securities Act. Additionally, 6,520,782 shares currently
outstanding and 87,995 shares issuable upon exercise of outstanding vested
options will be eligible for sale 180 days after the date of this Prospectus
upon expiration of the lock-up agreements and in compliance with certain
limitations set forth in the Securities Act. After the Offerings, the holders
of approximately 4,652,710 shares of Common Stock and the holder of a warrant
to purchase 65,714 shares of Common Stock will be entitled to certain demand
and piggyback registration rights with respect to registration of such shares
under the Securities Act. If such holders by exercising their demand or
piggyback registration rights cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company was
to include in a Company-initiated registration shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise needed capital. See
"Shares Eligible For Future Sale" and "Description of Capital Stock--
Registration Rights."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will experience
immediate dilution of $9.85 per share in the net tangible book value of their
investment from the initial public offering price (assuming an initial public
offering price of $14.00 per share, the midpoint of the estimated range of the
initial public offering price). Additional dilution will occur upon exercise of
outstanding options. The Company has not declared or paid cash dividends on its
Common Stock since inception and does not intend to pay any cash dividends in
the foreseeable future. Future cash dividends, if any, will be determined by
the Board of Directors. See "Dilution," "Shares Eligible for Future Sale" and
"Dividend Policy."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements."
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others:
uncertainties related to conducting clinical trials and clinical trial results;
dependence on single drug candidate; no assurance of marketing approval;
government regulation; reliance on contract manufacturers; scarcity of raw
materials; limited sales and marketing experience; lack of distribution
capability; dependence on future collaborators; early stage of development;
history of operating losses; accumulated deficit; uncertainty of future
profitability; future capital needs; uncertainty of additional funding;
uncertainty of protection of patents and proprietary rights; competition; rapid
technological change; dependence on third parties to conduct pre-clinical
studies and clinical trials; dependence on, and need to attract and retain, key
employees and consultants; management of growth; risks of international sales
and operations; health care reimbursement; government reforms; hazardous
materials; risk of product liability; availability of insurance; potential
adverse effects of year 2000 problem; control by management and existing
stockholders; availability of preferred stock for issuance; anti-takeover
provisions; broad discretion in application of net proceeds; no prior public
market for common stock; possible volatility of stock price; shares eligible
for future sale and potential adverse effect on market price; registration
rights; immediate and substantial dilution; and absence of dividends. These
factors are discussed in more detail elsewhere in this Prospectus, including,
without limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
16
<PAGE>
THE COMPANY
Sensus is an emerging pharmaceutical company that is developing drugs to
treat endocrine and metabolic diseases and disorders. The Company's first drug
candidate, Trovert (B2036PEG), belongs to a novel class of compounds called
growth hormone antagonists that inhibit the action of growth hormone. Trovert
is initially targeted for the treatment of acromegaly, a disease caused by
excess growth hormone, and certain complications associated with diabetes. The
Company is currently conducting a multi-center Phase III clinical trial of
Trovert for post-surgical treatment of acromegaly and intends to file for U.S.
regulatory approval for this indication in the second half of 1999 and for
European regulatory approval in the first quarter of 2000. In addition, the
Company is currently conducting an initial Phase II clinical trial of Trovert
for diabetic retinopathy, the leading cause of blindness in the United States.
The Company was incorporated in Delaware in 1994. Unless the context
otherwise requires, "Sensus" and the "Company" refer to Sensus Drug
Development Corporation. The Company's executive offices are located at 98 San
Jacinto Boulevard, Suite 430, Austin, Texas 78701. Its telephone number is
(512) 487-2000.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby, assuming an initial public offering price of $14.00 per share
(the midpoint of the estimated range of the initial public offering price),
are estimated to be $38.2 million ($44.1 million if the Underwriters' over-
allotment option is exercised in full) after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company.
The Company anticipates using approximately $6 million of the net proceeds
from the Offerings for the Company's Phase III clinical trial of Trovert for
acromegaly, approximately $19 million for commercialization of Trovert,
including process development, the manufacturing of product for sale and the
establishment of a direct sales and marketing organization, approximately $7
million for additional research and development activities, including
preclinical and early stage clinical trials of Trovert for other indications,
and the remainder for working capital and general corporate purposes,
including repayment of: (i) $1.6 million of indebtedness, currently payable in
four equal quarterly installments with the final payment due on June 30, 1999
and bearing interest at 7.6% per annum; and (ii) borrowings under a bank line
of credit due in September 1999 and bearing interest at the bank's prime rate.
As of September 28, 1998, approximately $1.2 million was borrowed under this
line of credit. The amounts and timing of the expenditures for these purposes
may vary significantly depending on numerous factors, such as the status of
the Company's research and development efforts, the regulatory approval
process, technological advances, determinations as to commercial potential,
the terms of collaborative agreements entered into by the Company, if any, and
the status of competitive products and technologies, among others. In
addition, the Company's research and development expenditures will vary as
programs are added, extended or terminated. The Company may also use a portion
of the net proceeds to acquire or invest in businesses, products and
technologies that are complementary to those of the Company, although no such
acquisitions are planned or being negotiated as of the date of this
Prospectus, and no portion of the net proceeds has been allocated for any
specific acquisition.
The Company believes that its available cash, cash equivalents and short-
term investments, together with the net proceeds of the Offerings and the
interest thereon, will be sufficient to meet its capital requirements at least
through the first quarter of 2000. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock
since inception and does not intend to pay any cash dividends in the
foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors. See "Risk Factors--Immediate and Substantial Dilution;
Absence of Dividends" and "Description of Capital Stock."
18
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1998: (i) the actual
capitalization of the Company and (ii) the pro forma as adjusted
capitalization to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and to give effect to the sale of 3,000,000
shares of the Common Stock offered hereby at an assumed initial offering price
of $14.00 and the application of the net estimated proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Financial Statements and related Notes thereto and the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------------- -------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt, including current
portion of long-term debt (1) .......... $ 1,600 $ --
================ ================
Long-term debt, less current portion .... $ -- $ --
Stockholders' equity:
Preferred Stock, $0.001 par value;
21,000,000 shares authorized,
4,652,710 convertible shares issued
and outstanding, actual; and 5,000,000
shares authorized, none issued and
outstanding, pro forma as adjusted
(2) .................................. 5 --
Common Stock, $0.001 par value;
32,000,000 shares authorized;
1,922,385 shares issued and
outstanding, actual; and 30,000,000
shares authorized, 9,575,095 shares
issued and outstanding, pro forma as
adjusted (3) ......................... 2 10
Additional paid-in capital ............ 35,187 73,414
Deferred compensation.................. (318) (318)
Deficit accumulated during the
development stage .................... (33,406) (33,406)
---------------- ----------------
Total stockholders' equity .......... 1,470 39,700
---------------- ----------------
Total capitalization .............. $ 1,470 $ 39,700
================ ================
</TABLE>
- --------
(1) See Note 7 of Notes to Financial Statements for a description of the
Company's short-term debt.
(2) Upon completion of the Offerings, all outstanding shares of Preferred
Stock will convert into Common Stock.
(3) Gives effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the sale of shares offered by the Company
hereby, at an assumed initial public offering price of $14.00 per share
(the midpoint of the estimated range of the initial public offering
price), and the application of the estimated net proceeds therefrom, as if
all such transactions had been effected on June 30, 1998. Based on the
number of shares outstanding as of June 30, 1998. Excludes (i) 404,279
shares of Common Stock subject to outstanding options issued under the
1996 Stock Option Plan at a weighted average exercise price of $2.47 per
share; (ii) 45,712 shares of Common Stock subject to other outstanding
options issued at a weighted average exercise price of $0.53 per share;
and (iii) 65,714 shares of Common Stock reserved for issuance upon
exercise of an outstanding warrant at a price of $10.50 per share. See
"The Company," "Use of Proceeds," "Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock at June 30, 1998
was approximately $1.3 million, or $0.20 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible
assets of the Company less total liabilities, divided by 6,575,095, the number
of shares of Common Stock outstanding as of June 30, 1998 after giving effect
to the conversion of all outstanding shares of Preferred Stock into an
aggregate of 4,652,710 shares of Common Stock upon completion of the
Offerings. After giving effect to the sale of the 3,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $14.00 per
share (the midpoint of the estimated range of the initial public offering
price) and after deducting the estimated offering expenses and underwriting
discounts and commissions, the adjusted pro forma net tangible book value per
share at June 30, 1998 was $4.15. This represents an immediate increase in pro
forma net tangible book value per share of $3.95 to existing stockholders and
an immediate dilution per share of $9.85 to new investors purchasing shares in
the Offerings.
The following table illustrates the per share dilution described above:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .............. $14.00
Pro forma net tangible book value per share at June 30, 1998 . $ 0.20
Increase per share attributable to new investors ............. 3.95
------
Adjusted pro forma net tangible book value per share after the
Offerings ................................................... 4.15
------
Dilution to new investors per share .......................... $ 9.85
======
</TABLE>
The following table sets forth on a pro forma basis at June 30, 1998 the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid for such shares and the average consideration paid per
share by the existing stockholders and by the new investors. The following
computations assume an initial public offering price of $14.00 per share (the
midpoint of the estimated range of the initial public offering price) before
deduction of the estimated offering expenses and underwriting discounts and
commissions.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1) ..................... 6,575,095 68.7% $35,848,209 46.0% $ 5.45
New investors ............ 3,000,000 31.3 42,000,000 54.0 14.00
--------- ----- ----------- -----
Total .................. 9,575,095 100.0% $77,848,209 100.0% 8.13
========= ===== =========== =====
</TABLE>
- --------
(1) Includes 4,652,710 shares of Common Stock that will be issued upon
conversion of the Preferred Stock.
The foregoing tables assume no exercise of outstanding options and warrants
and exclude (i) 404,279 shares of Common Stock reserved for issuance upon
exercise of stock options granted pursuant to the 1996 Stock Option Plan, at a
weighted average exercise price of $2.47 per share outstanding as of June 30,
1998; (ii) 45,712 shares of Common Stock reserved for issuance upon exercise
of other stock options at a weighted average exercise price of $0.53 per share
outstanding as of June 30, 1998; and (iii) 65,714 shares of Common Stock
reserved for issuance upon exercise of an outstanding warrant at a price of
$10.50 per share. To the extent that additional options and warrants are
granted and exercised in the future, there will be further dilution to new
stockholders. See "Management--Employee Benefit Plans."
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and Notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere in this Prospectus. The statements of operations data for the years
ended December 31, 1995, 1996 and 1997, and the balance sheet data at December
31, 1996 and 1997, are derived from audited financial statements included
elsewhere in this Prospectus. The statement of operations data for the period
from June 23, 1994 (inception) to December 31, 1994, and the balance sheet
data at June 30, 1994 and 1995, are derived from audited financial statements
not included herein. The statements of operations data for the six months
ended June 30, 1997 and 1998 and the period from June 23, 1994 (inception) to
June 30, 1998, and the balance sheet data at June 30, 1998 are derived from
unaudited financial statements included elsewhere in this Prospectus. The
unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary to present
fairly the financial data included herein. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION SIX MONTHS ENDED INCEPTION
(JUNE 23, 1994) YEAR ENDED DECEMBER 31, JUNE 30, (JUNE 23, 1994)
TO DECEMBER 31, --------------------------- ----------------- TO JUNE 30,
1994 1995 1996 1997 1997 1998 1998
--------------- ------- -------- -------- ------- -------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues .............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Expenses:
Research and
development ......... 110 3,322 5,021 10,965 2,775 8,029 27,447
General and
administrative ...... 390 1,127 1,097 1,597 761 1,513 5,724
----- ------- -------- -------- ------- -------- --------
Total expenses ........ 500 4,449 6,118 12,562 3,536 9,542 33,171
----- ------- -------- -------- ------- -------- --------
Loss from operations .. (500) (4,449) (6,118) (12,562) (3,536) (9,542) (33,171)
Interest
income/(expense),
net ................. (17) (83) (35) 73 (33) (174) (235)
----- ------- -------- -------- ------- -------- --------
Net loss .............. $(517) $(4,532) $ (6,153) $(12,489) $(3,569) $ (9,716) $(33,406)
===== ======= ======== ======== ======= ======== ========
Pro forma basic and
diluted net loss per
share (1) ............ $ (2.87) $ (1.48)
======== ========
Shares used to compute
pro forma basic and
diluted net loss per
share (1) ............ 4,354 6,569
======== ========
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998
--------------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents .......... $ -- $ 1,447 $ 45 $ 17,243 $ 3,774
Working capital
(deficit) ............ (641) 350 (3,119) 10,561 921
Total assets .......... 312 1,698 209 17,585 6,048
Short-term debt,
including current
portion of long-term
debt ................. -- -- -- -- 1,600
Long-term debt, net of
current portion ...... -- -- -- -- --
Deficit accumulated
during the development
stage ................ (517) (5,049) (11,202) (23,690) (33,406)
Total stockholders'
equity (deficit) ..... (516) 512 (2,976) 10,793 1,470
</TABLE>
- --------
(1) Pro forma basic and diluted net loss per share reflects the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock. See
Note 1 of Notes to Financial Statements for a description of the shares
used in calculating pro forma basic and diluted net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Financial
Statements and related Notes thereto and other financial information included
elsewhere in this Prospectus. Except for the historical information contained
herein, the discussion in this Prospectus contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this Prospectus.
The Company's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.
OVERVIEW
Sensus is an emerging pharmaceutical company that is developing drugs to
treat endocrine and metabolic diseases and disorders. The Company's first drug
candidate, Trovert (B2036PEG), belongs to a novel class of compounds called
growth hormone antagonists ("GHAs") that inhibit the action of growth hormone
("GH"). Trovert is initially targeted for the treatment of acromegaly, a
disease caused by excess GH, and certain complications associated with
diabetes. The Company is currently conducting a multi-center Phase III
clinical trial of Trovert for post-surgical treatment of acromegaly and
intends to file for U.S. regulatory approval for this indication in the second
half of 1999 and for European regulatory approval in the first quarter of
2000. In addition, the Company is currently conducting an initial Phase II
clinical trial of Trovert for diabetic retinopathy, the leading cause of
blindness in the United States.
To date, the Company has been engaged in research and development activities
and has not generated any revenues from the sale of any products or otherwise.
The Company has incurred significant operating losses since its inception and
expects to incur additional losses from development stage activities for the
foreseeable future, primarily due to continued increases in the cost of
clinical and regulatory development of Trovert. As of June 30, 1998, the
Company had an accumulated deficit of approximately $33.4 million. The process
of developing the Company's products requires significant research and
development, pre-clinical testing and clinical trials, as well as regulatory
approvals. These activities, together with the Company's general and
administrative expenses, are expected to result in operating losses for the
foreseeable future. In addition, the Company's results of operations will, for
the next several years, be dependent upon the approval and sale of a single
proposed pharmaceutical product, Trovert, for the treatment of acromegaly. The
Company's ability to achieve profitability is dependent, in part, on its
ability to successfully complete development of its proposed products, obtain
required regulatory approvals and manufacture and market its products directly
or through partners. There can be no assurance that the Company will achieve
revenues or profitability in the future.
The Company is obligated to make certain sponsored research, development and
royalty payments to OU/EBI and Genentech. Pursuant to a license agreement
between OU/EBI and an affiliate of the Company, Sensus has acquired an
exclusive, worldwide license to make, use and sell products based on GHAs and
related technologies discovered at OU/EBI during the term of a Sponsored
Research Agreement ("SRA") with OU/EBI. During the term of the SRA, Sensus is
obligated to reimburse OU/EBI for research being conducted by OU/EBI for each
product derived from licensed technology upon attainment of certain
development milestones. Other than a $500,000 milestone payment to OU/EBI
which the Company has agreed to make by April 1999, the Company does not
anticipate making any milestone payments in the foreseeable future. In
addition, Sensus is obligated to pay a royalty to OU/EBI payable within 30
days of the end of each calendar quarter, subject to adjustment, on net sales
for any products commercialized using the licensed technology. Under the terms
of a license agreement with Genentech, Genentech is entitled to receive a
royalty on net sales payable within 90 days of the end of each calendar
quarter for any GHA sold by Sensus that is within the scope of a licensed
Genentech patent or patent application, or a reduced royalty on net sales for
other licensed products.
22
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. The Company has been a development stage company since its
inception and had no revenues during the six month periods ended June 30, 1998
and June 30, 1997.
Research and Development Expenses. Research and development expenses
increased to $8.0 million in the first six months of 1998 from $2.8 million
for the first six months of 1997. This increase of $5.2 million was primarily
attributable to an increase of $3.0 million for the cost of manufacturing
Trovert for use in clinical trials and $1.0 million for milestone payments
under a technology licensing agreement.
General and Administrative Expenses. General and administrative expenses
increased to $1.5 million in the six months ended June 30, 1998 from $761,000
in the six months ended June 30, 1997. This increase of $752,000 was primarily
attributable to increases of $277,000 in personnel expenses, $123,000 in
public relations costs and $141,000 in marketing costs.
Net Interest Income/(Expense). Net interest expense increased to $174,000 in
the first six months of 1998 from net interest expense of $33,000 for the six
months ended June 30, 1997. This net interest expense increase of $141,000 was
due to the non-cash expense associated with stock issued in connection with a
bank loan.
Net Loss. Net loss increased to $9.7 million for the six months ended June
30, 1998 from $3.6 million for the six months ended June 30, 1997. This
increased loss of $6.1 million was primarily attributable to the increase in
research and development expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. The Company has been a development stage company since its
inception and had no revenues during the years ended December 31, 1997 and
1996.
Research and Development Expenses. Research and development expenses
increased to $11.0 million in 1997 from $5.0 million in 1996. This increase of
$6.0 million was primarily attributable to an increase of $5.4 million for the
cost of manufacturing Trovert for use in clinical trials.
General and Administrative Expenses. General and administrative expenses
increased to $1.6 million in 1997 from $1.1 million in 1996. This increase of
$500,000 was primarily attributable to increases of $120,000 in personnel
expenses and $105,000 in travel-related costs.
Net Interest Income/(Expense). Net interest income increased to $73,000 in
1997 from net interest expense of $35,000 in 1996. This net interest income
increase of $108,000 is due to interest income earned on cash available from
the issuance of Series C Preferred Stock in October 1997.
Net Loss. Net loss increased to $12.5 million for the year ended December
31, 1997 from $6.2 million for the year ended December 31, 1996. This
increased loss of $6.3 million was primarily attributable to the increase in
research and development expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. The Company has been a development stage company since its
inception and had no revenues during the years ended December 31, 1996 and
1995.
Research and Development Expenses. Research and development expenses
increased to $5.0 million in 1996 from $3.3 million in 1995. This increase of
$1.7 million was primarily attributable to an increase of $1.5 million for the
cost of manufacturing Trovert for use in clinical trials.
23
<PAGE>
General and Administrative Expenses. General and administrative expenses
remained constant at $1.1 million in both 1996 and 1995. A decrease in
personnel costs of $193,000 was offset by an increase in other general and
administrative costs of $163,000.
Net Interest Expense. Net interest expense decreased to $35,000 in 1996 from
$83,000 in 1995. This $48,000 decrease was due to the reduction in amounts
borrowed from related parties.
Net Loss. Net loss increased to $6.2 million for the year ended December 31,
1996 from $4.5 million for the year ended December 31, 1995. This increase of
$1.7 million was primarily attributable to the increase in research and
development expenses.
NET OPERATING LOSS AND TAX CREDIT CARRY-FORWARDS
As of June 30, 1998, the Company's federal net operating loss carry-forwards
were approximately $29.8 million and research and orphan drug credit carry-
forwards ("tax credit carry-forwards") were approximately $2.7 million. If not
utilized, the net operating loss carry-forwards will begin to expire in 2009.
The tax credit carry-forwards will begin to expire in 2012, if not utilized.
Federal tax laws provide for an annual limitation on the amount of taxable
income that can be offset by net operating loss and tax credit carryforwards
arising in periods prior to certain ownership changes. The Company experienced
such an ownership change for federal income tax purposes during 1997. As a
result, net operating loss and tax credit carryforwards arising prior to the
ownership change will only be available to offset approximately $870,000 of
taxable income per year. Such annual limitation could be increased for certain
"built-in" gains recognized for tax purposes during the five year period
following the ownership change. Such limitation is cumulative, so that
unutilized net operating loss and tax credit carryforwards not in excess of
the limitation can be used in subsequent years. Accordingly, if the Company
generates taxable income in any year in excess of its then-cumulative
limitation and carryforwards generated subsequent to the ownership change, the
Company may be required to pay federal income taxes even though it has
unexpired carryforwards. The annual limitation could also result in the
expiration of net operating loss and tax credit carryforwards before
utilization. Because of the uncertainties related to the Company's future
operating results and possible inability to realize the benefits of these
deferred tax assets, a full valuation allowance has been recorded, the effect
of which is to offset the value of these assets for financial reporting
purposes. See Note 5 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1998, the Company has financed its
operations primarily through private sales of Preferred Stock through which
the Company raised net cash proceeds totaling $32.1 million. During 1995, 1996
and 1997, the Company borrowed $3.5 million from a related party, all of which
was repaid in 1998. In 1998, the Company borrowed $2.9 million, of which $1.6
million remained outstanding at June 30, 1998.
Net cash used in operating activities from inception of the Company through
June 30, 1998 was $27.5 million attributable primarily to an accumulated net
loss of $33.4 million partially offset by noncash expenses of $3.0 million and
increases in accounts payable and accrued expenses of $3.0 million.
Net cash used in investing activities from inception of the Company through
June 30, 1998 was $2.2 million attributable to the purchase of property and
equipment of $597,000 for the Company's administrative offices and to a short-
term investment of $1.6 million which collateralizes the Company's outstanding
note payable as of June 30, 1998.
Net cash provided by financing activities from inception of the Company
through June 30, 1998 was $33.5 million primarily attributable to $32.1
million from the sale of Preferred Stock and a $2.9 million bank term note, of
which $1.3 million has been repaid, which were offset by deferred costs of
$163,000 for the Offerings.
As of June 30, 1998, the Company had approximately $3.8 million of
unrestricted cash and cash equivalents and $1.6 million in short-term
restricted cash investments collateralizing the $1.6 million bank term note.
The
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Company had no material commitments other than its bank note and those under
its office facility and equipment leases.
In September 1998, the Company entered into a $5.0 million revolving line of
credit with a bank. The loan will bear interest at the bank's prime rate,
payable quarterly, and repayment of any borrowings is due on September 4,
1999. A stockholder of the Company provided a personal guarantee of the
revolving line of credit in exchange for a warrant to acquire 57,142 shares of
Common Stock at an exercise price of $12.25 per share.
The Company believes that the net proceeds from the Offering(s), together
with its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures through
the first quarter of 2000. Thereafter, the Company may seek to sell additional
equity or debt securities or to obtain additional credit facilities to fund
research and development costs, launch its products, and for general corporate
purposes. The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders. There can be no
assurance that financing will be available in amounts or on terms acceptable
to the Company, if at all. See "Risk Factors--Future Capital Needs;
Uncertainty of Additional Funding."
POTENTIAL ADVERSE EFFECTS OF YEAR 2000 PROBLEM
Many currently installed computer systems and software programs were
designed to use only a two-digit date code field. These date code fields will
need to accept four digit entries to distinguish 21st Century dates from 20th
Century dates. Until the date code fields are updated, the systems and
programs could fail or give erroneous results when referencing dates following
December 31, 1999. Such failure or errors could occur prior to the actual
change in century. The Company relies on commercially available computer
applications to manage and monitor its accounting and administrative
functions. In addition, the Company's suppliers and service providers
(including financial institutions) are reliant upon computer applications,
some of which may contain software that may fail as a result of the upcoming
change in century, with respect to functions that materially affect their
interactions with the Company. The Company is currently assessing whether any
of its suppliers or service providers will be adversely affected by the
upcoming change in century. The Company does not currently have in place any
contingency plans for its operations if Year 2000 issues are not resolved in
time or if such issues go undetected. Failure of the Company's software or
that of its suppliers or service providers, or failure to resolve such issues
in a timely manner, could have a material adverse impact on the Company's
business, financial condition and results of operations.
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BUSINESS
OVERVIEW
Sensus is an emerging pharmaceutical company that is developing drugs to
treat endocrine and metabolic diseases and disorders. The Company's first drug
candidate, Trovert (B2036PEG), belongs to a novel class of compounds called
growth hormone antagonists ("GHAs") that inhibit the action of growth hormone
("GH"). Trovert is initially targeted for the treatment of acromegaly, a
disease caused by excess GH, and certain complications associated with
diabetes. The Company is currently conducting a multi-center Phase III
clinical trial of Trovert for post-surgical treatment of acromegaly and
intends to file for U.S. regulatory approval for this indication in the second
half of 1999 and for European regulatory approval in the first quarter of
2000. In addition, the Company is currently conducting an initial Phase II
clinical trial of Trovert for diabetic retinopathy, the leading cause of
blindness in the United States.
Acromegaly results from excess secretion of growth hormone by non-malignant
pituitary tumors. Over-secretion of GH stimulates liver and other cells to
produce excess levels of Insulin-like Growth Factor-I ("IGF-I"), previously
known as somatomedin-C, resulting in the manifestations of the disease. These
manifestations include soft-tissue swelling, abnormal growth of the hands and
feet, overgrowth of bone and cartilage in the face and other parts of the
body, and enlargement of body organs, including the liver, spleen, kidneys and
heart. Acromegaly is associated with significantly increased mortality due to
cardiovascular disease and cancer. The primary goal of existing treatments for
acromegaly is to reduce GH and IGF-I levels to normal in order to reduce the
morbidity and mortality associated with this disease. While the primary
treatment for acromegaly is surgical removal of the pituitary tumor, many
patients, particularly those with large tumors, also require post-surgical
drug therapy, radiation therapy, or both.
Sensus estimates that in North America, Europe and Japan there are currently
more than 40,000 diagnosed acromegalics, with approximately 20,000 who receive
drug therapy. The most widely used of the drugs currently approved for
acromegaly include certain somatostatin analogs that inhibit the secretion of
GH. A significant portion of acromegalic patients treated with somatostatin
analogs, however, do not respond to these drugs, and a substantial portion
experience gastrointestinal and other adverse reactions ("side effects").
Based on the results of its Phase II clinical trials, Sensus believes that
Trovert may offer a significantly improved efficacy and side-effect profile
compared to drugs currently approved for acromegaly.
The Company is pursuing acromegaly as an initial indication for Trovert
because: (i) Trovert may prove to be more effective and be accompanied by
significantly fewer side effects than currently approved drugs in a large
portion of acromegalic patients; (ii) the disease mechanism for acromegaly is
well understood; (iii) IGF-I levels are easily measured and accurately reflect
the severity of the patient's disease, which should facilitate clinical
development of Trovert; (iv) acromegaly is a chronic disease frequently
requiring long-term medical therapy; (v) Trovert's current designation by the
U.S. Food and Drug Administration (the "FDA") as an "Orphan Drug" for the
treatment of acromegaly may provide certain regulatory, marketing and tax
benefits to the Company; and (vi) treatment of acromegaly in the United States
and Europe is primarily provided at a limited number of medical centers and
thus represents a niche market that can be accessed with a relatively small
sales force.
The Company believes that Trovert may also be effective in treating certain
complications associated with Type 1 and Type 2 diabetes and may have the
potential to treat certain cancers. In April 1998, Sensus began an initial
Phase II clinical trial in patients with diabetic retinopathy. In 1999, Sensus
plans to begin an initial Phase II clinical trial in patients with diabetic
nephropathy, a disease that leads to kidney failure. The Company currently is
conducting preclinical studies on the effects of Trovert and other GHAs on
cancer. In addition to Trovert, Sensus has several other growth hormone
antagonists in pre-clinical development.
Sensus' management has significant experience in drug development, enabling
the Company to manage effectively the pre-clinical studies and clinical trials
of its drug candidates conducted by third party research organizations. The
Company has licensed Trovert and other GHA technologies from Genentech, Inc.
("Genentech") and Ohio University's Edison Biotechnology Institute ("OU/EBI").
Sensus intends to sell its
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proposed products for niche market indications (such as acromegaly) using a
small direct sales force. The Company will seek marketing or distribution
partners for those indications which are likely to require substantial
expenditures for clinical development or sales and marketing (such as certain
complications associated with diabetes). Sensus currently outsources the
production of Trovert to a contract manufacturing organization and anticipates
that, if the drug is approved for sale by the FDA and other regulatory
authorities, commercial quantities will be produced by one or more contract
manufacturers.
The Company's objective is to establish a leading position in the treatment
of endocrine and metabolic diseases and disorders. The Company intends to
achieve this objective by: (i) gaining regulatory approvals initially in the
United States and the European Union for the use of Trovert in post-surgical
treatment of acromegaly; (ii) retaining commercial rights to Trovert and other
products for niche market indications and establishing a small direct sales
force focused on the acromegaly market; (iii) managing the clinical and
regulatory development of Trovert and other drugs internally; (iv) outsourcing
manufacturing; (v) developing Trovert for additional indications through
clinical trials and obtaining related regulatory approvals; and (vi) acquiring
and in-licensing additional products and technologies.
MEDICAL BACKGROUND
Many of the metabolic processes required for human health are controlled by
the endocrine system. The endocrine system is comprised of glands containing
specialized cells that produce and secrete hormones, which are transported by
the bloodstream to "target" cells throughout the body. The surface membranes
of these target cells contain hormone-binding proteins, called receptor
proteins ("receptors"). The binding of hormones, such as GH, to receptors
signals the target cells either to begin or to end various metabolic
processes.
GH is made in the pituitary gland and is secreted into the bloodstream.
Among the targets of GH are GH receptors on the surface of liver and other
cells. Single GH molecules bind pairs of GH receptors, and the paired, or
"dimerized," GH receptors initiate an intracellular signaling process referred
to as "GH signal transduction" or "GH action." This process leads to the
production of IGF-I, a protein that stimulates the growth and replication of
bone, skin and other cells.
In healthy individuals, rising levels of GH and IGF-I lead to the secretion
in the hypothalamus of somatostatin, a hormone that binds to receptors on the
surface of GH-secreting cells in the pituitary gland. When somatostatin
molecules bind to a sufficient number of these receptors, GH secretion is
inhibited, and serum levels of both GH and IGF-I consequently decline.
Somatostatin receptors comprise a family of several receptor "sub-types." It
is generally believed that there are at least five such sub-types. Since
existing somatostatin analogs bind to more than one sub-type, their use in
treating acromegaly can cause various side effects. It is believed that the
development of somatostatin analogs that bind more specifically to the
somatostatin receptor sub-types in the pituitary gland may result in
acromegaly drugs that have less side effects than existing non-specific
somatostatin analogs. Several companies are believed to be working on the
development of sub-type specific somatostatin analogs.
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LOGO
[A schematic diagram showing the physiological relationship among the
pituitary gland, growth hormone and Insulin-like Growth Factor-I and also the
mechanism of GH signal transduction.]
There are several well-documented medical conditions associated with
insufficient or excess levels of GH and IGF-I. Children whose pituitary glands
secrete insufficient levels of GH, usually due to a genetic defect, develop
short stature (dwarfism). These children generally are treated with GH
injections that raise the level of IGF-I. Conversely, hypersecretion of GH
from a pituitary tumor in pre-pubescent children leads to excessive IGF-I
levels that cause long bone growth and an enlarged body (gigantism).
Hypersecretion of GH from a pituitary tumor following puberty, and the
resulting high IGF-I levels, cause other complications, including enlargement
of the hands, feet and internal organs (acromegaly). Excess levels of GH and
IGF-I are also associated with diabetes mellitus, hypertension, increased risk
of cardiovascular disease and cancer. IGF-I levels are easily measured and
accurately reflect the severity of the patient's disease, which should
facilitate clinical development of Trovert for acromegaly.
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GROWTH HORMONE ANTAGONISTS
GHAs are genetically engineered analogs of GH that bind to GH receptors more
effectively than GH, but without causing the production of IGF-I, thus
blocking GH action at the cellular level. This ability to bind to GH receptors
without causing the production of IGF-I is referred to as an "antagonistic"
effect. By competing with GH molecules for binding to GH receptors, GHA
molecules reduce the number of GH receptors to which the GH molecules can bind
and thus cause a reduction in IGF-I production. GHAs are made by mutating one
or more of the amino acids that make up the naturally-occurring GH protein.
While the mutated GHA protein retains an enhanced capacity for binding to the
cell-surface GH receptor, the resulting GHA:GH receptor complex does not
initiate the intracellular signal transduction process that leads to the
production of IGF-I. Both GH and GHAs are eliminated naturally from the body.
Unlike a patient's own GH, GHAs are foreign to the patient and theoretically
could cause an anti-GHA "immunogenic" response by the patient's immune system.
SENSUS' GROWTH HORMONE ANTAGONISTS
Sensus' first drug candidate, Trovert, is a GHA that currently is being
tested in a Phase III clinical trial. Trovert has been designed to compete
better than GH for binding to GH receptors. Of the two sites on the B2036
protein portion of Trovert that bind to GH receptors, one has been genetically
engineered to have increased capacity to bind to GH receptors, while the other
has been genetically engineered to interfere with dimerization. Trovert
results from the addition of polyethylene glycol polymers ("pegylation") to
the B2036 protein. The polyethylene glycol polymers on Trovert prolong its
half-life (a measure of its duration of action) to approximately 72 hours from
the approximately 20 minute half-life for the unpegylated form of the B2036
protein. In addition to prolonging the half-life of Trovert, pegylation also
appears to reduce the protein's immunogenicity.
In addition to Trovert, Sensus has several highly potent, second-generation
GHAs in pre-clinical development. These compounds use the same protein as
Trovert but have altered pegylation patterns that are designed to provide
significantly increased potency compared to Trovert. In July 1998, the Company
initiated a pharmacology study in animals comparing the in vivo potency and
half-life of several of these second-generation GHAs to that of Trovert.
Sensus intends to initiate additional pre-clinical studies of one or more of
these second-generation GHAs in 1998 and, if these studies are successful, to
submit to the FDA an Investigational New Drug ("IND") application for one or
more of these compounds to begin clinical trials in 1999.
BUSINESS STRATEGY
The key elements of the Company's business strategy for establishing a
leading position in the treatment of endocrine and metabolic diseases and
disorders are:
Obtain Regulatory Approvals of Trovert for Acromegaly. The Company is
currently conducting a Phase III clinical trial of Trovert in acromegalic
patients to determine whether it significantly reduces IGF-I levels.
Assuming the successful completion of the acromegaly clinical development
program, the Company expects to file for U.S. and European regulatory
approval of Trovert for the treatment of acromegaly in the second half of
1999.
Retain Commercial Rights and Market Products Directly for Niche
Markets. The Company intends to market Trovert for acromegaly directly in
the United States and Europe through a small direct sales force. The
Company also intends to use such a sales force to commercialize or co-
promote products for other niche markets or indications in the future. For
indications that require greater clinical development and selling resources
and for territories outside of the United States and Europe, the Company
will seek to establish corporate partnerships.
Actively Manage the Drug Development Process. The Company's management
has significant experience and expertise in developing and managing pre-
clinical studies and clinical trials. The Company
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believes that internal management of its drug development process provides
benefits with respect to protocol design, including clinical endpoint and
dosage design, and speed of product development.
Outsource Manufacturing to Deploy Resources Efficiently. To deploy its
resources efficiently, the Company outsources the manufacture of Trovert to
a contract manufacturing organization and intends to continue to outsource
the manufacture of Trovert if the drug is approved for commercial sale by
regulatory authorities.
Obtain Additional Indications for Trovert. The Company is conducting a
Phase II clinical trial of Trovert in patients with diabetic retinopathy.
The clinical trial is designed to evaluate whether Trovert causes
regression of this proliferative disorder. The Company believes that
Trovert may have applications for additional indications, including
diabetic nephropathy and certain cancers, and anticipates conducting
clinical trials in such indications if warranted by pre-clinical testing.
Acquire and In-license Additional Products and Technologies. The Company
intends to expand its product portfolio by acquiring, in-licensing and
commercializing additional products and technologies for treating endocrine
and metabolic diseases and disorders.
ACROMEGALY
Acromegaly results from excess secretion of growth hormone by non-malignant
pituitary tumors. Over-secretion of GH stimulates liver and other cells to
produce excess levels of IGF-I, causing the manifestations of the disease.
Early detection of acromegaly is rare because the symptoms are manifested
slowly over many years. Thus, acromegaly is most commonly diagnosed in middle-
aged adults who have had the disease for approximately ten years. The Company
estimates that there are currently more than 40,000 diagnosed acromegalics in
North America, Europe and Japan; however, because of the difficulty in
recognizing the symptoms and diagnosing the disease, the Company believes that
there are many more acromegalics who have not been diagnosed.
The most common symptoms of acromegaly are soft-tissue swelling, abnormal
growth of the hands and feet, sweating and headaches. Over several years, bony
changes alter the patient's facial features: the brow and lower jaw protrude,
the nasal bone enlarges and spacing of the teeth increases. Overgrowth of bone
and cartilage often leads to arthritis. When tissue thickens, it may trap
nerves, causing carpal tunnel syndrome, characterized by numbness and weakness
of the hands. Other symptoms of acromegaly include enlargement of body organs,
such as the liver, spleen, kidneys and heart.
Acromegaly is associated with serious health consequences, including
diabetes mellitus, hypertension and increased risk of cardiovascular disease
and cancer. Mortality rates among acromegalics are approximately double that
found in the general population. Cardiovascular complications of acromegaly,
including hypertension, premature coronary artery disease, congestive heart
failure and cardiac arrhythmias, are the major causes of morbidity and
mortality in acromegalics. Left ventricular hypertrophy (enlargement of the
heart) has adverse effects on cardiac function and contributes to the
mortality associated with the disease. Medical studies have shown that
normalization of GH and IGF-I levels leads to a rapid reduction in left
ventricular hypertrophy and a beneficial effect on life expectancy. Although
the cause of death is most commonly cardiovascular-related, significant
increases in mortality have been reported due to both lung infections and
cancer. In a study of acromegalic patients followed at U.S. Veterans
Administration hospitals from 1969 to 1985, the risk of developing
gastrointestinal cancer increased by 60% compared to the general population. A
145% increased rate of malignant tumors was observed in other studies. In
addition, up to 46% of acromegalic patients have been found to have colonic
polyps, which are frequently precursors of colon cancer.
The Company has targeted acromegaly as its first indication for Trovert for
the following reasons:
Inadequacy of Existing Therapies. Existing therapies lack sufficient
efficacy and are accompanied by significant side effects in a substantial
portion of acromegalic patients. Based on the results of Phase II
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clinical trials, Sensus believes that Trovert may offer a significantly
improved efficacy and side-effect profile compared to existing drug
therapies for acromegaly.
Well-understood Disease Mechanism. The role of excess GH and IGF-I in
acromegaly is well understood, permitting Trovert to be specifically
designed to block the action of GH at the cellular level, thereby lowering
the production of IGF-I.
Easily Measured Indicator of Disease Activity. IGF-I levels are easily
measured and accurately reflect the severity of the patient's disease,
which should facilitate clinical development of Trovert for this
indication.
Chronic Disease Requiring Long-term Treatment. Acromegaly is a chronic
disease frequently requiring long-term medical therapy.
Orphan Drug Designation for the Treatment of Acromegaly. The FDA's
current designation of Trovert as an "Orphan Drug" for the treatment of
acromegaly may provide the Company with certain regulatory, marketing and
tax benefits.
Accessible Target Market. Acromegaly represents a niche market that can
be accessed with a relatively small sales force because treatment is
primarily provided in the United States and Europe at a limited number of
medical centers. The Company believes that there is already significant
awareness of Trovert in the academic medical community among physicians who
specialize in treating acromegaly.
CURRENT TREATMENTS
The primary goal of existing treatments for acromegaly is to reduce GH and
IGF-I levels to normal in order to reduce the morbidity and mortality
associated with this disease. Currently, the primary treatment for acromegaly
is surgical removal of the pituitary tumor. Many patients, particularly those
with large tumors, also require drug therapy, radiation therapy, or both.
Sensus estimates that in North America, Europe and Japan there are currently
more than 40,000 diagnosed acromegalics, with approximately 20,000 who receive
drug therapy.
Surgery. Surgery is performed by reaching the pituitary gland through an
incision above the gums and removing tumor tissue in a procedure called
transsphenoidal surgery. Surgery provides a permanent cure for only
approximately 20% to 30% of acromegalic patients because it is frequently very
difficult to remove all tumor tissue at the time of surgery, particularly in
patients with macroadenomas (tumors greater than ten millimeters in diameter
at the time of diagnosis). A majority of these patients either fail to have
normalization of GH and IGF-I levels after surgery or, after a period of
normalized GH and IGF-I levels, experience recurrence of the disease due to
incomplete resection of the tumor and regrowth of tumor tissue. Complications
of surgery may include cerebrospinal fluid leaks, meningitis and damage to the
surrounding pituitary tissue, requiring lifelong pituitary hormone replacement
therapy.
Radiation Therapy. Radiation therapy is frequently prescribed for patients
whose tumor tissue remains after surgery, and this therapy is often combined
with drug therapy. Many acromegalic patients who undergo radiation therapy
also require drug therapy to lower their GH and IGF-I levels during the five
to ten years it takes for radiation therapy to achieve its maximum effect.
Although radiation therapy generally lowers GH levels by about 75% after five
years, this degree of improvement is frequently inadequate to normalize IGF-I
levels. Radiation therapy also causes a gradual loss of production of other
pituitary hormones, requiring many patients to be supplemented with thyroid
hormone, cortisol and either testosterone or estrogen. Loss of vision and
brain injury have been reported as rare complications of radiation treatments.
The Company believes that, due to the concerns of both patients and physicians
about side effects, radiation therapy has become less favored during the last
decade, particularly in the United States. Gamma knife radiation therapy,
however, involves a focused, multi-beam radiation treatment of the tumor and
surrounding tissue and may result in fewer side effects than conventional
radiation therapy.
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Drug Therapy. Several medications are used to treat acromegaly. Sandostatin
octreotide acetate ("Sandostatin") is the most frequently prescribed drug
therapy. Sandostatin is a synthetic analog of the hormone somatostatin, which
inhibits GH production by binding to somatostatin receptors on the GH-
secreting tumor cells, signaling these cells to decrease secretion of GH.
Currently, approximately 80% of acromegalic patients utilizing drug therapy
are treated with Sandostatin, either as monotherapy or in combination with
dopamine agonists. However, clinical trials conducted by its manufacturer have
shown that normalization of GH and IGF-I levels occurred in 45% and 46%,
respectively, of acromegalic patients treated with the drug. The Company
believes that certain patients who fail to respond to somatostatin analogs do
so in part because not all pituitary tumors express a sufficient number of
functional somatostatin receptors to which these drugs can bind. In addition,
because somatostatin receptors are found not only on pituitary cells but
throughout the body, Sandostatin also decreases the secretion of hormones
other than GH, which causes many side effects. Sandostatin has been shown to
decrease secretion of pancreatic polypeptide, glucagon, secretin, leutinizing
hormone, serotonin, gastrin, vasoactive polypeptide and insulin in addition to
GH. Sandostatin has also been shown to inhibit gallbladder function and
decrease bile secretion. In U.S. clinical trials, diarrhea, loose stools,
nausea and abdominal discomfort were each seen in 34% to 61% of acromegalic
subjects, while the incidence of gallstones was 27%. Other more serious side
effects, including several cases of pancreatitis, have also been reported with
Sandostatin treatment.
Sandostatin requires three to four subcutaneous injections daily and has an
annual cost at the pharmacy level of approximately $17,500 per patient in the
United States and Europe. According to its manufacturer, 1996 worldwide sales
of Sandostatin were approximately $219 million. The proportion of these sales
attributed to acromegaly is unknown.
A longer-acting form of Sandostatin, Sandostatin LAR ("Sandostatin LAR"),
which requires monthly intramuscular injections, has been approved and
launched in several countries in Europe, and the NDA for Sandostatin LAR was
recently submitted to the FDA. The efficacy and side-effect profile of
Sandostatin LAR appears to be very similar to Sandostatin. Somatuline
lanreotide ("Somatuline") is another long-acting somatostatin analog.
Somatuline works by the same mechanism as Sandostatin and requires
intramuscular injections every 7 to 14 days. Somatuline has been approved in
four European countries, and is being tested in a Phase III clinical trial
program in the United States for the treatment of acromegaly. Intramuscular
injection of these two drugs usually needs to be administered by a trained
individual.
Dopamine agonists are another class of drugs used for treating acromegaly.
Dopamine is a neurotransmitter that is produced in the brain and acts as a
hormone. Parlodel bromocriptine ("Parlodel") is a dopamine agonist that
reduces GH secretion in some patients but normalizes GH and IGF-I levels in
less than 20% of patients. Side effects of Parlodel include headaches, nasal
stuffiness, nausea, vomiting and depression, causing the product to be used
infrequently today. Dostinex cabergoline ("Dostinex"), a more specific
dopamine agonist, is currently being studied in acromegaly but is not approved
for this indication in the United States.
Certain somatostatin receptor type-specific agonists are under development
at several companies. These somatostatin agonists are specific for one of the
several known subtypes of the somatostatin receptor. It is possible that some
of the side effects of the current somatostatin agonists may be avoided and
their efficacy may be enhanced by use of such a receptor type-specific
product.
The Company also is aware of a Japanese company that is developing a GHA
based on a mutated form of GH originally discovered in a child afflicted with
dwarfism.
POTENTIAL FOR THE USE OF TROVERT
Based on the results of its Phase II clinical trials, Sensus believes that
Trovert may offer a significantly improved efficacy and side-effect profile
compared to drugs currently approved for acromegaly. The Company believes that
certain subjects who fail to adequately respond to somatostatin analogs do so
in part because their
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pituitary tumors do not express a sufficient number of functional somatostatin
receptors. In contrast, Trovert has been engineered to bind to the GH receptor
in a highly specific manner. Because Trovert blocks the effects of excess GH
at the cellular level, regardless of whether the somatostatin signaling
pathway is functioning normally, the Company believes that Trovert has the
potential to effectively treat most acromegalic patients for whom other forms
of drug therapy are currently ineffective. Since somatostatin analogs decrease
secretion of a number of hormones in addition to GH, the Company also believes
that, compared to somatostatin analogs, Trovert will have fewer side effects
because the Company believes that Trovert has a more specific effect on the
endocrine system. The Company plans to evaluate Trovert's efficacy and safety
as an alternative to surgery or radiation therapy in additional clinical
trials conducted after the NDA is submitted during the second half of 1999.
See "Clinical Development and Regulatory Program for Trovert--Trovert
Development Program for Acromegaly."
Acromegalic patients in the United States and Europe are generally treated
in a limited number of medical centers, which should enable Sensus to
independently market Trovert without a large sales and marketing
infrastructure. The Company will also seek to expand the market for Trovert by
increasing the diagnosis and awareness of acromegaly throughout the world. In
most cases, acromegalics are identified by health care professionals, who
refer patients to endocrinologists after observing signs of the disease.
Patients with less obvious physical manifestations of the disease, or those
who do not come in contact with healthcare professionals who are aware of the
disease, may remain undiagnosed. Sensus plans to collaborate with consumer-
based organizations to foster greater public and professional awareness of
acromegaly and to encourage appropriate identification and referral to
clinicians who specialize in treating acromegaly.
DIABETES
Diabetes mellitus is a common chronic disease, with 15.7 million Americans
estimated to be suffering from the disease in 1997, of whom approximately one-
third were undiagnosed. Of the approximately 10.5 million diagnosed patients,
approximately 800,000 have juvenile-onset, insulin-dependent ("Type 1")
diabetes, while the remainder have maturity-onset, non-insulin dependent
("Type 2") diabetes. Type 1 diabetes, an autoimmune disease in which the body
does not produce sufficient insulin, occurs most often in children and young
adults. Patients with Type 1 diabetes must take daily insulin injections to
stay alive. Patients with Type 2 diabetes have a metabolic disorder resulting
from the body's inability to properly use the insulin it makes and are treated
with diet, exercise, oral hypoglycemic agents and insulin. Both types of
diabetes are characterized by serious complications, including eye disease
(retinopathy), kidney disease (nephropathy) and cardiovascular disease.
Significant direct and indirect costs are associated with diabetes and its
complications. Although the relationship between GH, IGF-I and diabetes is
significantly less well understood than in acromegaly, there is evidence that
excess levels of GH and IGF-I are associated with the development of diabetic
complications, which may enable new therapeutic approaches by antagonizing the
effects of GH.
DIABETIC RETINOPATHY
Diabetic retinopathy is the leading cause of blindness in persons 25 to 74
years of age in the United States. Type 1 diabetics who have had their disease
for at least 10 to 15 years have a 90% chance of developing retinopathy. It is
estimated that in the United States, 12,000 to 24,000 patients with Type 1 and
Type 2 diabetes lose their eyesight each year from retinopathy. In diabetic
patients, hyperglycemia (high blood glucose levels) can result in oxygen
starvation (ischemia) of the retina of the eye. Retinal ischemia is thought to
stimulate the release of angiogenic factors that induce proliferation of
additional blood vessels ("neovascularization"). Because of their fragility,
these blood vessels may break and bleed into the surrounding retinal tissue.
This often also leads to scarring within the eye, which may pull the retina
forward, causing it to detach and vision to be lost.
Role of GH in the Disease Process. Excess levels of GH have been implicated
as a cause of diabetic retinopathy. Studies in diabetic pituitary dwarfs, who
have a congenital insufficiency of GH, have shown that they have a much lower
incidence of retinopathy than found in matched diabetic controls with normal
GH levels.
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In addition, two controlled studies of the effect of pituitary ablation
(destruction) by surgery or implantation of radioactive pellets in the
pituitary gland demonstrated a statistically significantly greater reversal of
retinal changes and preservation of vision in the ablated group compared to
the control group. The benefits of ablation of the pituitary gland on diabetic
retinopathy are related to the degree of GH deficiency achieved. Effective use
of pituitary ablation has been documented in over 900 patients with diabetic
retinopathy. The Company believes that by inhibiting the proliferative
response of retinal capillaries to diabetes-induced ischemia, GHAs may prove
useful in the treatment or prevention of diabetic retinopathy.
Current Treatments. Panretinal laser photocoagulation ("PRP"), in which a
laser is used to burn a large series of precise holes in the retina, is the
principal treatment for diabetic retinopathy. This treatment normally leads to
regression of new blood vessels. Although PRP is currently the mainstay of
treatment for diabetic retinopathy, its use can lead to irreversible retinal
damage and restriction of the visual field.
Potential for the Use of Trovert. Based on the Company's pre-clinical data,
a Phase II clinical trial in Type 1 and Type 2 diabetics with established
proliferative retinopathy was initiated in May 1998. If Trovert can be shown
to safely cause regression of neovascularization, Sensus believes that the
product will have the potential to become the preferred therapy for
proliferative diabetic retinopathy. This would open the possibility of
initially marketing Trovert through retinal ophthalmologists, who generally
diagnose the condition and initiate PRP therapy. Sensus is evaluating the
potential to access this market with a niche marketing strategy similar to
that planned for the acromegaly market, including marketing to a limited
number of retinal specialists. Potential corporate partners that could aid in
accessing this market would include pharmaceutical firms specializing in
ophthalmological products. See "Clinical Development and Regulatory Program
for Trovert--Clinical Development and Regulatory Strategy for Trovert as a
Treatment for Diabetic Retinopathy."
DIABETIC NEPHROPATHY
Diabetic kidney disease ("diabetic nephropathy") is the most common cause of
end-stage renal disease (kidney failure) ("ESRD") in the world. In the United
States, diabetics account for approximately 30% of all newly-treated patients
entering kidney dialysis. Between 1982 and 1992, the number of diabetic
patients needing therapy for ESRD rose at a compound annual rate of
approximately 15%, from 5,000 in 1982 to 20,000 in 1992. In the United States,
the health-care costs, including the costs associated with disabilities and
premature death, for diabetic patients in renal failure exceeded $2.1 billion
in 1992.
Role of GH in the Disease Process. Pre-clinical studies suggest that GH
and/or IGF-I play an important role in the development of diabetic
nephropathy. IGF-I receptors are located throughout the kidney. When animals
are made diabetic, there is an increase in the number of IGF-I receptors, an
immediate rise in IGF-I levels in kidney tissue and abnormal functioning of
the kidney. Studies have observed that GH-deficient rats, on the other hand,
are protected against developing diabetic kidney disease.
Studies have been conducted in which mice were genetically engineered to
produce excess GH or a GHA. Animals that produced excess GH developed severe
kidney disease resulting in their death due to kidney failure. In contrast,
the animals that produced a GHA had normal kidney function and structure. It
was also recently observed that diabetic and nondiabetic animals with elevated
GH levels developed severe kidney disease, while diabetic mice genetically
engineered to produce a GHA did not. Recent studies in diabetic mice treated
with a GHA demonstrated a significant decrease in kidney damage as measured by
the level of protein in the urine.
Current Treatments. Patients with most forms of kidney disease also develop
hypertension (high blood pressure) that hastens the onset of ESRD and the need
for dialysis. Antihypertensive treatment, usually in the form of angiotensin-
converting enzyme (ACE) inhibitors, delays the progression of established
diabetic nephropathy. If started early in the disease, ACE inhibitors may also
retard the onset of clinically overt renal disease. However, the underlying
disease process continues, and most patients eventually progress toward total
kidney failure and the need for dialysis.
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Potential for the Use of Trovert. Because GHAs have been demonstrated to be
effective in ameliorating diabetic nephropathy in animal models, Sensus
believes that Trovert has the potential to prevent the development of diabetic
kidney disease and the progression of patients to dialysis. Because of the
high costs of studies designed to demonstrate this endpoint in humans, and the
requirement to promote the product to primary care physicians who treat the
majority of diabetic patients, Sensus may partner both the development and the
marketing of Trovert for this indication with a pharmaceutical company.
ADDITIONAL INDICATIONS
MALIGNANCIES
Elevated GH and IGF-I levels have been associated with several human
cancers, including breast cancer and prostate cancer. Independent studies have
shown that IGF-I receptors are present in cultured breast cancer cell lines
and in surgically removed tissue specimens from breast cancer. There are also
several studies in which the IGF-I receptor has been blocked by anti-receptor
antibodies, resulting in inhibition of the in vitro growth of breast cancer
cell lines. Sensus is currently sponsoring certain in vitro and in vivo
laboratory studies designed to evaluate the presence of GH receptors in
various cancer tissues and cells and the effect of GHAs on tumor cell
proliferation and on the growth of various malignancies. In a recently
completed preclinical study, the size of human meningioma tumors grafted into
mice decreased after treatment with Trovert compared to an increase in the
size of such tumors after treatment with placebo.
GLUCOSE CONTROL AND INSULIN RESISTANCE
Type 1 diabetes is caused by auto-immune destruction of the pancreatic cells
that produce insulin. In poorly controlled Type 1 diabetics, GH secretion and
plasma GH levels are increased by 100% to 300%. The Company believes that by
blocking the effects of GH, Trovert may improve blood glucose control in Type
1 diabetics.
Type 2 diabetes is primarily characterized by insulin resistance rather than
insulin deficiency. GH itself induces insulin resistance. Thirty to forty
percent of acromegalics develop a mild form of insulin resistance, while 10%
to 20% develop diabetes, characterized by decreased insulin sensitivity of
both liver and muscle cells. In preliminary studies, GHAs have been shown to
counteract the anti-insulin effects of GH. Decreased insulin sensitivity is
due to changes in the intracellular mechanism by which insulin stimulates
muscle, liver and fat cells to take up and metabolize glucose from the
bloodstream. By blocking the effects of the elevated GH levels, the Company
believes that Trovert may improve insulin sensitivity in Type 2 diabetics, and
thus reduce the amount of insulin they must inject in order to control their
blood glucose levels.
VASCULAR EYE DISEASE (RETINOPATHY OF PREMATURITY; AGE-RELATED MACULAR
DEGENERATION)
Diabetic retinopathy is only one of several vascular eye diseases
characterized by neovascularization. Others include retinopathy of prematurity
("ROP"), the retinopathy associated with sickle cell anemia and age-related
macular degeneration. If the initial clinical trials of Trovert in diabetic
retinopathy are successful, Sensus plans to evaluate the utility of Trovert in
other vascular eye diseases, including ROP and age-related macular
degeneration.
CLINICAL DEVELOPMENT AND REGULATORY PROGRAM FOR TROVERT
The Company is currently enrolling acromegalic patients for a 100-subject
randomized double-blind placebo controlled, multi-center Phase III clinical
trial (SEN-3614) of Trovert. The Company also plans to initiate a clinical
trial (SEN-3617) that will compare the effect of Trovert to Sandostatin LAR in
acromegalic patients. In May 1998, the Company began a multi-center Phase II
clinical trial (SEN-3611) of 24 subjects with diabetic retinopathy. As of
September 28, 1998, the longest human subject's exposure to Trovert was 15
months.
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<PAGE>
TROVERT DEVELOPMENT PROGRAM FOR ACROMEGALY
As of September 28, 1998, five clinical trials were completed or ongoing and
four clinical trials were planned as part of the Trovert development program
for acromegaly as summarized in the table below:
SUMMARY OF TROVERT CLINICAL TRIALS IN ACROMEGALIC SUBJECTS
<TABLE>
<CAPTION>
NUMBER OF
TRIAL NUMBER TRIAL DESCRIPTION(1) SUBJECTS(2) STATUS PURPOSE(1)
------------ -------------------- ----------- ------ ----------
<C> <S> <C> <C> <C>
3601 Phase I 36 Completed Determine Safety and
Pharmacokinetic and
Pharmacodynamic Profile
3602 Phase II, Open Label 6 Completed Determine Safety and
Efficacy
3604 Open Label, 12 Planned Determine Pharmacokinetic
Bioavailability and Pharmacodynamic Profile
3611 Phase II, Double Blind, 46 Completed Determine Safety and
Placebo Controlled Efficacy
3613 Open Label Continuation 42 Ongoing Determine Safety
of 3611
3614 Phase III, Double Blind, 100 Ongoing Determine Safety and
Placebo Controlled Efficacy
3615 Open Label Continuation 100 Planned Determine Safety
of 3614
3617 Open Label, with 50 Planned Determine Safety and
Sandostatin LAR as Efficacy
Active Control
3618 Open Label Continuation 50 Planned Determine Safety
of 3617
</TABLE>
- --------
(1) See "--Government Regulation" for a discussion of Phase I, Phase II and
Phase III clinical trials.
(2) Open Label Continuation trials include subjects enrolled in prior blinded
trials.
Phase II Program. In the Company's SEN-3611 Phase II clinical trial, 44
subjects completed the trial. The subjects received either placebo, 30
milligrams ("mg") of Trovert or 80 mg of Trovert by subcutaneous injection
once weekly for six weeks. At the end of this period, IGF-I levels were
reduced by 0.4%, 15% and 31% in the placebo, Trovert 30 mg and Trovert 80 mg
groups, respectively, demonstrating a dose-dependent response to the drug. The
results revealed a statistically significant difference between the placebo
and 80 mg groups in the suppression of IGF-I levels. Following the completion
of SEN-3611, 42 subjects were enrolled in an open label continuation trial
(SEN-3613). During SEN-3613, the acromegalic subjects in the trial were
switched from weekly injections of up to 80 mg of Trovert to daily injections
of 10 mg to 20 mg. This change to daily dosing was made to reduce the volume
of each injection and to respond to reports from some subjects of decreased
symptomatic relief four to six days after their weekly injections of Trovert.
As of September 1, 1998, the mean IGF-I level in subjects treated with daily
Trovert injections had fallen from 922 nanograms per milliliter ("ng/ml") to
347 ng/ml, which is below the upper limit of normal (398 ng/ml) for this group
and the IGF-I levels in 32 of the 38 subjects (84%) still active in the trial
had been normalized.
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Treatment with Trovert has been well-tolerated during the Phase II clinical
trials. Some patients have reported side effects, such as nausea,
constipation, sleepiness, hypertension, flu-like symptoms, muscle ache and
bruising at the injection site, all of which were resolved without subsequent
effects. One subject was hospitalized with Meniere's disease, a form of
vertigo, which the Company believes was unrelated to the Trovert treatment and
which did not recur after re-initiation of Trovert therapy. No neutralizing
antibodies to Trovert or to GH have been found in any of the subjects. Serial
MRI studies have shown no evidence of pituitary tumor growth in subjects on
Trovert.
Phase III Program. The Company's SEN-3614 Phase III clinical trial is
projected to be completed in the first half of 1999. It is a 100 subject, 12
week, double-blind, parallel-dose comparison of three Trovert dose groups (10,
15 and 20 mg/day) vs. placebo, being conducted in nine U.S. and six European
centers. As of September 24, 1998, 111 potential subjects had been identified
and 89 subjects had their currently prescribed medications withdrawn in
anticipation of qualifying for entry into the treatment phase of the trial.
The Company believes that if this trial demonstrates the safety and efficacy
of Trovert, it will be sufficient for an NDA submission. Based on discussions
with the FDA, the Company has also committed to complete as a condition for
approval a three-month toxicology study, a reproductive toxicology study and
an anti-proliferative effect study. In addition, the Company has committed to
conduct a carcinogenicity laboratory study that may be completed following
approval, if granted, of the NDA.
Several acromegalic patients who have been documented historically to be
resistant to Sandostatin therapy have been enrolled in Trovert studies and
have normalized their IGF-I levels while being treated with Trovert. Because
Trovert blocks GH at a cellular level by a mechanism of action different from
Sandostatin's effects on secretion of GH, the Company believes that many
patients with an inadequate response to Sandostatin and other somatostatin
analogs may be responsive to Trovert.
The Company plans to initiate a clinical trial (SEN-3617) that will compare
the effect of Trovert to Sandostatin LAR. This trial will be initiated in the
first quarter of 1999, and the Company expects to complete it by the end of
1999. Based on discussions with the Committee for Proprietary Medicinal
Products ("CPMP") of the European Medicines Evaluation Agency ("EMEA"), the
Company believes this trial will be sufficient for an MAA submission if the
results show Trovert to be at least as effective as Sandostatin LAR. Based on
discussions with the FDA, inclusion of the results of SEN-3617 will not be
required in the NDA filing in the United States.
DIABETES DEVELOPMENT PROGRAM
The Company believes that Trovert may also be effective in treating certain
complications associated with Type 1 and Type 2 diabetes. In April 1998,
Sensus initiated a Phase II clinical trial in patients with diabetic
retinopathy. Results from this clinical trial are expected in the first half
of 1999. In 1999, Sensus plans to begin an initial Phase II clinical trial in
patients with diabetic nephropathy, a disease that leads to kidney failure. As
of September 28, 1998, three clinical trial protocols were either completed or
ongoing as part of the Company's diabetes development program as summarized in
the table below:
SUMMARY OF TROVERT CLINICAL TRIALS IN DIABETIC SUBJECTS
<TABLE>
<CAPTION>
NUMBER OF
TRIAL NUMBER TRIAL DESCRIPTION(1) SUBJECTS STATUS PURPOSE
------------ -------------------- --------- ------ -------
<C> <S> <C> <C> <C>
3621 Phase II, Open Label 10 Ongoing Determine Safety in Type 2
Diabetics
3622 Phase II, Open Label 6 Completed Determine Safety in Type 1
Diabetics
3631 Phase II, Open Label 24 Ongoing Determine Safety and
Efficacy in Diabetics with
Retinopathy
</TABLE>
- --------
(1) See "--Government Regulation" for a discussion of Phase II clinical
trials.
37
<PAGE>
Clinical Development and Regulatory Strategy for Trovert as a Treatment for
Diabetic Retinopathy. Based upon data obtained in cooperation with the
National Eye Institute ("NEI") at the National Institutes of Health
demonstrating that neovascularization is a reversible phenomenon, the Company
intends to conduct clinical trials of Trovert in the treatment of diabetic
retinopathy. In particular, Sensus has initiated its SEN-3631 Phase II
clinical trial to assess whether Trovert can cause regression in patients with
neovascularization. Sensus expects results from this clinical trial to become
available in the first half of 1999. If the data from this clinical trial are
positive, Sensus anticipates designing a multi-center, placebo-controlled
clinical trial to confirm and extend such findings. The Company believes that
the diabetic retinopathy indication for Trovert should qualify for Subpart E
status. See "--Government Regulation."
If the results of the SEN-3631 Phase II regression trial in subjects with
neovascularization are positive, Sensus also plans to pursue studies in
patients with diabetic retinopathy that has not progressed to
neovascularization. The goal of such studies would be to evaluate the use of
Trovert to prevent the progression of early retinopathy neovascularization in
a large population of Type 1 and Type 2 diabetic patients. Because most
diabetic patients with non-proliferative retinopathy are cared for by primary
care physicians, and because the costs of such studies are very high, Sensus
is likely to seek a corporate partner for both the development and marketing
of Trovert for this indication. The Company plans to finalize its development
strategy in diabetic retinopathy after the results of its ongoing clinical
trials become known.
To evaluate the effects of Trovert on insulin sensitivity, the Company has
completed one clinical trial (SEN-3622) in Type 1 diabetic patients and is
conducting another clinical trial (SEN-3621) in Type 2 diabetic patients.
Clinical Development and Regulatory Strategy for Trovert as a Treatment for
Diabetic Nephropathy. Sensus plans to support additional pre-clinical studies
of the effect of GHAs in animal models of diabetic nephropathy and plans to
commence a small, open-label proof-of-concept clinical trial in humans with
nephropathy in 1999.
STRATEGIC LICENSING AGREEMENTS
OU/EBI Agreement. Pursuant to a Biotechnology Licensing and Transfer
Agreement (the "OU/EBI License Agreement") between OU/EBI and an affiliate of
the Company, Sensus has acquired an exclusive, worldwide license to make, use
and sell products based on GHAs and related technologies discovered at OU/EBI
during the term of a Sponsored Research Agreement ("SRA") with OU/EBI. Several
U.S. and foreign patent applications and issued patents are included in this
license. During the term of the SRA, Sensus is obligated to reimburse OU/EBI
for research being conducted by OU/EBI in the field of technologies relating
to GHAs. Sensus is obligated to make payments to OU/EBI for each product
derived from licensed technology upon attainment of certain development
milestones. Other than a $500,000 milestone payment to OU/EBI which the
Company has agreed to make by April 1999, the Company does not anticipate
making any milestone payments in the foreseeable future. In addition, Sensus
is obligated to pay a royalty to OU/EBI payable within 30 days of the end of
each calendar quarter, subject to adjustment, on net sales for any products
commercialized using the licensed technology. The OU/EBI License Agreement
expires on January 18, 2001, unless extended by mutual agreement of the
parties, and may be terminated by OU/EBI prior to the expiration of its term
upon Sensus' breach of the agreement. Upon expiration of the OU/EBI License
Agreement, Sensus will retain all rights to the licensed technology provided
that it has not breached the agreement. The Company and OU/EBI have also
agreed to discuss modifications of certain provisions of the OU/EBI License
Agreement, including, among others, the field of use covered by the Agreement.
Genentech Agreement. In July 1994, Sensus and Genentech entered into a
license agreement (the "Genentech Agreement") which grants to Sensus the
exclusive, worldwide license for treating, diagnosing or preventing GH-related
diseases in humans, to make, have made, use and sell products containing
certain specified GHAs as well as certain related compounds identified by
Genentech during the three-year period following the effective date of the
agreement (July 11, 1994). The Company has granted to Genentech a right of
first offer whereby the Company must notify Genentech if the Company wishes to
sublicense certain GHAs to third parties to use and sell in certain geographic
regions. Genentech shall then be entitled to negotiate exclusively with
38
<PAGE>
Sensus with respect to such rights for a limited period of time. If an
agreement between the parties is not reached, Sensus may grant such rights to
a third party on terms no more favorable than those last offered to Genentech.
Genentech has licensed to Sensus specific know-how that includes all
information, technology and materials which constitute proprietary methods,
processes, techniques, assay methodology, inventions, formulations or
biologically active materials useful for the development, use or sale of those
GHAs. Furthermore, Sensus has acquired know-how related to the development of
long-acting forms of GHAs from Genentech, as well as assay methodologies,
formulations and other methods useful for the development, use or sale of
certain GHAs. Sensus has met all milestones in the Genentech Agreement
required to be met to date, and the final milestone is the filing of the NDA
for a product candidate containing a GHA licensed from Genentech on or before
January 1, 2002. If Sensus does not reach the final milestone or breaches the
agreement, Genentech may terminate the license. Under the terms of the
Genentech Agreement, Genentech is entitled to receive a royalty on net sales
payable within 90 days of the end of each calendar quarter for any GHA sold by
Sensus that is within the scope of a licensed Genentech patent or patent
application, or a reduced royalty on net sales for other licensed products.
Under the Company's agreements with OU/EBI and Genentech, Sensus is
obligated to make royalty payments on the sale of products, if any, derived
from the licensed technology and may be obligated to make royalty payments
under both agreements with respect to a particular product. Although the
Genentech agreement contains certain royalty offset provisions, there can be
no assurance that such provisions will be applicable and will be available.
See "--Patents and Proprietary Rights" and "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights."
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability to obtain
patents (or license the rights to patents), maintain trade secrets and operate
without infringing the proprietary rights of others, both in the United States
and in other countries. Pursuant to the OU/EBI License Agreement, Sensus has
acquired an exclusive license to certain U.S. and foreign patents and pending
patent applications relating to certain GHA technologies. Pursuant to the
Genentech Agreement, the Company has acquired an exclusive license, under
specified patents and patent applications, to products containing certain GHAs
for use in the treatment, diagnosis, or prevention of particular GHA-related
diseases. The patent positions of biotechnology and pharmaceutical companies
can be highly uncertain and involve complex legal and factual questions, and
therefore the breadth of claims allowed in biotechnology and pharmaceutical
patents and their enforceability cannot be predicted. Therefore, there can be
no assurance that additional patents will issue in respect of applications
that have been licensed by the Company or that any patent will issue on
technology arising from additional research being funded by the Company or, if
patents do issue, that claims allowed will be sufficient to protect the
Company's products or that such patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to the Company. In this regard, the
Company is aware that certain claims in certain patents licensed from OU/EBI
may be susceptible to challenge. The Company believes that claims in an
allowed patent application licensed from OU/EBI would not be susceptible to a
similar challenge. OU/EBI has petitioned to withdraw this application from
issuance in order to obtain broader claim coverage. While the Company expects
the U.S. Patent and Trademark Office to permit this patent application to be
allowed again with claims of at least the scope originally allowed, the
possibility exists that the U.S. Patent and Trademark Office, in the course of
continued prosecution, could identify a new ground for rejection. Although no
assurance can be given, the Company believes the aforementioned challenge,
even if successful with respect to the issued patents, would not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The commercial success of Sensus will also depend, in part, on the Company's
not infringing patents issued to others and not breaching the technology
license agreements pursuant to which intellectual property utilized in any of
the Company's products is licensed by the Company. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions
have filed patent applications or received patents in the areas of the
Company's programs or in the broad area of biotechnology. Some of these
applications or patents may limit or preclude the Company's patents or patent
applications, or conflict in certain respects with claims made under the
Company's patents or patent applications. Such a conflict could result in a
significant
39
<PAGE>
reduction of the coverage of the Company's patents or patent applications, if
issued. Where patents exist or if patents are issued that are infringed by the
manufacture, use or sale of any of the Company's products, the Company may be
required to obtain licenses to these patents or to develop or obtain
alternative technology. If any licenses are required, there can be no
assurance that the Company will be able to obtain them on commercially
favorable terms, if at all. The Company's breach of an existing license or
failure to obtain a license to technology required to commercialize its
products could have a material adverse impact on the Company. Litigation,
which could result in substantial costs to the Company, may also be necessary
to enforce any patents issued to or licensed by the Company, or to determine
the scope and validity of third-party proprietary rights. If a third party
prepares and files a patent application in the United States that claims
technology also claimed by a patent or patent application of the Company or
that claims technology that is obvious from that claimed by the Company's
patents or patent applications, the Company may have to participate in
interference proceedings declared by the Patent and Trademark Office ("PTO")
to determine priority of invention, which could result in substantial costs to
the Company, even if the eventual outcome is favorable to the Company. An
adverse outcome could subject the Company to significant liabilities to third
parties and require the Company to license disputed rights from third parties
or to cease using such technology. Patents or patent applications licensed to
the Company, by different licensors, that might be considered to claim the
same invention or obvious variations of the same invention, including the GHA-
related applications and patents licensed from Genentech and OU/EBI, also may
become involved in interference proceedings that could be costly for the
Company, and that could result in the loss of some or all of the involved
patent rights. Any such interference proceeding or infringement litigation may
adversely affect the Company's ability to obtain additional capital to fund
its operations. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Funding."
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Sensus protects its proprietary technology and processes, in part,
by confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. See "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights" and "--Strategic Licensing
Agreements."
PROCESS DEVELOPMENT AND MANUFACTURING
Trovert consists of pegylated B2036 protein as its active ingredient and
certain inactive ingredients. The manufacture of Trovert consists of several
steps, including fermentation using genetically engineered E. coli bacteria,
purification and pegylation of bulk quantities of the B2036 protein, drug
formulation and vial filling operations, and quality control and quality
assurance procedures.
The Company does not operate its own manufacturing facilities and relies
instead on contract manufacturers to produce its proposed products for
research, pre-clinical studies and clinical trials. The Company believes that
there are relatively few contract manufacturers that are capable of
manufacturing the Company's proposed products, including Trovert, and
currently only one manufacturer, Covance Biotechnology Services Inc. ("CBSI"),
is producing Trovert for the Company's research, pre-clinical studies and
clinical trials. The Company has not signed an agreement for the supply of the
commercial quantities of Trovert required for market launch and ongoing
commercial sales. The supply of Trovert for its market launch and
commercialization will require the Company and CBSI to implement certain
increases in scale, related manufacturing and process improvements and to
establish an internal quality assurance program to support the contract
production and testing of Trovert. No assurance can be given that these
increases in scale and related improvements and quality assurance program will
be successfully implemented, and failure to do so could result in a delay of
market launch, higher cost of goods or an inadequate supply of drug to meet
market demand if regulatory approval is obtained. The Company will also need
to undertake further testing of the stability of Trovert as a bulk drug
substance and final drug product. While the Company believes that future
stability studies will support an acceptable shelf life, there can be no
assurance that Trovert will have adequate stability in its current
formulation. Moreover, because a certain amount of lead
40
<PAGE>
time is required to increase production of the drug, the Company believes that
CBSI does not currently have the capacity to supply quantities of Trovert
sufficient to satisfy anticipated demand in the year following market launch.
Although the Company has identified a limited number of additional contract
manufacturers that it believes are capable of manufacturing Trovert, there can
be no assurance that the Company will be able to enter into manufacturing
agreements on a timely basis on acceptable terms or at all. Furthermore, the
proposed products under development by the Company have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable.
The production of Trovert requires certain key raw materials for which there
are a limited number of suppliers, and there can be no assurance that such raw
materials will be supplied on acceptable terms in quantities that are adequate
to produce Trovert for clinical trials or on a commercial scale. If the
Company should encounter delays or difficulties in its relationship with CBSI
or any other manufacturers, the Company's pre-clinical and clinical testing
schedule could be delayed, resulting in delay in the submission of
applications for regulatory approval or the market introduction of its
products. Any such delays, shortages of supply or shelf life problems could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The pharmaceutical industry is intensely competitive and the Company is
pursuing areas of product development in which there is potential for
extensive technological innovation in relatively short periods of time. Rapid
technological change or developments by others may result in the Company's
technologies or potential products becoming obsolete or noncompetitive. The
Company's competitors may succeed in developing technologies or products that
are more effective than those of the Company. Many companies, including
biotechnology, chemical and pharmaceutical companies, are actively engaged in
the research, development and sale of products that may compete with the
Company's development programs for the treatment of acromegaly and certain
complications of diabetes. Many of these companies have substantially greater
financial, technical and marketing resources than the Company. In addition,
some of these companies have considerable experience in pre-clinical studies,
clinical trials and other regulatory approval procedures. Moreover, certain
academic institutions, governmental agencies and other research organizations
are conducting research and developing technology in areas in which the
Company is working. These institutions may market competitive commercial
products based on this technology directly or through joint ventures and may
license this technology to third parties for further development and
commercialization. There can be no assurance that the Company's competitors
will not develop more efficacious or more affordable products, or achieve
earlier product development, patent protection, regulatory approval or product
commercialization than the Company. Among the drug products that compete, or
are being developed to compete, in the Company's targeted markets,
particularly acromegaly, are: somatostatin analogs, dopamine agonists and
somatostatin receptor type-specific agonists. There can be no assurance that,
if approved, the Company's products will compete successfully against existing
drugs or new drugs that may be developed by others. The Company expects that
its proposed products will compete on the basis of, among other things,
safety, efficacy, reliability, price, quality of life factors (including the
frequency and method of drug administration), marketing, distribution,
reimbursement and effectiveness of intellectual property rights. See "Risk
Factors--Competition; Rapid Technological Change" and "Business--Acromegaly--
Current Treatments."
SALES AND MARKETING
Acromegaly represents a niche market that can be accessed with a relatively
small sales force because treatment in the United States and Europe is
primarily provided at a limited number of medical centers. The Company
therefore intends to market Trovert for acromegaly directly in the United
States and Europe through a small direct sales force. The Company also intends
to use such a sales force to commercialize or co-promote products for other
niche markets or indications. In markets that require greater selling and
promotional resources and for territories outside of the United States and
Europe, the Company will seek to establish corporate partnerships.
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The Company believes that there is already significant awareness of Trovert
in the academic medical community among physicians who specialize in treating
acromegaly. Compared to acromegaly, the other indications contemplated for
GHAs (particularly, diabetic retinopathy and nephropathy) are much larger and
will require the Company to seek out one or more corporate partners with
significant clinical development experience and large sales forces in these
markets. There can be no assurances, however, that such corporate partnerships
will be established or that the Company will be able to negotiate favorable
business arrangements with such partners.
The Company has not previously sold, marketed or distributed any of its
products. To market and sell any of its products directly, the Company must
develop a marketing and sales force with technical expertise and supporting
distribution capability. There can be no assurance that the Company will be
able to establish in-house marketing, sales and distribution capabilities or
relationships with third parties, or that it will be successful in gaining
market acceptance for its products. To the extent that the Company enters into
co-promotion or other licensing arrangements, any revenues received by the
Company will depend upon the efforts of third parties, and there can be no
assurance that such efforts will be successful. See "Risk Factors--Limited
Sales and Marketing Experience; Lack of Distribution Capability; Dependence on
Future Collaborators."
GOVERNMENT REGULATION
To obtain approval to market its proposed pharmaceutical products in the
United States, Europe and other jurisdictions, the Company must demonstrate to
government regulators the safety and effectiveness of any proposed products in
adequate and well-controlled clinical trials in humans and must also present
evidence of product safety based on pre-clinical and other laboratory studies.
The steps ordinarily required before a drug or biological product may be
marketed in the United States include: (i) pre-clinical testing and clinical
trials; (ii) the submission to the FDA of an Investigational New Drug ("IND")
application, which must become effective before clinical trials commence;
(iii) adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug candidate; (iv) the submission to the FDA of a Biologics
License Application ("BLA") for pharmaceutical products produced through
biological means or a New Drug Application ("NDA") for small molecules and
other compounds produced through chemical and other non-biological means; and
(v) FDA approval of the application including approval of product labeling
and, in some instances, advertising. Although Trovert is a pharmaceutical
product produced through biological means, it is characterized as an
endocrinological drug and, therefore, its regulatory review for acromegaly has
been assigned to the Division of Metabolic and Endocrine Drug Products of the
FDA's Center for Drug Evaluation and Research, which has historically reviewed
endocrinological drug applications. As a result, an NDA will be filed for
marketing approval of Trovert rather than a BLA.
To market drugs in non-U.S. jurisdictions, the Company must also receive
authorization from the respective regulatory authorities in those
jurisdictions. The requirements governing the conduct of clinical trials,
applications for marketing authorization, pricing and reimbursement vary
widely from jurisdiction to jurisdiction.
In the European Union, pharmaceutical legislation requires that an MAA for a
drug produced through the use of biotechnology, such as Trovert, be submitted
for review in accordance with a centralized procedure administered by the
European Agency for the Evaluation of Medicinal Products (the "EMEA"),
headquartered in London. The EMEA's Committee for Proprietary Medicinal
Products (the "CPMP") is responsible for the scientific review of the MAA. The
CPMP is comprised of members from each of the European Union's Member States.
Based on the preferences of the company submitting an MAA and the availability
and expertise of the CPMP members, CPMP members from two Member States are
chosen to be "rapporteur" and "co-rapporteur", respectively, for the MAA. The
rapporteur and co-rapporteur are responsible for assisting the company
submitting an MAA with the preparation of the MAA and the presentation of the
MAA to the CPMP. Sensus is currently in the process of meeting with CPMP
members from different European nations for the purpose of the selection of a
rapporteur and co-rapporteur for the MAA that Sensus intends to submit for
Trovert for
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acromegaly. Similar to the requirements of the FDA, the pharmaceutical
legislation of the European Union requires that the safety and efficacy of a
drug be demonstrated in clinical trials prior to approval of an MAA for that
drug. If approved by the EMEA, an MAA is recommended for acceptance by the
European Union. Following approval of an MAA for a drug, the sponsoring
company is required to negotiate with the regulatory agency in each Member
State to establish reimbursement levels and the maximum price at which the
drug may be marketed in that Member State. These reimbursement levels and
maximum prices vary from country to country for the same pharmaceutical. No
assurance can be given that the Company will be able to negotiate acceptable
reimbursement and pricing levels for any of its products.
Pre-clinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the safety and
efficacy of each product candidate. Pre-clinical safety tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practice ("GLP"). The results of the pre-clinical tests are
submitted to the FDA as part of an IND and are reviewed by the FDA before the
commencement of clinical trials. Unless the FDA objects to an IND, the IND
will become effective 30 days following its receipt by the FDA. There can be
no assurance that submission of an IND will result in FDA authorization to
commence clinical trials or that the lack of an objection means that the FDA
will ultimately approve an application for marketing approval.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices ("GCP")
under protocols submitted to the FDA as part of the IND. In addition, each
clinical trial must be approved and conducted under the auspice of an
Institutional Review Board and with the informed consent of subjects. The
Institutional Review Board will consider, among other things, ethical factors,
the safety of human subjects and the possible liability of the institution
conducting the clinical trial.
Phase I clinical trials are generally performed in healthy human subjects.
The goal of Phase I clinical trials is to establish initial data about safety
and tolerance of the drug candidate. Also, data regarding the immune response
to the drug candidate may be obtained. In Phase II clinical trials, evidence
is sought about the desired therapeutic efficacy of a drug or antibody, or the
immune response to a drug, in limited studies with small numbers of carefully
selected subjects. Efforts are made to evaluate the effects of various dosages
and to establish an optimal dosage level and dosage schedule. Additional
safety data are also gathered from these studies. Phase III clinical trial
programs consist of expanded, large-scale, multicenter studies of the drug in
persons for whom the drug would be indicated. The goal of these studies is to
obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosage regimen.
In some cases, regulators may require additional laboratory studies or
clinical trials before granting approval of an application to market a drug
or, as a condition to granting such approval, require further "Phase IV"
clinical trials following commercial introduction of the drug covered by such
application. For example, the Company, at the request of the FDA, is currently
conducting additional laboratory studies of Trovert. In addition, the Company
may be required by regulators to conduct Phase IV clinical trials of Trovert
to determine long-term safety of the drug. See "--Clinical Development
Regulator Program for Trovert--Trovert Development Program for Acromegaly."
Approval of a marketing application requires the regulator to find on the
basis of the data presented in the application that the pharmaceutical
candidate is safe and effective for the use stated in the product labeling
proposed by the applicant and that its manufacture results in a reliably safe
and pure product. Data obtained from clinical trials and pre-clinical and
other laboratory studies are often susceptible to varying interpretations that
can delay or prevent regulatory approval or limit the proposed labeling.
Regulators can require that the pharmaceutical candidates represent improved
forms of treatment compared to existing therapies. For example, even if
Trovert were to receive regulatory approval for the treatment of acromegaly,
there can be no assurance that regulatory authorities would not require that
the label state that Trovert is considered useful only for those
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patients who have inadequate treatment outcomes from surgery, radiation
therapy and approved drugs, including somatostatin analogs. Such labeling
restrictions could have a material adverse effect on the Company's business,
financial condition and results of operations.
During the period that an application is being reviewed, there can be
legislative or administrative changes in regulatory requirements or policies
and there can be newly published medical findings or newly developed
pharmaceuticals or therapeutic approaches that effectively preclude approval
of the application. In addition, a prerequisite and ongoing requirement for
maintaining regulatory approval of a pharmaceutical product is its manufacture
in accordance with regulations designed to assure its safety and purity. In
the United States, these requirements are set forth in the FDA's current Good
Manufacturing Practices. Pharmaceutical manufacturing facilities are subject
to inspection by both the FDA and non-U.S. regulators to assure compliance
with such regulations. Discovery of previously unknown problems with a
pharmaceutical product, manufacturer or facility may result in restrictions on
such product or manufacturer, including costly recalls or even withdrawal of
the product from the market. Noncompliance with applicable regulatory
requirements can result in administrative or judicial sanctions, including,
among others, warning letters, civil penalties, product seizures, injunctions,
total or partial suspension of production, refusal of the government to review
the Company's marketing applications and criminal prosecution. Any such post-
approval actions in respect of any pharmaceutical product initially approved
and introduced into the market by the Company could have a material adverse
effect on the Company's business, financial condition and results of
operations.
As a consequence of the foregoing regulatory factors, there can be no
assurance that any of the Company's pharmaceutical candidates will meet all of
the applicable regulatory requirements needed to receive regulatory marketing
approval, and there can be no assurance that even after the Company expends
substantial resources on research, clinical development and the preparation
and processing of regulatory applications, that any regulatory approval will
be obtained for any of the Company's pharmaceutical candidates. Moreover, no
assurance can be given that regulatory approval for marketing a proposed
pharmaceutical product in any jurisdiction will result in similar approval in
other jurisdictions. Failure of the Company to obtain and maintain regulatory
approvals for its proposed products would have a material adverse effect on
its business, financial condition and results of operations.
In accordance with the U.S. Orphan Drug Act, the FDA may grant "Orphan Drug"
designation to any of certain drugs intended to treat a "rare disease or
condition." To be within this category, a disease or condition must be one
that affects fewer than 200,000 people in the United States or which affects
more than 200,000 people for which the cost of developing and marketing the
drug will not be recovered from sales of drug in the United States. An
approved Orphan Drug application may provide certain benefits, including
exclusive marketing rights against certain other drugs for the approved
indication for seven years following marketing approval and federal income tax
credits for certain clinical trial expenses. Although Trovert has qualified
for Orphan Drug designation with respect to the treatment of acromegaly, no
assurance can be given that the Company will be the first applicant to obtain
FDA approval for the use of a GHA to treat acromegaly. If a competitor obtains
Orphan Drug designation of its GHA product for acromegaly and then is the
first to obtain FDA approval of its NDA for this condition, the competitor
would be entitled to seven years of marketing exclusivity during which the FDA
generally could not approve the Company's NDA. There can also be no assurance
that the potential benefits provided by the Orphan Drug Act will not be
significantly limited by amendment by the United States Congress or
reinterpretation by the FDA.
With respect to the potential use of Trovert to treat diabetes, the Company
hopes to take advantage of current FDA regulations that permit accelerated or
expedited approval or treatment use of, and cost recovery for, certain
experimental drugs ("Subpart E"). Subpart E is limited, among other
requirements, to drug products that are intended to treat either seriously
debilitating or life-threatening diseases by providing meaningful therapeutic
benefit to patients over existing treatments or diseases for which no
satisfactory or alternative therapy exists. There can be no assurance that
Trovert will qualify for expedited or accelerated approvals or for treatment
use and cost recovery. See "Risk Factors--No Assurance of Marketing Approval;
Government Regulation" and "--Hazardous Materials."
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EMPLOYEES AND FACILITIES
As of September 28, 1998, the Company had eighteen employees, of whom five
hold Ph.D., Pharm.D. or M.D. degrees. No Company employee is represented by a
labor union, and the Company has not experienced any work stoppages. The
Company considers relations with its employees to be good. The Company's
headquarters are located at 98 San Jacinto Boulevard, Suite 430, Austin, Texas
78701, and are comprised of approximately 11,100 square feet of office space
under a lease that expires in 2003.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers, directors and certain key employees of the Company,
and their ages as of September 14, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard J. Hawkins .... 49 Chairman of the Board and Director
John A. Scarlett,
M.D. ................. 47 President, Chief Executive Officer and Director
Robert J. Davis,
Pharm.D. ............. 47 Executive Vice President
William F. Bennett, Senior Vice President, Research and Chief
Ph.D. ................ 50 Scientific Officer
Edward G. Calamai,
Ph.D. ................ 47 Senior Vice President, Operations
J. Donald Payne, CPA... 43 Senior Vice President, Finance and Administration,
Secretary and Chief Financial Officer
Magnus Precht ......... 44 Senior Vice President, Sales and Marketing
Charles L. Cox, CPA ... 53 Treasurer and Assistant Secretary
Stuart Davidson (1) ... 41 Director
E. Martin Gibson (1) .. 60 Director
Lyle Hohnke, Ph.D.
(2) .................. 55 Director
Arthur H. Rubenstein,
M.D. (2) ............. 60 Director
Joseph E. Smith (1)
(2) .................. 69 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
RICHARD J. HAWKINS, a founder of the Company, has served as Chairman of the
Board and a Director since the Company's inception. In February 1995, he co-
founded Corning Bio Inc., now Covance Biotechnology Services, Inc. ("CBSI"), a
contract cGMP manufacturing organization, and has served as a Director of CBSI
since inception. In June 1993, Mr. Hawkins co-founded Innovations in Drug
Development ("id/2/"), a biomedical entrepreneurial incubator, and has served
as its Chairman since inception. From March 1992 until June 1993, Mr. Hawkins
served as President of the Life Sciences Division of Applied Bioscience
International, Inc. ("APBI"). In 1983, he founded Pharmaco Dynamic Research,
Inc. ("Pharmaco") and served as its President and Chief Executive Officer until
March 1992 upon the merger of Pharmaco and APBI. From May 1982 to May 1983, Mr.
Hawkins served as Vice President at Biomedical Research Group, a contract
research organization. From January 1975 to January 1982, he held various
positions in clinical research at McNeil Pharmaceuticals, Inc., a division of
Johnson & Johnson. Mr. Hawkins also serves as a director of CRO One, Inc., a
private company.
JOHN A. SCARLETT, M.D., a founder of the Company, has served as Chief
Executive Officer and a Director since the Company's inception and as President
since March 1996. In February 1995, he co-founded CBSI and has served as a
director since inception. In June 1993, Dr. Scarlett co-founded id/2/ and has
served as President and Chief Executive Officer since inception. Prior to co-
founding id/2/, from January 1991 to March 1993 he served as Senior Vice
President of Medical and Scientific Affairs with Novo Nordisk Pharmaceuticals,
Inc. ("Novo Nordisk"), a subsidiary of Novo Nordisk A/S, a pharmaceutical
company, and as head of Novo Nordisk's North American Clinical Development
Center. From 1986 to 1991, Dr. Scarlett served as Vice President of Clinical
Development of Greenwich Pharmaceuticals, Inc., a pharmaceutical company
developing therapeutics for rheumatoid arthritis. From 1989 to 1990, he served
as a director of Health Information Designs Incorporated, a privately-held
company providing drug epidemiology services to the pharmaceutical industry.
From 1982 through 1985, Dr. Scarlett held various positions in the Medical
Department of McNeil Pharmaceuticals, a division of Johnson & Johnson.
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ROBERT J. DAVIS, PHARM.D. joined the Company as Executive Vice President in
February 1997. From January 1996 to December 1996, Dr. Davis served as
President of the U.S. Pharmaceutical Development Services Division of BRI
International ("BRI"), a leading contract research organization. From January
1995 to December 1995, he served as Vice President of the Project Operations
Division at BRI. From 1990 through 1994, Dr. Davis served in various positions
at Pharmaco-LSR, a contract research organization, including Director, Project
Management, Executive Director, Clinical Development Services and Vice
President, Anti-Infective Drug Development. From 1988 to 1990, he served as
Associate Director and Director of Scientific Affairs at G.D. Searle & Co., a
subsidiary of Monsanto Company, a developer, manufacturer and marketer of
pharmaceutical products. From 1984 to 1988, he served as a Clinical Scientist
with Parke-Davis, the pharmaceutical division of Warner-Lambert Company, a
developer, manufacturer and marketer of pharmaceutical products.
WILLIAM F. BENNETT, PH.D. has served as Senior Vice President, Research and
Chief Scientific Officer of the Company since January 1996. From March 1995 to
January 1996, he served as Vice President, Research of COR Therapeutics, Inc.,
a biotechnology company. From January 1982 to March 1995, Dr. Bennett served
in various capacities at Genentech, a biotechnology company, including Staff
Scientist in Cardiovascular Research and Director of Process Sciences. Dr.
Bennett's groups developed the manufacturing process for Genentech's growth
hormone product, NUTROPIN, and made discoveries leading to the development of
Genentech's t-PA thrombolytic, ACTIVASE. He also led the research and
development of the second-generation thrombolytic, TNK-tPA.
EDWARD G. CALAMAI, PH.D. has served as Senior Vice President, Operations of
the Company since June 1998. From August 1993 to June 1998, he was an
independent pharmaceutical and technology consultant. From August 1988 to
August 1993, Dr. Calamai served as Vice President of Operations for Seragen,
Inc. ("Seragen"), a biopharmaceutical company. From January 1986 to August
1988, he served as Director of Operations of Seragen. From March 1982 to
January 1986, Dr. Calamai served as Research and Development Manager of the
Clinical Assays Division ("Clinical Assays") of Baxter Travenol Laboratories,
a medical device and hospital supply company.
J. DONALD PAYNE, CPA has served as Senior Vice President, Finance and
Administration, Secretary and Chief Financial Officer since September 1998.
From March 1997 to September 1998, he was Vice President and Chief Financial
Officer of LifeCell Corporation, a public bio-engineering company that
develops and sells tissue regeneration products. From May 1992 to February
1997, he served as Vice President, Finance and Chief Financial Officer of
Aprogenex, Inc., a public biotechnology company. In 1990 and 1991, Mr. Payne
was an independent financial consultant in the oil and gas industry. From 1980
through 1990, he was Vice President, Finance, Treasurer and Corporate
Secretary of UMC Petroleum Corporation and its predecessor entities, including
the energy resource group of Entex, Inc., a public utility, and Entex Energy
Development, Ltd., a New York Stock Exchange, Inc.-listed master limited
partnership. From 1976 to 1980, Mr. Payne was an auditor with Arthur
Andersen & Co.
MAGNUS PRECHT has served as Senior Vice President of Marketing and Sales
since December 1997. From September 1996 to November 1997, he served as
Executive Vice President of Interferon Sciences, Inc., a biopharmaceutical
company. Mr. Precht came to the United States in November 1990 to establish
the Kabi Pharmacia (now Pharmacia & Upjohn) growth hormone business in the
United States and served as Vice President and General Manager, Peptide
Hormones Division until June 1996. From October 1989 to November 1990, Mr.
Precht was subsidiary President of Kabi Austria. From August 1983 to October
1989, Mr. Precht served in various positions at Pharmacia, including Regional
Director, Opthalmic Division, Middle East, Eastern Europe and Africa and as
the Austrian head of the Pharmacia Therapeutic Division.
CHARLES L. COX, CPA has served as Treasurer and Assistant Secretary of the
Company since January 1996. He has been the owner of a private accounting
practice in Austin, Texas since December 1990. Prior to such date, Mr. Cox was
a partner of Deloitte & Touche, a public accounting firm.
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STUART DAVIDSON has served as a Director of the Company since September 1995.
He has served as Managing Director of Labrador Ventures, a venture capital
firm, since August 1995. He founded the Echelon Group and has served as
President since November 1990. Mr. Davidson also serves on the advisory board
of UTAH Ventures, and as the Managing Director of Lysander LLC. From 1988 to
1990, Mr. Davidson served as President of Alkermes, Inc., a biotechnology
company.
E. MARTIN GIBSON has served as a Director of the Company since July 1995. He
retired from Corning Incorporated ("Corning") in December 1994, a company he
first joined in June 1962. From 1990 to 1995, Mr. Gibson served as Chairman of
Corning Life Sciences, Inc., which included Corning Clinical Labs and Corning
Pharmaceutical Services, and which provided contract services ranging from
manufacturing and toxicology to clinical testing and regulatory services to the
pharmaceutical industry through its member companies (Corning Bio, Corning
Hazleton, Corning Besselaar, Corning SciCor and Corning National Packaging).
Mr. Gibson currently serves as a director of the following public companies:
Hardinge Inc., NovaCare Inc. and International Technology Corp.
ARTHUR H. RUBENSTEIN, M.D. has served as a Director of the Company since May
1995. Since October 1997, Dr. Rubenstein has served as Dean and Executive Vice
President of The Mount Sinai School of Medicine and Medical Center in New York
City. Between April 1981 and October 1997, Dr. Rubenstein served as Chairman of
the Department of Medicine and the Lowell T. Coggeshall Distinguished Service
Professor of Medical Sciences at the University of Chicago.
LYLE A. HOHNKE, PH.D. has served as a Director of the Company since August
1996. Since October 1994, Dr. Hohnke has also served as a General Partner of
Javelin Capital Fund, L.P., a partnership engaged in venture capital
investments. From January 1994 until its merger with Heska Corporation in April
1996, he served as Chairman and Chief Executive Officer of Diamond Animal
Health, Inc., an agricultural biotechnology company. From January 1991 to
October 1993, he served as a General Partner of Heart Land Seed Capital Fund,
L.P., a venture capital fund. Dr. Hohnke currently serves as a director of
Heska Corporation, Vaxcel Inc. and Cytrx, Inc., publicly-held biotechnology
companies, and several privately-held biotechnology companies.
JOSEPH E. SMITH has served as a Director of the Company since December 1997.
He retired from Warner-Lambert Company in September 1997. From March 1989 to
September 1997, he served as Corporate Vice President of Warner-Lambert
Company. Mr. Smith serves as a director of Vivus, Inc., a public biotechnology
company, Penederm, Inc., a public biotechnology company, Lidak, Inc., a public
biotechnology company, and Boron, Lepore and Associates, a pharmaceutical
marketing communications company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of independent directors Mr. Smith and Drs.
Rubenstein and Hohnke. The Audit Committee meets with the Company's independent
auditors at least annually to review the results of the annual audit and to
discuss the financial statements; recommends to the Board of Directors the
independent auditors to be retained; reviews the results, scope and procedures
of the audit and other services provided by the Company's independent auditors,
and reviews and evaluates the Company's independent audit and control
functions.
The Compensation Committee consists of Messrs. Gibson, Davidson and Smith.
The Compensation Committee establishes salaries, incentive compensation and
otherwise determines compensation levels for the Company's officers and other
key employees and performs such other functions regarding compensation as the
Board may delegate. The Compensation Committee administers the Company's
various incentive compensation and benefit plans, including the 1998 Equity
Incentive Plan and the 1998 Employee Stock Purchase Plan.
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<PAGE>
DIRECTOR COMPENSATION
Each non-employee director of the Company receives a fee of $1,500 per
meeting and is reimbursed for out-of-pocket expenses in connection with his
attendance at meetings of the Board of Directors, Audit Committee and
Compensation Committee. In the fiscal year ended December 31, 1997, the total
amount paid to non-employee directors for meeting fees and out-of-pocket
expenses was $27,497. During the fiscal year, Dr. Rubenstein received $10,000
for consulting services provided to the Company and $3,863 as an honorarium for
attending scientific meetings and as reimbursement for related expenses.
1998 Non-Employee Directors' Stock Option Plan. In July 1998, the Board of
Directors adopted, subject to stockholder approval, the 1998 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") to provide for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of the Company. The Directors' Plan is administered by the Board of
Directors, unless the Board of Directors delegates administration to a
committee comprised of one or more members of the Board of Directors. The
aggregate number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 142,857.
Pursuant to the terms of the Directors' Plan, each director of the Company
who is not an employee of the Company (a "Non-Employee Director") and who is
serving as a Non-Employee Director on the effective date of the Offerings (the
"IPO Date") or who is first elected or appointed to the Board of Directors as a
Non-Employee Director after the IPO Date will automatically receive a
nonstatutory stock option to purchase shares of Common Stock (an "Initial
Grant"). In addition, thereafter, beginning with the annual meeting of the
stockholders of the Company (the "Annual Meeting") held in 1999, each person
who is serving as a Non-Employee Director as of the date of the Annual Meeting
will automatically be granted a nonstatutory stock option to purchase shares of
Common Stock as of the date of such Annual Meeting (an "Annual Grant").
Specifically, on the IPO Date each person who is then serving as a Non-Employee
Director and who, on the IPO Date, holds 5,714 or more previously acquired
unvested shares (including both shares actually issued and shares subject to
options) of Common Stock will automatically receive an Initial Grant to
purchase 2,857 shares of Common Stock. On the IPO Date, each person who is then
a Non-Employee Director and who, on the IPO Date, holds less than 5,714
previously acquired unvested shares of Common Stock will automatically receive
an Initial Grant to purchase 8,571 shares of Common Stock, minus the number of
previously acquired unvested shares held by such person. On or after the IPO
Date, each person who is elected or appointed for the first time to be a Non-
Employee Director will automatically receive an Initial Grant to purchase 8,571
shares of Common Stock, minus any previously acquired unvested shares (if any)
held by such person. Beginning with the 1999 Annual Meeting, each person
serving as a Non-Employee Director as of the date of the Annual Meeting will
automatically receive an Annual Grant to purchase 2,857 shares of Common Stock
as of the date of such Annual Meeting, reduced (but not below zero) by 285
shares for each month fewer than ten months that has elapsed since the most
recent grant of Company options received by such Non-Employee Director. Each
Initial Grant and Annual Grant will vest in three equal annual installments
over a 3-year period measured from the grant date. The exercise price of
Initial Grants and Annual Grants will equal the fair market value of the Common
Stock on the date of grant.
Further, the Directors' Plan provides that each Non-Employee Director may
elect to defer all or part of the directors' fees earned by such Non-Employee
Director in exchange for a discounted stock option (a "Deferred Fee Option").
Such election will generally cover directors' fees not yet earned (and will be
irrevocable) through the next Annual Meeting. Generally, each Deferred Fee
Option will vest in installments on each date that directors' fees would have
been payable had no deferral election been made. The exercise price of Deferred
Fee Options will be 33 1/3% of the fair market value of the Common Stock on the
date of grant.
An optionholder whose relationship with the Company or any affiliate ceases
for any reason (other than by death or permanent and total disability) may
exercise vested options in the 12-month period following such cessation (unless
such options terminate or expire sooner by their terms). If an optionholder's
relationship with the Company or its affiliates ceases due to disability or
death, all options held by such optionholder shall become fully vested and
immediately exercisable and may be exercised up to 18 months following such
cessation (unless
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<PAGE>
such options terminate or expire sooner by their terms). Moreover, except in
the case of Deferred Fee Options, in the event an optionholder's service
terminates due to retirement from the Board of Directors with at least five
years of service on or after attaining the age of 65, then options held by such
optionholder will automatically become fully vested and immediately
exercisable. No option granted under the Directors' Plan may be exercised after
the expiration of ten years from the date it was granted.
If there is any change in the stock subject to the Directors' Plan or subject
to any option granted under the Directors' Plan without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Directors' Plan and the options
outstanding thereunder will be appropriately adjusted as to the class(es) and
maximum number of shares subject to the Directors' Plan and the class(es),
number of shares and price per share of Common Stock subject to outstanding
options.
In the event of certain specified types of merger or other corporate
reorganizations, to the extent permitted by law, the shares covered by options
granted pursuant to the Directors' Plan and held by Non-Employee Directors
whose service to the Company has not terminated will automatically become fully
vested and immediately exercisable. Such options will terminate if not
exercised prior to such transaction unless such options are assumed or similar
options are substituted for the options by the surviving corporation.
The Board of Directors has the power to amend the Directors' Plan, provided
however that no amendment will be effective unless approved by the stockholders
of the Company to the extent stockholder approval is necessary to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any applicable Nasdaq
or securities exchange listing requirement. The Board of Directors may, from
time to time, amend the terms of any options granted pursuant to the Directors'
Plan, provided that an optionholder's rights may not be impaired unless such
optionholder consents in writing to such amendment. The Board of Directors may
suspend or terminate the Directors' Plan at any time.
As of September 14, 1998, no options to purchase Common Stock had been
granted pursuant to the Directors' Plan.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's Chief
Executive Officer and the two other most highly compensated executive officers
(collectively, the "Named Executive Officers") whose salary and bonus for the
fiscal year ended December 31, 1997 were in excess of $100,000 for services
rendered in all capacities to the Company for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---------- --------- ------------
<S> <C> <C> <C>
John A. Scarlett, M.D. .................... $ 280,000 $ -- 114,285
President, Chief Executive Officer and
Director
Robert J. Davis, Pharm.D. ................. 206,250 10,000 42,857
Executive Vice President
William F. Bennett, Ph.D. ................. 201,000 -- --
Senior Vice President, Research and Chief
Scientific Officer
</TABLE>
50
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1997, to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED IN OPTION TERM($)(3)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1997(%)(2) ($/SHARES) DATE 5% 10%
- ---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John A. Scarlett, M.D. . 114,285 55.17% $0.70 8/11/07 $2,385,834 $3,644,519
Robert J. Davis,
Pharm.D. .............. 42,857 20.69 0.70 3/6/07 875,379 1,310,284
William F. Bennett,
Ph.D. ................. -- -- -- -- -- --
</TABLE>
- --------
(1) Options generally vest at a rate of 20% on the first anniversary of the
date of grant and the remaining options vest on a monthly basis over a four
year period thereafter. These options have a term of 10 years.
(2) Based on an aggregate of 207,141 shares subject to options granted to
employees of the Company under the 1996 Stock Option Plan in fiscal 1997,
including the Named Executive Officers; no options were granted to
employees outside of such stock option plan. See "--Employee Benefit
Plans--1998 Equity Incentive Plan."
(3) The potential realizable value is calculated based on the term of the
option at the time of grant (10 years). Stock price appreciation of 5% and
10% is assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable value at 5% and 10%
appreciation is calculated by assuming that the assumed initial public
offering price of $14.00 per share (the midpoint of the estimated range of
the initial public offering price) appreciates at the indicated rate for
the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.
FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers, the
shares acquired and the value realized, if any, on each exercise of stock
options during the year ended December 31, 1997 and the number and value of
securities underlying unexercised options held by the Named Executive Officers
at December 31, 1997:
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS(#)(1) OPTIONS($)(2)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Scarlett, M.D. . -- -- 28,571 85,714 $379,994 $1,139,996
Robert J. Davis,
Pharm.D. .............. -- -- -- 42,857 -- 569,998
William F. Bennett,
Ph.D. ................. -- -- 14,999 27,857 201,062 373,423
</TABLE>
- --------
(1) Options generally vest at a rate of 20% on the first anniversary of the
date of grant and the remaining options vest on a monthly basis over a
four-year period thereafter. The options have a term of ten years.
(2) Value of unexercised in-the-money options is based on the assumed initial
public offering price of $14.00 per share (the midpoint of the estimated
range of the initial public offering price). Amounts reflected are based on
the assumed value minus the exercise price and do not indicate that the
optionee sold such stock.
EMPLOYMENT AGREEMENTS
On September 15, 1998, Dr. Scarlett and Mr. Hawkins, founders of the Company,
entered into individual agreements with the Company, effective upon the closing
of the Offerings, providing for the continuation of Dr. Scarlett's employment
as President and Chief Executive Officer and Mr. Hawkins' employment as
Chairman
51
<PAGE>
of the Board. Pursuant to these agreements, Dr. Scarlett and Mr. Hawkins shall
receive annual base salaries of $280,000 and $200,000, respectively. Such
annual base salaries shall be reviewed annually by the Compensation Committee
of the Board of Directors, and each executive shall be eligible for a bonus to
be awarded at the discretion of the Compensation Committee. In the event the
Company terminates the respective executive's employment without "cause" or
such executive resigns with "good reason," (i) he will be entitled to receive a
severance benefit equivalent to his base salary for 18 months less amounts
received from alternative employment during the final six (6) months of such
period, and (ii) all options then held by him shall have their vesting
accelerated in full. Furthermore, upon a "change of control" of the Company,
each executive's options shall have their vesting accelerated in full, unless
such options are assumed or substituted by the acquiring entity.
Effective upon the closing of the Offerings, Dr. Davis, Dr. Bennett, Dr.
Calamai, Mr. Precht, and Mr. Payne intend to enter into individual agreements
with the Company providing for the continuation of: Dr. Davis' employment as
Executive Vice President; Dr. Bennett's employment as Senior Vice President,
Research and Chief Scientific Officer; Dr. Calamai's employment as Senior Vice
President, Operations; Mr. Precht's employment as Senior Vice President, Sales
and Marketing; and Mr. Payne's employment as Senior Vice President, Finance and
Administration, Chief Financial Officer and Secretary. Pursuant to these
agreements, Dr. Davis, Dr. Bennett, Dr. Calamai, Mr. Precht, and Mr. Payne
shall receive annual base salaries of $240,750, $211,050, $230,000, $233,000,
and $180,000, respectively. Such annual base salaries shall be reviewed
annually by the Compensation Committee of the Board of Directors, and each
executive shall be eligible for a bonus to be awarded at the discretion of the
Compensation Committee. In the event the Company terminates the respective
executive's employment without "cause" or such executive resigns with "good
reason," (i) he will be entitled to receive a severance benefit equivalent to
his base salary for 12 months, unless he obtains alternative employment prior
to the end of such period, and (ii) all options then held by him shall have
their vesting accelerated in full. Furthermore, upon a "change of control" of
the Company, each executive's options shall have their vesting accelerated in
full, unless such options are assumed or substituted by the acquiring entity.
EMPLOYEE BENEFIT PLANS
1998 Equity Incentive Plan. In 1996, the Company adopted the 1996 Stock
Option Plan which was subsequently amended and restated by the Company in
December 1997. In July 1998, the Company again amended and restated the 1996
Stock Option Plan and renamed it the 1998 Equity Incentive Plan (the "Incentive
Plan"). The Incentive Plan is subject to stockholder approval and is effective
as of the closing of the Offerings. The Company has reserved a total of
1,428,571 shares for issuance under the Incentive Plan, which includes 434,992
shares subject to outstanding options. The Incentive Plan provides for grants
of incentive stock options that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to employees (including officers
and employee directors) of the Company or any affiliate of the Company and for
the grant of nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees, directors of and
consultants to the Company or any of its affiliates. The Incentive Plan is
administered by the Board of Directors or a committee appointed by the Board of
Directors (references herein to the Board of Directors shall include any such
committee). The Board of Directors has the authority to determine who will
receive awards and what types of awards are to be granted, including the
exercise price, number of shares subject to the award and the exercisability
thereof.
The term of a stock option granted under the Incentive Plan generally may not
exceed ten years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, but in the case of an incentive
stock option cannot be less than 100% of the fair market value of the Common
Stock on the date of grant, and in the case of a nonstatutory stock option
cannot be less than 85% of the fair market value of the Common Stock on the
date of grant. Options granted under the Incentive Plan vest at the rate
specified in the option agreement. Unless expressly provided by the terms of a
nonstatutory stock option agreement, no option may be transferred by the
optionholder other than by will or the laws of descent or distribution,
provided that an optionholder may designate a beneficiary who may exercise the
option following the optionholder's death. Unless otherwise set forth in the
option agreement, an optionholder whose relationship with the Company or any
related
52
<PAGE>
corporation ceases for any reason (other than by death or permanent and total
disability) may exercise vested options in the 3 month period following such
cessation (unless such options terminate or expire sooner by their terms).
Vested options may generally be exercised for up to 12 months after an
optionholder's relationship with the Company or its affiliates ceases due to
disability and for up to 18 months after such relationship with the Company or
its affiliates ceases due to death.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. In addition, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which incentive stock options are exercisable for the
first time by an optionholder during any calendar year (under the Incentive
Plan and all other stock plans of the Company and its affiliates) may not
exceed $100,000. The options, or portions thereof, which exceed this limit are
treated as nonstatutory options.
When the Company becomes subject to Section 162(m) of the Code (which denies
a deduction to publicly-held corporations for certain compensation paid to
specific employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options, stock appreciation
rights or restricted stock purchase rights under the Incentive Plan covering an
aggregate of more than 571,428 shares of Common Stock in any calendar year.
Shares subject to stock awards which have expired or terminated, without
having been exercised in full, and any shares repurchased by the Company
pursuant to a repurchase option provided under the Incentive Plan may again
become available for the grant of awards under the Incentive Plan. Shares
subject to stock appreciation rights exercised in accordance with the Incentive
Plan may not again become available for the grant of awards under the Incentive
Plan.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule determined by the Board of Directors. The purchase
price of such awards will be at least 85% of the fair market value of the
Common Stock on the date of grant or at the time the purchase is consummated.
Stock bonuses may be awarded in consideration for past services. Rights under a
stock bonus or restricted stock purchase agreement shall be transferable only
upon such terms and conditions as are determined by the Board of Directors and
set forth in the respective agreement. Stock appreciation rights authorized for
issuance under the Incentive Plan may be tandem stock appreciation rights,
concurrent stock appreciation rights or independent stock appreciation rights.
If there is any change in the stock subject to the Incentive Plan or subject
to any stock award granted under the Directors' Plan without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Incentive Plan and the stock awards
outstanding thereunder will be appropriately adjusted as to the class(es) and
maximum number of shares subject to the Incentive Plan and the class(es),
number of shares and price per share of Common Stock subject to outstanding
stock awards.
Upon certain changes in control of the Company, all outstanding stock awards
under the Incentive Plan will either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, then with respect to persons whose service with the Company or an
affiliate has not terminated prior to such change in control, the time during
which such awards may be exercised shall be accelerated and the awards
terminated if not exercised prior to such change in control and any Company
repurchase option or reacquisition right with respect to such person shall
lapse.
The Board has the power to amend the Incentive Plan, provided, however, that
no amendment will be effective unless approved by the stockholders of the
Company to the extent that stockholder approval is necessary
53
<PAGE>
to satisfy the requirements of Section 422 of the Code, Rule 16b-3 promulgated
under Section 16 of the Exchange Act or any Nasdaq or securities exchange
listing requirement. The Board of Directors may, from time to time, amend the
terms of any stock awards granted pursuant to the Incentive Plan, provided that
an award holder's rights may not be impaired unless such award holder consents
in writing to such amendment. The Plan will terminate in July 2008, unless
terminated sooner by the Board of Directors.
1998 Employee Stock Purchase Plan. In July 1998, the Board of Directors
adopted, subject to stockholder approval, the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 100,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan.
The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company, or
an affiliate of the Company designated by the Board of Directors (an
"Affiliate"), for at least 20 hours per week, for at least five months per
calendar year and for such continuous period preceding the grant as the Board
of Directors may require. Additionally, no rights may be granted to any
employee under the Purchase Plan if, following such grant, such employee would
own 5% or more of the combined voting power of the Company or an Affiliate.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld will then be used
to purchase shares of the Common Stock on specified dates determined by the
Board of Directors in an offering. The price of Common Stock purchased under
the Purchase Plan will be equal to 85% of the lower of the fair market value of
the Common Stock on the commencement date of each offering period or on the
specified purchase date. Employees may end their participation in the offering
at any time during the offering period. Participation ends automatically on
termination of employment with the Company.
In the event of certain changes of control of the Company, the Board of
Directors has discretion to provide that (i) each right to purchase Common
Stock will be assumed or an equivalent right substituted by the successor
corporation, (ii) such rights will continue in full force and effect, or (iii)
the Board of Directors may shorten the offering period and provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to the change in control. The Purchase Plan will terminate at the Board
of Directors' discretion. The Board of Directors has the authority to amend or
terminate the Purchase Plan, provided, however, that no amendment will be
effective unless approved by the stockholders of the Company to the extent that
stockholder approval is necessary to satisfy the requirements of Section 423 of
the Code or Rule 166-3 promulgated under Section 16 of the Exchange Act, and no
amendment may adversely affect any outstanding rights to purchase Common Stock.
SIMPLE-IRA Plan. Effective in April 1998, the Company adopted a Savings
Incentive Match Plan for Employees of Small Employers (the "SIMPLE-IRA Plan")
pursuant to Section 408(p) of the Code covering the Company's employees whose
annual earnings are at least $5,000. Pursuant to the SIMPLE-IRA Plan, eligible
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($6,000 in 1998) and have the amount of
such salary reduction contributed to individual SIMPLE-IRA accounts maintained
for each eligible employee by a financial institution acting as trustee or
custodian for such accounts. Pursuant to the SIMPLE-IRA Plan, the Company will
make matching contributions to the SIMPLE-IRA accounts of eligible employees
equal to 2% of such employee's annual compensation, provided that the Company
may periodically elect other contribution amounts under criteria set forth in
the Code, up to a maximum aggregate contribution equal to 3% of such employee's
compensation. Employees are at all times fully vested in both their elective
salary reduction contributions and the Company's matching contributions.
In accordance with the Code, contributions by employees and by the Company
under the SIMPLE-IRA Plan, and income earned on the SIMPLE-IRA Plan
contributions, are not taxable to employees until withdrawn from the SIMPLE-IRA
Plan, and contributions by the Company are deductible when made. The financial
institution acting as trustee or custodian of a participating employee's
SIMPLE-IRA account, invests, at the direction of such employee, amounts in such
employee's SIMPLE-IRA account in selected investment options.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of September 14, 1998
and as adjusted to reflect the sale of the Common Stock being offered hereby by
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and officers of the Company as a group. The table assumes the conversion of all
outstanding Preferred Stock into Common Stock upon the completion of the
Offerings.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
SHARES -------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERINGS OFFERINGS(2)(3)
- ------------------------------------ ------------ --------- ---------------
<S> <C> <C> <C>
Ross Financial Corporation (4) ......... 2,285,714 34.7% 23.8%
P.O. Box 31363
Seven Mile Beach
Grand Cayman B.W.I.
Richard J. Hawkins (5) ................. 851,084 12.9 8.9
c/o Sensus Drug Development Corporation
98 San Jacinto Boulevard, Suite 430
Austin, TX 78701
Nona F. Niland, M.D. (6) ............... 851,083 12.9 8.9
324 Eanes School Road
Austin, TX 78746
Genentech, Inc. ........................ 473,723 7.2 4.9
One DNA Way
South San Francisco, CA 94080
John A. Scarlett, M.D. (7) ............. 395,540 6.0 4.1
c/o Sensus Drug Development Corporation
98 San Jacinto Boulevard, Suite 430
Austin, TX 78701
The Goldman Sachs Group, L.P. .......... 340,513 5.2 3.5
85 Broad Street
New York, NY 10004
Lyle A. Hohnke, Ph.D. (8) .............. 263,536 4.0 2.7
Stuart Davidson (9) .................... 68,978 1.0 *
Arthur H. Rubenstein, M.D. (10) ........ 13,332 * *
E. Martin Gibson (11) .................. 5,714 * *
Joseph E. Smith ........................ -0- * *
William F. Bennett, Ph.D. (12) ......... 40,454 * *
Robert J. Davis, Pharm.D. (13) ......... 14,999 * *
All directors and officers as a group
(12 persons) (14) ..................... 1,653,637 25.1% 17.2
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Percentage of beneficial ownership prior to
the Offerings is based on 6,594,380 shares of Common Stock outstanding as
of September 14, 1998, and 9,594,380 shares of Common Stock outstanding
after completion of the Offerings.
(2) In accordance with the rules of the Commission, each beneficial owner's
percentage ownership assumes the exercise or conversion of all options,
warrants and other convertible securities held by such person and
55
<PAGE>
that are exercisable or convertible 60 days after September 14, 1998. Each
beneficial owner's percentage ownership does not include any shares of
Common Stock that such owner may purchase in the Offerings.
(3) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." If the Underwriters' over-allotment option is exercised in
full, the Company will sell up to 3,450,000 shares of Common Stock, and
10,044,380 shares of Common Stock will be outstanding after the completion
of the Offerings.
(4) Kenneth B. Dart possesses voting and/or investment power over the shares
beneficially owned by Ross Financial Corporation.
(5) Includes 285,714 shares held by RJH Partners, Ltd., a Texas limited
partnership of which Mr. Hawkins is general partner.
(6) Includes 385,713 shares held by Niland Partners, Ltd., a Texas limited
partnership of which Dr. Niland is general partner.
(7) Includes 28,570 shares held by Dr. Scarlett and his wife as trustees of
their daughters' trusts and 57,142 shares subject to stock options
exercisable within 60 days of September 14, 1998.
(8) Includes 261,632 shares held by Javelin Capital Fund, L.P. ("Javelin") of
which Dr. Hohnke is a general partner. Dr. Hohnke disclaims beneficial
ownership of the shares held by Javelin except to the extent of his pro
rata partnership interest therein. Includes 1,904 shares subject to stock
options exercisable within 60 days of September 14, 1998.
(9) Includes 63,264 shares held by Lysander, LLC of which Mr. Davidson is
managing director. Mr. Davidson disclaims beneficial ownership of the
shares held by Lysander, LLC except to the extent of his pro rata interest
therein. Includes 5,714 shares subject to stock options exercisable within
60 days of September 14, 1998.
(10) Represents 13,332 shares subject to stock options exercisable within 60
days of September 14, 1998.
(11) Represents 5,714 shares subject to stock options exercisable within 60
days of September 14, 1998.
(12) Includes 18,313 shares held jointly with his wife and 2,856 shares subject
to stock options exercisable within 60 days of September 14, 1998.
(13) Represents 14,999 shares subject to stock options exercisable within 60
days of September 14, 1998.
(14) Includes 101,661 shares issuable pursuant to options exercisable within 60
days of September 14, 1998.
56
<PAGE>
CERTAIN TRANSACTIONS
In June 1994, the Company issued to certain founders, including individuals
who are officers and directors of the Company, an aggregate of 30,602 shares of
Common Stock at a price per share of $0.0035. In May 1995, each then
outstanding share of the Company's Common Stock was split and converted into
59.22 shares of Common Stock. Between July 14, 1995 and January 21, 1997, the
Company issued an aggregate of 1,668,764 shares of Series A Preferred Stock at
a price per share of $6.125. Between March 20, 1997 and March 27, 1997, the
Company issued an aggregate of 309,606 shares of Series B Preferred Stock at a
price per share of $7.00. On October 10, 1997, the Company issued an aggregate
of 2,674,340 shares of Series C Preferred Stock at a price per share of $8.75.
All of the Series A, Series B and Series C Preferred Stock issued by the
Company will convert into Common Stock on a one-for-one basis upon the closing
of the Offerings.
Listed below are the directors, executive officers and 5% stockholders who
have made equity investments in the Company to purchase shares of the Company's
Preferred Stock or Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING PRE-OFFERING
---------------------------------------------------
SERIES A SERIES B SERIES C AGGREGATE
COMMON PREFERRED PREFERRED PREFERRED CONSIDERATION
INVESTOR STOCK STOCK STOCK STOCK ($)
- -------- ------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Richard J. Hawkins ........ 705,370 145,714 $ 912,901
John A. Scarlett .......... 338,398 200
William F. Bennett ........ 16,326 1,987 113,912
Genentech, Inc. ........... 473,723 2,901,562
The Goldman Sachs Group,
L.P. ..................... 178,571 161,942 2,667,000
Nona F. Niland ............ 705,369 145,714 912,901
Javelin Capital Fund, L.P.
(1) ...................... 195,918 65,714 1,775,000
Ross Financial
Corporation .............. 2,285,714 20,000,000
</TABLE>
- --------
(1) Dr. Hohnke, a director of the Company, is a general partner of Javelin
Capital Fund, L.P. See "Management--Directors, Executive Officers and Key
Employees" and "Principal Stockholders."
Upon completion of the Offerings, the holders of 4,652,710 shares of Common
Stock (consisting of shares to be issued upon the conversion of all outstanding
shares of Preferred Stock upon completion of the Offerings) and a warrant to
purchase 65,714 shares of Common Stock will be entitled to certain rights with
respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration. See "Description of Capital Stock--
Registration Rights."
In connection with the sale of 195,918 shares of Series A Preferred Stock to
Javelin Capital Fund, L.P. ("Javelin"), on July 30, 1996, Sensus, Javelin and
certain stockholders of the Company entered into an agreement which grants
Javelin the right to designate one board member so long as Javelin continues to
hold at least 50% of such shares (including Common Stock issued upon conversion
of such shares originally purchased by Javelin). The agreement shall terminate
upon the consummation of the Offerings.
In July 1994, the Company and Genentech entered into the Genentech Agreement.
In consideration for the license granted to Sensus pursuant to the Genentech
Agreement, Genentech received an aggregate of 392,091 shares (277,599 in 1995
and 114,492 in 1996) of Series A Preferred Stock. Based upon the fair value of
the Series A Preferred Stock issued ($6.125 per share), the Genentech license
was valued at $2,401,562. Genentech also purchased 81,632 shares of Series A
Preferred Stock for $500,000 on the same terms as other investors in July 1995.
See "Business--Strategic Licensing Agreements" and "Notes to Financial
Statements."
In connection with the sale of 178,571 shares of Series B Preferred Stock to
The Goldman Sachs Group, L.P. ("Goldman Sachs"), on March 20, 1997, Sensus and
Goldman Sachs entered into a Board Observer
57
<PAGE>
and Visitation Rights Agreement which, among other things, grants Goldman Sachs
certain inspection and board visitation rights. Furthermore, the agreement
restricts the Company from granting registration rights to the holders of
Common Stock without obtaining the consent of the holders of 58% of the then
outstanding Registrable Securities (as defined in that certain Amended and
Restated Investor Rights Agreement, dated October 10, 1997, by and among the
Company and certain investors) so long as Goldman Sachs continues to hold at
least 85,714 shares of Series B Preferred Stock (or Common Stock issued upon
conversion of such shares). Except with respect to the covenant described in
the preceding sentence, the agreement shall terminate upon the consummation of
the Offerings.
In connection with the sale of 2,285,714 shares of Series C Preferred Stock
("the Series C Shares") to Ross Financial Corporation ("Ross") on October 10,
1997, Sensus and Ross entered into a Board Observer, Right of First Refusal and
Standstill Agreement which, among other things, grants Ross: (i) certain board
visitation rights, which terminate on the date that Ross holds fewer than 50%
of the Series C Shares, and (ii) certain rights of first refusal for a three-
year period following the consummation of the Offerings. The agreement gives
Ross the right to purchase its pro-rata share of certain equity securities that
the Company may propose to sell following the consummation of the Offerings, so
long as Ross owns at least 50% of the Series C Shares (or Common Stock issued
upon conversion of such shares). The standstill provision of the agreement
prohibits Ross from acquiring or proposing to acquire shares of the Company's
stock which would cause it to hold in excess of 49% of the Company's then
outstanding voting securities.
As of December 31, 1997, the Company had drawn down $3,492,000 pursuant to a
line of credit between id/2/, an affiliate of the Company, and a commercial
bank, which line of credit was guaranteed by Richard J. Hawkins, Chairman of
the Company's Board of Directors. In January 1998, the Company paid down the
line of credit and issued 57,142 shares of Common Stock to Mr. Hawkins for
guaranteeing the line of credit.
On September 17, 1996, the Company and CBSI entered into an agreement with
respect to the development of a manufacturing process for, and the
manufacturing of, the Company's GHAs (the "CBSI Agreement"). Mr. Hawkins and
Dr. Scarlett are co-founders of CBSI and collectively own approximately 13% of
CBSI's capital stock. Dr. Scarlett has served as a director of CBSI since 1995.
Costs related to the CBSI Agreement were $66,000 and $7,172,000 for 1996 and
1997, respectively.
From inception to August 1998, the Company occupied premises leased by id/2/-
I, L.P. ("id/2/"), an affiliate of the Company, and has made sublease payments
in the aggregate amount of $272,952. The lease was assigned to the Company on
August 3, 1998.
From time to time, Company personnel have used for Company purposes a private
airplane furnished by a company controlled by Richard J. Hawkins, Chairman of
the Board of Directors. In 1997, the Company reimbursed such company an
aggregate amount of approximately $133,000 for such use.
Pursuant to authority granted by the Bylaws, the Company intends to enter
into indemnification agreements (the "Indemnification Agreements") with each of
its directors and executive officers. Subject to the provisions of the
Indemnification Agreements, the Company shall indemnify and advance expenses to
such directors and executive officers in connection with their involvement in
any event or occurrence which arises in their capacity as, or as a result of,
their position with the Company. See "Description of Capital Stock--Limitation
of Liability and Indemnification."
The Company believes that all of the transactions set forth above were in its
best interest and were made on terms no less favorable to the Company than
could have been otherwise obtained from unaffiliated third parties. All future
transactions between the Company and any of its officers, directors or
principal stockholders will be approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company that could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes of the Company.
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Certificate and Bylaws is a summary and is
qualified in its entirety by the provisions of the Restated Certificate and
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this Prospectus is a part.
Upon the closing of the Offerings, and, after giving effect to the conversion
of all outstanding Preferred Stock into Common Stock, and the amendment of the
Company's Certificate of Incorporation, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, $0.001 par value,
and 5,000,000 shares of Preferred Stock, $0.001 par value. As of September 14,
1998, there were 65 holders of record of the Company's Common and Preferred
Stock.
COMMON STOCK
Upon completion of the Offerings, there will be 9,594,380 shares of Common
Stock outstanding. The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The holders of Common Stock are not entitled to cumulative voting
rights with respect to the election of directors, and, as a consequence,
minority stockholders will not be able to elect directors on the basis of their
votes alone.
Subject to preferences that may be applicable to any then outstanding shares
of Preferred Stock, holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of the Offerings will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of the Offerings, all outstanding Preferred Stock of the
Company will be converted into Common Stock. The Board of Directors will have
the authority, without further action by the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders. The issuance of Preferred Stock could adversely affect the
voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation may have the
effect of delaying, deferring or preventing a change in control of the Company,
which could have a depressive effect on the market price of the Company's
Common Stock. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
In connection with the Company's October 1997 private placement of Series C
Preferred Stock, the Company issued to the placement agent, NationsBanc
Montgomery Securities LLC, a warrant to purchase 65,714 shares of its Series C
Preferred Stock at an exercise price of $10.50 per share, exercisable at any
time through October 10, 2002. Upon the consummation of the Offerings, and
conversion of all outstanding shares of Preferred Stock into Common Stock, the
warrant shall become a warrant to purchase shares of Common Stock. The
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<PAGE>
warrant is exercisable on a net issuance basis, and the holder is entitled to
certain registration rights with respect to the Common Stock issuable upon
exercise of the warrant. See "--Registration Rights."
In September 1998, the Company entered into a $5.0 million revolving line of
credit with a bank. The loan will bear interest at the bank's prime rate,
payable quarterly, and repayment of any borrowings is due on September 4, 1999.
A stockholder of the Company provided a personal guarantee of the revolving
line of credit in exchange for a warrant to acquire 57,142 shares of Common
Stock at an exercise price of $12.25 per share.
REGISTRATION RIGHTS
The holders of an aggregate of 4,652,710 shares of Common Stock (consisting
of shares to be issued upon the conversion of all outstanding shares of
Preferred Stock upon completion of the Offerings) and a holder of a warrant
which is exercisable for 65,714 shares of Common Stock (collectively, the
"Holders") will be entitled to certain rights with respect to the registration
of such shares under the Securities Act upon the consummation of the Offerings.
If the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other security holders,
the Holders are entitled to notice of the registration and are entitled to
include, at the Company's expense, such shares therein. In addition, certain of
the Holders may require the Company at its expense on not more than two
occasions at any time beginning 180 days from the effective date of the
Offerings to file a Registration Statement under the Securities Act, with
respect to their shares of Common Stock, and the Company is required to use its
best efforts to effect the registration, subject to certain conditions and
limitations. Further, the Holders may require the Company at its expense to
register their shares on Form S-3 when such form becomes available to the
Company, subject to certain conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the stockholder. For
purposes of Section 203, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
The Restated Certificate provides that each director will serve for a three-
year term, with approximately one-third of the directors to be elected
annually. Candidates for election as directors may be nominated only by the
Board of Directors or by a stockholder who gives written notice to the Company
no later than 60 days prior nor earlier than 90 days prior to the first
anniversary of the last annual meeting of stockholders. The Company may have
the number of directors as determined from time to time pursuant to a
resolution of the Board of Directors, which currently consists of seven
members. Between stockholder meetings, the Board of Directors may appoint new
directors to fill vacancies or newly created directorships. The Restated
Certificate will not provide for cumulative voting at stockholder meetings for
election of directors. As a result, stockholders controlling more than 50% of
the outstanding Common Stock can elect the entire Board of Directors. A
director may be removed from office only for cause by the affirmative vote of a
majority of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors.
The Restated Certificate requires that any action required or permitted to be
taken by stockholders of the Company must be effected at a duly called annual
or special meeting of stockholders and may not be effected by a consent in
writing. The Restated Certificate also provides that the authorized number of
directors may be changed only by resolution of the Board of Directors. Delaware
Law and these charter provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company, which
could
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have a depressive effect on the market price of the Company's Common Stock. See
"Management--Directors, Executive Officers and Key Employees."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Certificate contains certain provisions permitted
under Delaware Law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware Law, or (iv) for any transaction from which
the director derives an improper personal benefit. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief, such as an injunction or rescission, in the event of a breach
of director's fiduciary duty. These provisions will not alter a directors
liability under federal securities laws. The Restated Certificate also contains
provisions indemnifying the directors and executive officers of the Company to
the fullest extent permitted by Delaware Law. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors and executive officers.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is American Securities
Transfer & Trust, Inc. The transfer agent's mailing address is P.O. Box 1596,
Denver, Colorado 80201.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after the Offerings because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of the Offerings, the Company will have outstanding an
aggregate of 9,594,380 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options and
warrants and based upon the number of shares outstanding as of September 14,
1998. Of these shares, all of the shares sold in the Offerings will be freely
tradable without restriction or further registration under the Securities Act,
unless such shares are purchased by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act ("Affiliates"). The remaining
6,594,380 shares of Common Stock held by existing stockholders were issued and
sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" as that term
is defined in Rule 144 under the Securities Act (the "Restricted Shares").
5,243,827 of the Restricted Shares are held by Affiliates. Of these shares,
54,313 will be available for sale upon the effective date of the Registration
Statement of which this Prospectus is a part (the "Effective Date"). Beginning
180 days after the Effective Date, approximately 6,520,782 of the Restricted
Shares will become eligible for sale subject to the provisions of Rule 144,
Rule 144(k) or Rule 701 promulgated under the Securities Act, upon the
expiration of agreements not to sell such shares (the "Lock-Up Agreements").
Pursuant to the Lock-Up Agreements, the Company, the executive officers and
directors and substantially all of the stockholders of the Company, which hold
substantially all of the Restricted Shares, have agreed that they will not,
without the prior written consent of Merrill Lynch, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for shares of
Common Stock whether now owned or thereafter acquired by them; or (ii) enter
into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, where any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, during the
180-day period commencing on the date of this Prospectus. The Company may,
however, issue shares of Common Stock upon the exercise of stock options that
are currently outstanding, and may grant additional options under its stock
option plans, provided that, without the prior written consent of Merrill
Lynch, the shares of Common Stock issuable upon exercise of such additional
options shall not be sold during such period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Company's Common Stock (approximately 95,943 shares
immediately following the Offerings) or (ii) the average weekly trading volume
of the Company's Common Stock in the Nasdaq National Market during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
person whose shares are aggregated) who is not deemed to have been an Affiliate
of the Company at any time during the 90 days immediately preceding the sale
and who has beneficially owned Restricted Shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.
An employee, officer or director of, or consultant to, the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
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provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
The Company intends to file a registration statement under the Securities Act
covering shares of Common Stock reserved for issuance under the Incentive Plan,
Purchase Plan, Directors' Plan and options granted outside of the Company's
stock plans. Based on the number of options outstanding and options and shares
reserved for issuance at June 30, 1998, such registration statement will cover
approximately 1.7 million shares. Such registration statement is expected to be
filed and to become effective as soon as practicable after the date hereof.
Shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the Lock-Up Agreements described above.
Upon completion of the Offerings, the holders of 4,652,710 shares of Common
Stock (consisting of shares to be issued upon the conversion of all outstanding
shares of Preferred Stock upon completion of the Offerings) and a warrant to
purchase 65,714 shares of Common Stock will be entitled to certain rights with
respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by Affiliates) immediately upon the effectiveness
of such registration. See "Description of Capital Stock--Registration Rights."
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc Montgomery
Securities LLC and BancBoston Robertson Stephens Inc. are acting as
representatives (the "U.S. Representatives") of each of the U.S. Underwriters
named below (the "U.S. Underwriters"). Subject to the terms and conditions set
forth in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the
Company and the U.S. Underwriters, and concurrently with the sale of 600,000
shares of Common Stock to the International Managers (as defined below), the
Company has agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally and not jointly has agreed to purchase from the Company,
the number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................
NationsBanc Montgomery Securities LLC...............................
BancBoston Robertson Stephens Inc...................................
---------
Total.......................................................... 2,400,000
=========
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions set
forth in the International Purchase Agreement, and concurrently with the sale
of 2,400,000 shares of Common Stock to the U.S. Underwriters pursuant to the
U.S. Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers severally have agreed to purchase from
the Company, an aggregate of 600,000 shares of Common Stock. The initial public
offering price per share and the total underwriting discount per share of
Common Stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement if
any of the shares of Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances, under the U.S. Purchase Agreement and
the International Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. The closings with respect to the sale of shares
of Common Stock to be purchased by the U.S. Underwriters and the International
Managers are conditioned upon one another.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or non-
Canadian persons, and the International Managers and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are U.S. or Canadian persons or to persons they believe
intend to resell to persons who are U.S. or Canadian persons, except in each
case for transactions pursuant to the Intersyndicate Agreement.
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The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of
$ per share of Common Stock. The U.S. Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common
Stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The Company has granted an option to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
360,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The U.S. Underwriters may exercise this option solely to cover over-allotments,
if any, made on the sale of the Common Stock offered hereby. To the extent that
the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such U.S. Underwriter's initial amount
reflected in the foregoing table. The Company also has granted an option to the
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 90,000 additional shares of
Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 10% of the shares offered hereby to be
sold to certain directors, officers, employees, stockholders and business
associates of the Company and related persons. The number of shares of Common
Stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the Offerings
will be offered by the Underwriters to the general public on the same terms as
the other shares offered hereby.
The Company, its officers, directors and certain stockholders have agreed,
subject to certain exceptions, not to directly or indirectly (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of
or otherwise dispose of or transfer any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, whether now
owned or thereafter acquired by the person executing the agreement or with
respect to which the person executing the agreement thereafter acquires the
power of disposition, or file a registration statement under the Securities Act
with respect to the foregoing or (ii) enter into any swap or other agreement
that transfers, in whole or in part, the economic consequence of ownership of
the Common Stock whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch on behalf of the Underwriters for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
The Underwriters do not expect sales of the Common Stock to any accounts over
which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations between the Company, the U.S. Representatives and the
International Managers. The factors considered in determining the initial
public offering price, in addition to prevailing market conditions, are price-
earnings ratios of publicly traded companies that the U.S. Representatives
believe to be comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, and an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present state of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offerings at or above
the initial public offering price.
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The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act and other applicable securities laws, or
to contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the U.S. Representatives are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in Common Stock in connection
with the Offerings, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the U.S. Representatives may reduce
that short position by purchasing Common Stock in the open market. The U.S.
Representatives may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the shares of
Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that
it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
In connection with the Company's October 1997 private placement of Series C
Preferred Stock, one of the U.S. Representatives, NationsBanc Montgomery
Securities LLC, acted as a placement agent, and, as consideration for its
services, received a warrant to purchase 65,714 shares of the Company's Series
C Preferred Stock at an exercise price of $10.50 per share, exercisable at any
time through October 10, 2002. Upon the consummation of the Offerings and
conversion of all outstanding shares of Preferred Stock into Common Stock, the
warrant shall become a warrant to purchase shares of Common Stock. The warrant
is exercisable on a net issuance basis, and the holder is entitled to certain
registration rights with respect to the Common Stock issuable upon exercise of
the warrant. See "Description of Capital Stock--Warrants," "--Registration
Rights" and "Certain Transactions."
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LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Cooley Godward
LLP, Palo Alto, California. Certain legal matters relating to the Offerings
will be passed upon for the Underwriters by Brown & Wood LLP, New York, New
York. Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors--No Assurance of Marketing
Approval; Government Regulation" and "Business--Government Regulation" will be
passed upon by Hyman, Phelps & McNamara, P.C.
EXPERTS
The financial statements of Sensus Drug Development Corporation at December
31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained
in this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates or accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
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SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements
Report of Independent Auditors............................................. F-2
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997, the six months ended June 30, 1997 (unaudited) and 1998 (unaudited),
and the period from June 23, 1994 (inception) to June 30, 1998
(unaudited)............................................................... F-4
Statements of Stockholders' Equity (Deficit) for the period from June 23,
1994 (inception) to December 31, 1994, years ended December 31, 1995, 1996
and 1997, and six months ended June 30, 1998 (unaudited).................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997, the six months ended June 30, 1997 (unaudited) and 1998 (unaudited),
and the period from June 23, 1994 (inception) to June 30, 1998
(unaudited)............................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sensus Drug Development Corporation
We have audited the accompanying balance sheets of Sensus Drug Development
Corporation (a development stage company) as of December 31, 1997 and 1996,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997
and the cumulative period from June 23, 1994 (inception) to December 31, 1997
(not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sensus Drug Development
Corporation (a development stage company) at December 31, 1997 and 1996, and
the results of its operations and cash flows for each of the three years in
the period ended December 31, 1997 and the cumulative period from June 23,
1994 (inception) to December 31, 1997 (not separately presented herein), in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
February 23, 1998, except for Note 7,
as to which the date is September 4, 1998
F-2
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 44,519 $ 17,242,579 $ 3,773,568
Receivables from related parties.... 17,136 12,901 82,000
Restricted cash equivalent.......... -- -- 1,640,676
Other............................... 4,989 97,520 3,530
------------ ------------ ------------
Total current assets.............. 66,644 17,353,000 5,499,774
Property and equipment, net........... 142,260 227,383 380,810
Refundable deposits................... 4,515 4,515
Deferred offering costs............... -- -- 162,875
------------ ------------ ------------
Total assets...................... $ 208,904 $ 17,584,898 $ 6,047,974
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable--trade............. $ 1,464,550 $ 1,348,803 $ 471,853
Payables to related parties......... 1,409,557 5,108,025 1,838,067
Accrued expenses and other.......... 311,139 334,905 668,409
Note payable........................ -- -- 1,600,000
------------ ------------ ------------
Total current liabilities......... 3,185,246 6,791,733 4,578,329
Stockholders' equity (deficit):
Preferred Stock--$.001 par value,
21,000,000 shares authorized:
Series A--6,000,000 convertible
shares designated and 1,342,234,
1,668,764 and 1,668,764 shares
issued and outstanding in 1996,
1997 and 1998, respectively...... 1,342 1,669 1,669
Series B--2,000,000 convertible
shares designated and 309,606
shares issued and outstanding in
1997 and 1998.................... -- 310 310
Series C--13,000,000 convertible
shares designated and 2,674,340
shares issued and outstanding in
1997 and 1998.................... -- 2,674 2,674
Common Stock--$.001 par value,
32,000,000 shares authorized:
1,852,386, 1,865,243 and 1,922,385
shares issued and outstanding in
1996, 1997 and 1998, respectively.. 1,852 1,865 1,922
Additional paid-in capital.......... 8,222,131 34,477,114 35,187,039
Deferred compensation............... -- -- (317,654)
Deficit accumulated during the
development stage.................. (11,201,667) (23,690,467) (33,406,315)
------------ ------------ ------------
Total stockholders' equity
(deficit)........................ (2,976,342) 10,793,165 1,469,645
------------ ------------ ------------
Total liabilities and
stockholders' equity (deficit). $ 208,904 $ 17,584,898 $ 6,047,974
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, INCEPTION
-------------------------------------- -------------------------- (JUNE 23, 1994)
1995 1996 1997 1997 1998 TO JUNE 30, 1998
----------- ----------- ------------ ------------ ------------ ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ -- $ --
Expenses:
Research and
development........... 3,322,090 5,021,256 10,965,057 2,774,844 8,029,428 27,447,317
General and
administrative........ 1,127,321 1,096,790 1,597,233 761,000 1,512,580 5,723,963
----------- ----------- ------------ ------------ ------------ ------------
Total expenses......... 4,449,411 6,118,046 12,562,290 3,535,844 9,542,008 33,171,280
----------- ----------- ------------ ------------ ------------ ------------
(4,449,411) (6,118,046) (12,562,290) (3,535,844) (9,542,008) (33,171,280)
Interest expense........ (122,007) (66,274) (189,537) (32,913) (456,422) (851,605)
Interest and other
income................. 39,365 31,596 263,027 -- 282,582 616,570
----------- ----------- ------------ ------------ ------------ ------------
Net loss from
development stage
activities............. $(4,532,053) $(6,152,724) $(12,488,800) $ (3,568,757) $ (9,715,848) $(33,406,315)
=========== =========== ============ ============ ============ ============
Basic and diluted net
loss per share......... $ (2.38) $ (3.25) $ (6.71) $ (1.92) $ (5.07)
=========== =========== ============ ============ ============
Shares used in computing
basic and diluted net
loss per share......... 1,901,929 1,893,244 1,861,371 1,857,669 1,916,398
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- -------------------- ADDITIONAL
NUMBER OF PAR VALUE NUMBER OF PAR VALUE NUMBER OF PAR VALUE NUMBER OF PAR VALUE PAID-IN DEFERRED
SHARES $.001 SHARES $.001 SHARES $.001 SHARES $.001 CAPITAL COMPENSATION
--------- --------- --------- --------- --------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock sold in
1994 for cash at
$.035 per share. -- $ -- -- $-- -- $ -- 1,901,918 1,902 $ (770) $ --
Net loss from
development
stage
activities...... -- -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ --------- ------ ----------- ---------
Balance at
December 31,
1994............. -- -- -- -- -- -- 1,901,918 1,902 (770) --
Stock sold in
June 1995 for
cash at $6.125
per share....... 630,143 630 -- -- -- -- -- -- 3,859,125 --
Stock issued in
July 1995 for
technology at
$6.125 per
share........... 277,599 278 -- -- -- -- -- -- 1,699,722 --
Net loss from
development
stage
activities...... -- -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ --------- ------ ----------- ---------
Balance at
December 31,
1995............. 907,742 908 -- -- -- -- 1,901,918 1,902 5,558,077 --
Stock sold for
cash at $6.125
per share....... 320,000 320 -- -- -- -- -- -- 1,959,682 --
Stock issued for
technology at
$6.125 per
share........... 114,492 114 -- -- -- -- -- -- 701,152 --
Stock options
issued for
services........ -- -- -- -- -- -- -- 3,200 --
Common stock
reacquired and
retired......... -- -- -- -- -- -- (49,532) (50) 20 --
Net loss from
development
stage
activities...... -- -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ --------- ------ ----------- ---------
Balance at
December 31,
1996............. 1,342,234 1,342 -- -- -- -- 1,852,386 1,852 8,222,131 --
Stock issued for
cash at $6.125
per share....... 326,530 329 -- -- -- -- -- -- 1,999,675 --
Stock options
exercised....... -- -- -- -- -- -- 12,857 13 8,237 --
Stock options
issued for
services........ -- -- -- -- -- -- -- -- 2,363 --
Stock issued for
cash at $7.00
per share....... -- -- 309,606 310 -- -- -- -- 2,166,992 --
Stock issued for
cash at $8.75
per share....... -- -- -- -- 2,674,340 2,674 -- -- 23,397,826 --
Series C
Preferred Stock
issuance costs.. -- -- -- -- -- -- -- -- (1,320,110) --
Net loss from
development
stage
activities...... -- -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ --------- ------ ----------- ---------
Balance at
December 31,
1997............. 1,668,764 1,669 309,606 310 2,674,340 2,674 1,825,243 1,865 34,477,114 --
Stock issued for
services........ -- -- -- -- -- -- 57,142 57 349,943 --
Deferred
compensation,
net of
amortization.... -- -- -- -- -- -- -- 359,982 (317,654)
Net loss from
development
stage
activities...... -- -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ --------- ------ ----------- ---------
Balance at June
30, 1998
(unaudited)...... 1,668,764 $1,669 309,606 $310 2,674,340 $2,674 1,922,385 $1,922 $35,187,039 $(317,654)
========= ====== ======= ==== ========= ====== ========= ====== =========== =========
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY (DEFICIT)
------------- ----------------
<S> <C> <C>
Stock sold in
1994 for cash at
$.035 per share. $ -- $ 1,132
Net loss from
development
stage
activities...... (516,890) (516,890)
------------- ----------------
Balance at
December 31,
1994............. (516,890) (515,758)
Stock sold in
June 1995 for
cash at $6.125
per share....... -- 3,859,755
Stock issued in
July 1995 for
technology at
$6.125 per
share........... -- 1,700,000
Net loss from
development
stage
activities...... (4,532,053) (4,532,053)
------------- ----------------
Balance at
December 31,
1995............. (5,048,943) 511,944
Stock sold for
cash at $6.125
per share....... -- 1,960,002
Stock issued for
technology at
$6.125 per
share........... -- 701,266
Stock options
issued for
services........ -- 3,200
Common stock
reacquired and
retired......... -- (30)
Net loss from
development
stage
activities...... (6,152,724) (6,152,724)
------------- ----------------
Balance at
December 31,
1996............. (11,201,667) (2,976,342)
Stock issued for
cash at $6.125
per share....... -- 2,000,002
Stock options
exercised....... -- 8,250
Stock options
issued for
services........ -- 2,363
Stock issued for
cash at $7.00
per share....... -- 2,167,302
Stock issued for
cash at $8.75
per share....... -- 23,400,500
Series C
Preferred Stock
issuance costs.. -- (1,320,110)
Net loss from
development
stage
activities...... (12,488,800) (12,488,800)
------------- ----------------
Balance at
December 31,
1997............. (23,690,467) 10,793,165
Stock issued for
services........ -- 350,000
Deferred
compensation,
net of
amortization.... -- 42,328
Net loss from
development
stage
activities...... (9,715,848) (9,715,848)
------------- ----------------
Balance at June
30, 1998
(unaudited)...... $(33,406,315) $ 1,469,645
============= ================
</TABLE>
See accompanying notes.
F-5
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, INCEPTION
-------------------------------------- -------------------------- (JUNE 23, 1994)
1995 1996 1997 1997 1998 TO JUNE 30, 1998
----------- ----------- ------------ ------------ ------------ ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss from
development stage
activities............. $(4,532,053) $(6,152,724) $(12,488,800) $ (3,568,757) $ (9,715,848) $(33,406,315)
Adjustment to reconcile
net loss to cash used
in operating
activities:
Depreciation expense... 41,851 54,681 60,177 29,069 42,177 216,392
Stock issued for
technology............ 1,700,000 701,266 -- -- -- 2,401,266
Stock options and
common stock issued
for services.......... -- 3,200 2,363 -- 350,000 355,563
Deferred compensation
for stock options..... -- -- -- -- 42,328 42,328
Decrease (increase) in
receivables from
related parties....... 58,712 71,561 4,235 (15,871) (69,099) (82,000)
Decrease (increase) in
other assets.......... -- (4,989) (97,046) 4,989 93,990 (8,045)
Increase (decrease) in
accounts payable--
trade................. 176,507 1,281,228 (115,747) (883,533) (876,950) 471,853
Increase (decrease) in
payables to related
parties............... 260,932 440,553 3,698,468 439,246 (3,269,958) 1,838,067
Increase (decrease) in
accrued expenses and
other................. 157 277,306 23,766 (182,886) 333,504 668,409
----------- ----------- ------------ ------------ ------------ ------------
Net cash used in
operating activities... (2,293,894) (3,327,918) (8,912,584) (4,177,743) (13,069,856) (27,502,482)
----------- ----------- ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of property and
equipment.............. (79,149) (34,560) (145,300) (13,551) (195,604) (597,202)
Restricted cash
equivalent............. -- -- (1,640,676) (1,640,676)
----------- ----------- ------------ ------------ ------------ ------------
Net cash used in
investing activities... (79,149) (34,560) (145,300) (13,551) (1,836,280) (2,237,878)
----------- ----------- ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from sale of
Common Stock........... -- -- 8,250 7,400 -- 9,382
Proceeds from sale of
Series A Preferred
Stock.................. 3,859,755 1,960,002 2,000,002 2,000,000 -- 7,819,759
Proceeds from sale of
Series B Preferred
Stock.................. -- -- 2,167,302 2,167,302 -- 2,167,302
Proceeds from sale of
Series C Preferred
Stock, net of stock
issuance costs......... -- -- 22,080,390 -- -- 22,080,390
Repurchase of Common
Stock.................. (30) -- -- -- (30)
Deferred offering costs. -- -- -- -- (162,875) (162,875)
Proceeds from note
payable................ -- -- -- 2,861,000 2,861,000
Payments on note
payable................ -- -- -- -- (1,261,000) (1,261,000)
----------- ----------- ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 3,859,755 1,959,972 26,255,944 4,174,702 1,437,125 33,513,928
----------- ----------- ------------ ------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents............ 1,486,712 (1,402,506) 17,198,060 (16,592) (13,469,011) 3,773,568
Cash and cash
equivalents, beginning
of year or period...... (39,687) 1,447,025 44,519 44,519 17,242,579 --
----------- ----------- ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
year or period......... $ 1,447,025 $ 44,519 $ 17,242,579 $ 27,927 $ 3,773,568 $ 3,773,568
=========== =========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Sensus Drug Development Corporation (a development stage company) (the
"Company") was incorporated under the laws of the state of Delaware on June
23, 1994. Sensus is an emerging pharmaceutical company that is developing
drugs to treat endocrine and metabolic diseases and disorders. The Company's
first drug candidate, Trovert, is initially targeted for the treatment of
acromegaly, a disease caused by excess growth hormone, and certain
complications associated with diabetes.
The Company's activities since incorporation have primarily consisted of
establishing its facilities, recruiting personnel, conducting research and
development, performing clinical trials, performing marketing studies,
developing business and financial plans and raising capital. As a result, the
Company is considered a "development stage company."
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 1998 and for the six-month periods
ended June 30, 1997 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and
the operating results and cash flows for those periods. Results for the six
months ended June 30, 1998 are not necessarily indicative of the results for
the entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Investments with a maturity of three months or less when purchased are
considered to be cash equivalents and are stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line
method over the useful lives of the assets (generally three to seven years).
REVENUE RECOGNITION
From inception through June 30, 1998, the Company has been engaged in
research and development activities, and has not recognized any revenues.
RESEARCH AND DEVELOPMENT
All costs for research and development activities, including costs
associated with the manufacture of Trovert for clinical trials and the
purchase of growth hormone technology, are expensed as incurred.
F-7
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 109, Accounting for Income
Taxes. This statement prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Net loss per share is computed in
accordance with SFAS No. 128 by dividing the net loss allocable to holders of
Common Stock by the weighted average number of shares of Common Stock
outstanding. As of December 31, 1997, the Company has certain options,
warrants and Preferred Stock which have not been used in the calculation of
diluted net loss per share because to do so would be anti-dilutive. As such,
the numerator and the denominator used in computing both basic and diluted net
loss per share allocable to holders of Common Stock are equal.
Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all Common Stock issued for nominal
consideration during the periods presented herein and through the filing of
the registration statement for the offering described in Note 7 are to be
reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of pro-forma basic net
loss per share. The Company has not made any such issuances. Similarly, Common
Stock and Common Stock equivalents issued for nominal consideration during the
periods presented herein and through the filing of the registration statement
for the offering described in Note 7 are to be reflected in a manner similar
to a stock split or stock dividend for which retroactive treatment is required
in the calculation of pro forma diluted net loss per share, even if anti-
dilutive. The Company has not made any such issuances.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
Preferred Stock into Common Stock concurrent with the closing of the Company's
anticipated initial public offering. Therefore, a pro forma calculation
assuming the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the Company's initial public offering using the if-converted
method is presented below.
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
<S> <C> <C>
Pro forma basic and diluted net loss per share...... $ (2.87) $ (1.48)
========= =========
Shares used in computing pro forma basic and diluted
net loss per share................................. 4,353,767 6,569,142
========= =========
</TABLE>
The pro forma net loss per share allocable to holders of Common Stock and
shares used in computing pro forma net loss per share allocable to holders of
Common Stock have been presented reflecting the automatic conversion into
shares of Common Stock of the Preferred Stock upon completion of the offering
described in Note 7 (see Note 3) using the if-converted method from their
respective dates of issuance.
F-8
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has certain stock options and a warrant which have not been used
in the calculation of diluted net loss per share because to do so would be
anti-dilutive. As such, the numerator and denominator used in computing both
basic and diluted pro forma net loss per share allocable to holders of Common
Stock are equal.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements. The
statement is effective for fiscal years beginning after December 15, 1997. The
Company believes that the adoption of SFAS 130 will not have a material effect
on its financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes the standards for the manner in which public
enterprises are required to report financial and descriptive information about
their operating segments. The statement defines operating segments as
components of an enterprise for which separate financial information is
available and evaluated regularly as a means for assessing segment performance
and allocating resources to segments. A measure of profit or loss, total
assets and other related information are required to be disclosed for each
operating segment. In addition, this statement requires the annual disclosure
of information concerning revenues derived from the enterprise's products or
services, countries in which it earns revenue or holds assets, and major
customers. The statement is also effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 131 will not affect the Company's
results of operations or financial position, but may affect the disclosure of
segment information in the future.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Office equipment..................................... $ 139,117 $ 159,512
Leasehold improvements............................... 68,776 152,521
Office furniture and fixtures........................ 48,405 89,565
--------- ---------
256,298 401,598
Accumulated depreciation............................. (114,038) (174,215)
--------- ---------
$ 142,260 $ 227,383
========= =========
</TABLE>
3. STOCKHOLDERS' EQUITY
STOCK SPLIT
In May 1995, the Company effected a stock split of Common Stock, exchanging
59.22 shares for each share then outstanding. Additionally, in September 1998
the Board of Directors of the Company approved a 1-for-3.5 reverse split of
Common and Preferred Stock to be effective immediately prior to the effective
date of the Company's initial public offering. See Note 7. All Common Stock
and Preferred Stock information has been adjusted to reflect the stock splits
as if such splits had taken place at June 23, 1994 (inception of the Company).
F-9
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
CHANGE IN PAR VALUE
In May 1995, the Company changed the par value of Common Stock and Preferred
Stock to $.001 per share. All stock information has been adjusted to reflect
the change in par value as if such change had taken place at June 23, 1994
(inception of the Company).
PREFERRED STOCK
In the period from June 1995 through January 1997, the Company issued a
total of 1,668,764 shares of Series A Preferred Stock at $6.125 per share. In
March 1997, the Company issued 309,606 shares of Series B Preferred Stock at
$7.00 per share. In October 1997, the Company issued 2,674,340 shares of
Series C Preferred Stock at $8.75 per share. The Preferred Stock is
convertible into Common Stock at the option of the holder thereof at any time
based upon the conversion price defined in the Company's Amended and Restated
Certificate of Incorporation. However, each share of Preferred Stock shall be
automatically converted into Common Stock, at the then applicable conversion
rate, upon the affirmative vote of at least a majority of the outstanding
shares of Preferred or in the event of an underwritten public offering of the
Common Stock of the Company that meet certain price per share and aggregate
offering proceeds thresholds, set forth in the Amended and Restated
Certificate of Incorporation.
The holders of Series A, B and C Preferred Stock are entitled to voting
rights equal to holders of Common Stock and are to receive 8% noncumulative
dividends when and as declared by the Company's Board of Directors (the "Board
of Directors" or the "Board"). No redemption rights exist for the Series A, B
or C Preferred Stock. The Company has reserved approximately 4,700,000 shares
of Common Stock for issuance upon conversion of the Preferred Stock.
In connection with the issuance of the Series C Preferred Stock, the Company
issued to the placement agent a warrant to purchase 65,714 shares of Series C
Preferred Stock at $10.50 per share, exercisable at any time through October
10, 2002.
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan provides for the grant of incentive
options to employees. The exercise price of each currently outstanding option
is the fair value of a share of the Company's Common Stock on the date of
grant as determined by the Board of Directors. The vesting schedule and term
of each grant is determined by the Board, although no option grant may have a
term exceeding ten years from the date of grant. In July 1998, the 1996 Stock
Option Plan was amended and restated. See Note 7.
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting method provided for
under FASB Statement No. 123, Accounting for Stock-Based Compensation ("FAS
123"), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the estimated market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-10
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net income (loss) is required by FAS 123,
which also requires that the information be determined as if the Company had
accounted for its employee stock options granted subsequent to December 31,
1994 under the fair value method prescribed by FAS 123. The fair value for
these options was estimated at the date of grant using a minimum value option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ 6.0% 6.1% 6.0%
Dividend yield..................................... 0% 0% 0%
Assumed volatility................................. 0% 0% 0%
Weighted-average expected life of the options...... 5 years 5 years 5 years
</TABLE>
Option valuation models require the input of highly subjective assumptions.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the options' vesting periods. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Pro forma stock-based compensation
expense............................ $ -- $ 1,237 $ 5,566
Weighted average grant-date fair
value per share of options granted. -- 0.14 0.18
Pro forma net loss.................. (4,532,053) (6,153,961) (12,494,366)
Pro forma basic net loss per share.. (2.38) (3.25) (6.71)
Pro forma diluted net loss per
share.............................. (2.38) (3.25) (6.71)
</TABLE>
The effects of applying FAS 123 for pro forma disclosures are not likely to
be representative of the effects on reported net income (loss) for future
years.
F-11
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of changes in common stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICES
------- ----------- --------
<S> <C> <C> <C>
Options outstanding, December 31, 1994......... -- -- --
Granted...................................... 22,856 $.04-$.61 $ .48
Exercised.................................... -- -- --
Surrendered.................................. -- -- --
------- ----------- -----
Options outstanding, December 31, 1995......... 22,856 .04-.61 .48
Granted...................................... 102,855 .60 .60
Exercised.................................... -- -- --
Surrendered.................................. (35,714) .60 .60
------- ----------- -----
Options outstanding, December 31, 1996......... 89,997 .04-.61 .56
Granted...................................... 235,711 .70-.88 .74
Exercised.................................... (12,856) .60-.70 .63
Surrendered.................................. (2,857) .60 .60
------- ----------- -----
Options outstanding, December 31, 1997......... 309,995 .04-.88 .70
Granted...................................... 139,996 .88-10.50 5.78
Exercised.................................... -- -- --
Surrendered.................................. -- -- --
------- ----------- -----
Options outstanding, June 30, 1998............. 449,991 $.04-$10.50 $2.27
======= =========== =====
Exercisable at December 31, 1997............... 59,999 $.04-$.70 $ .60
======= =========== =====
</TABLE>
Options outstanding at December 31, 1997 are comprised of the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF WEIGHTED AVERAGE REMAINING
OPTIONS EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE
------- --------------- ---------------- ----------------
<S> <C> <C> <C>
22,856 $.04-$.61 $.32 7.5 years
57,142 .60 .60 8.2 years
229,997 .70-.88 .74 9.6 years
</TABLE>
At December 31, 1997, the Company had reserved 427,142 shares of common
stock for issuance in connection with the exercise of stock options under the
1996 Stock Option Plan and had reserved 45,712 shares of common stock in
connection with the exercise of stock options issued outside the 1996 Stock
Option Plan.
The weighted-average remaining contractual life of the options outstanding
at December 31, 1997 is 9.2 years.
In connection with the Company's initial public offering, the Company
retroactively established a deemed value in excess of the fair value of
certain stock options granted during 1998. The Company recorded deferred
compensation of approximately $360,000 during the six months ended June 30,
1998, representing the difference between the exercise price and the deemed
fair value of the Company's Common Stock for stock options granted during the
period. Such amount will be amortized over the five-year vesting period of
each option. The Company recorded amortization of deferred compensation as an
expense of approximately $42,000 during the six months ended June 30, 1998.
F-12
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LICENSE AGREEMENTS
OU/EBI AGREEMENT.
Pursuant to a Biotechnology Licensing and Transfer Agreement (the "OU/EBI
License Agreement") between OU/EBI and an affiliate of the Company, Sensus has
acquired an exclusive, worldwide license to make, use and sell products based
on GHAs and related technologies discovered at OU/EBI during the term of a
Sponsored Research Agreement ("SRA") with OU/EBI. Several U.S. and foreign
patent applications and issued patents are included in this license. During
the term of the SRA, Sensus is obligated to reimburse OU/EBI for research
being conducted by OU/EBI in the field of technologies relating to GHAs.
Sensus is obligated to make payments to OU/EBI for each product derived from
licensed technology upon attainment of certain development milestones. The
Company recorded expenses of $200,000, $220,000, $275,000 and $166,000 during
1995, 1996, 1997 and the six months ended June 30, 1998, respectively, under
the SRA. The Company recorded $1.0 million in milestone expenses under the
OU/EBI License Agreement during the six months ended June 30, 1998, $500,000
of which was paid during such period. The Company has agreed to pay the
remaining $500,000 to OU/EBI by April 1999. Other than such payment, the
Company does not anticipate making any additional milestone payments in the
foreseeable future. In addition, Sensus is obligated to pay a royalty to
OU/EBI payable within 30 days of the end of each calendar quarter, subject to
adjustment, on net sales for any products commercialized using the licensed
technology. The OU/EBI License Agreement expires on January 18, 2001, unless
extended by mutual agreement of the parties, and may be terminated by OU/EBI
prior to the expiration of its term upon Sensus' breach of the agreement. Upon
expiration of the OU/EBI License Agreement, Sensus will retain all rights to
the licensed technology provided that it has not breached the agreement.
GENENTECH AGREEMENT.
In July 1994, Sensus and Genentech entered into a license agreement (the
"Genentech Agreement") which grants to Sensus the exclusive, worldwide license
for treating, diagnosing or preventing GH-related diseases in humans, to make,
have made, use and sell products containing certain specified GHAs as well as
certain related compounds identified by Genentech during the three-year period
following the effective date of the agreement (July 11, 1994). The Company has
granted to Genentech a right of first offer whereby the Company must notify
Genentech if the Company wishes to sublicense certain GHAs to third parties to
use and sell in certain geographic regions. Genentech shall then be entitled
to negotiate exclusively with Sensus with respect to such rights for a limited
period of time. If an agreement between the parties is not reached, Sensus may
grant such rights to a third party on terms no more favorable than those last
offered to Genentech. Genentech has licensed to Sensus specific know-how that
includes all information, technology and materials which constitute
proprietary methods, processes, techniques, assay methodology, inventions,
formulations or biologically active materials useful for the development, use
or sale of those GHAs. Furthermore, Sensus has acquired know-how related to
the development of long-acting forms of GHAs from Genentech, as well as assay
methodologies, formulations and other methods useful for the development, use
or sale of certain GHAs. Sensus has met all milestones in the Genentech
Agreement required to be met to date, and the final milestone is the filing of
the NDA for a product candidate containing a GHA licensed from Genentech on or
before January 1, 2002. If Sensus does not reach the final milestone or
breaches the agreement, Genentech may terminate the license. Under the terms
of the Genentech Agreement, Genentech is entitled to receive a royalty on net
sales payable within 90 days of the end of each calendar quarter for any GHA
sold by Sensus that is within the scope of a licensed Genentech patent or
patent application, or a reduced royalty on net sales for other licensed
products.
In consideration for the license, Genentech received an aggregate of 392,091
shares (277,599 in 1995 and 114,492 in 1996) of Series A Preferred Stock
pursuant to the Genentech Agreement. Based upon the fair value of the Series A
Preferred Stock issued ($6.125 per share), the Genentech license was valued at
$2,401,562 and
F-13
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LICENSE AGREEMENTS (CONTINUED)
was charged to research and development expense. Genentech also purchased
81,632 shares of Series A Preferred Stock on the same terms as other investors
in 1995.
5. INCOME TAXES
As of December 31, 1997, the Company had net operating loss carryforwards of
approximately $20,888,000 and research and orphan drug credit carryforwards
("tax credit carryforwards") of approximately $1,880,000 for federal tax
reporting purposes. The net operating loss carryforwards will expire beginning
in 2009, if not utilized, and the tax credit carryforwards will expire
beginning in 2012, if not utilized. Federal tax laws provide for an annual
limitation on the amount of taxable income that can be offset by net operating
loss and tax credit carryforwards arising in periods prior to certain
ownership changes. The Company experienced such an ownership change for
federal income tax purposes during 1997. As a result, net operating loss and
tax credit carryforwards arising prior to the ownership change will only be
available to offset approximately $870,000 of taxable income per year. Such
annual limitation could be increased for certain "built-in" gains recognized
for tax purposes during the five year period following the ownership change.
Such limitation is cumulative, so that unutilized net operating loss and tax
credit carryforwards not in excess of the limitation can be used in subsequent
years. Accordingly, if the Company generates taxable income in any year in
excess of its then-cumulative limitation and carryforwards generated
subsequent to the ownership change, the Company may be required to pay federal
income taxes even though it has unexpired carryforwards. The annual limitation
could also result in the expiration of net operating loss and tax credit
carryforwards before utilization.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Purchased technology.... $ 774,000 $ 717,000
Net operating loss
carryforwards.......... 3,243,000 7,520,000
Tax credit
carryforwards.......... -- 1,880,000
Book over tax
depreciation........... 7,000 15,000
------------ ------------
Total deferred tax assets. 4,024,000 10,132,000
Valuation allowance for
deferred tax assets.... (4,024,000) (10,132,000)
------------ ------------
Net deferred taxes........ $ -- $ --
============ ============
</TABLE>
Given the Company's limited operating history, losses incurred to date, and
the difficulty in accurately forecasting the Company's future results,
management does not believe that it is more likely than not that the related
deferred tax assets will be realized and, accordingly, a full valuation
allowance has been recorded. The valuation allowance increased by $2,090,000
in 1996 and $6,108,000 in 1997.
F-14
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES (CONTINUED)
The difference between the provision for income taxes and the amount that
would result from applying the U.S. statutory tax rate to loss before
provision for income taxes is primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at 34% statutory rate.. $(1,540,898) $(2,092,000) $(4,246,000)
Research and orphan drug credit ... -- -- (1,880,000)
Other (net)........................ -- 2,000 18,000
Benefits not currently recognized
due to valuation allowance........ 1,540,898 2,090,000 6,108,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Receivables from related parties consist of amounts borrowed by related
parties and employee advances. Payables to related parties consist of amounts
borrowed from related parties and accounts payable to related parties for
services provided.
Amounts borrowed by related parties were $17,136 and $12,901 at December 31,
1996 and 1997, respectively, and $0 at June 30, 1998. Amounts borrowed from
related parties were $1,323,646 and $3,846,689 at December 31, 1996 and 1997,
respectively, and $0 at June 30, 1998. Interest income and expense was accrued
on the amounts borrowed by/from related parties at 8%, 8% and 8.5% annually in
1995, 1996 and 1997, respectively. Net interest expense (income) recorded on
amounts borrowed from (by) related parties was approximately $61,000 in 1995,
$66,000 in 1996 and $189,000 in 1997. Accounts payable to related parties was
$85,911 and $1,261,336 at December 31, 1996 and 1997, respectively, and
$1,990,005 at June 30, 1998.
Included in amounts borrowed from related parties at December 31, 1997 is
$3,492,000 borrowed from a bank under a related party's line of credit with
the bank. The line of credit between the bank and the related party is
personally guaranteed by the Chairman of the Company. In January 1998, the
Board of Directors approved the issuance of 57,142 shares of Common Stock to
the Company's Chairman in consideration for his personal guarantee of the
related party's line of credit to the extent the line of credit was utilized
by the Company. The Board of Directors estimated the value of the guarantee to
be $50,000 based upon an independent valuation, and determined the fair value
of the Common Stock to be $0.875 per share. In connection with the Company's
initial public offering, the Company retroactively established a deemed value
for the Common Stock of $6.125 per share. The Company recorded $350,000 in
additional interest expense related to the Common Stock issued in connection
with the loan.
The Company subleases its office facility from a related party and incurred
rent expense of approximately $56,000 in 1995, $60,000 in 1996 and $60,000 in
1997. See Note 7.
In September 1996, the Company entered into a Manufacturing Services
Agreement ("CBSI Agreement") with Covance Biotechnology Services, Inc.
("CBSI"). Certain stockholders and members of management of the Company are
also stockholders in CBSI. CBSI has been contracted to perform services
related to the manufacture and production of the Company's growth hormone
antagonists. Costs related to the CBSI Agreement were $66,000 and $7,172,000
for 1996 and 1997, respectively.
F-15
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. SUBSEQUENT EVENTS
In January 1998, the Company borrowed $2,861,000 from a bank. The loan
proceeds of $2,861,000 plus additional cash of $631,000 were used to repay the
$3,492,000 borrowed from a bank via a related party's line of credit (see Note
6). Pursuant to the loan agreement, principal is due in six quarterly
installments as follows: $631,000 on March 31, 1998, $630,000 on June 30, 1998
and $400,000 for each quarter thereafter until all principal has been repaid.
The loan bears interest at 7.6% and interest is payable quarterly.
Effective May 1, 1998, the Company adopted a SIMPLE--IRA Plan (the "Plan")
covering certain of the Company's employees. Eligible employees may contribute
up to the lesser of 15% of their compensation or the statutorily prescribed
annual limit ($6,000 in 1998). The Company will make matching contributions of
at least 2% of each participating employees' compensation. No matching
contributions have been made to the Plan as of June 30, 1998.
On July 20, 1998, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its Common Stock to the
public. If the offering is consummated under the terms presently anticipated,
all of the currently outstanding shares of Preferred Stock will convert to
4,652,710 shares of Common Stock.
In July 1998, the Board adopted, subject to stockholder approval, the 1998
Equity Incentive Plan (the "Incentive Plan") as an amendment and restatement
of the Company's 1996 Stock Option Plan. The Company has reserved a total of
1,428,571 shares for issuance under the Incentive Plan. The Incentive Plan
provides for grants of incentive stock options to employees of the Company or
any affiliate and nonstatutory stock options, restricted stock purchase
awards, stock bonuses and stock appreciation rights to employees, directors of
and consultants to the Company or any affiliate. The term of a stock option
granted under the Incentive Plan generally may not exceed 10 years. The
exercise price of options granted under the Incentive Plan is determined by
the Board, but, in the case of an incentive stock option, cannot be less than
100% of the fair market value of the Common Stock on the date of grant and, in
the case of a nonstatutory stock option, cannot be less than 85% of the fair
market value of the Common Stock on the date of grant. The Incentive Plan will
terminate in June 2008, unless terminated sooner by the Board.
In July 1998, the Board adopted, subject to stockholder approval, the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
100,000 shares of Common Stock. Employees are eligible to participate if they
are employed by the Company, or an affiliate of the Company designated by the
Board, for at least 20 hours per week and are employed by the Company, or an
affiliate of the Company designated by the Board, for at least five months per
calendar year. Employees who participate in an offering can have up to 15% of
their earnings withheld to be used to purchase shares of Common Stock of the
Company on specified dates determined by the Board. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the Common Stock on the commencement date of each
offering period or on the specified purchase date.
In July 1998, the Board adopted, subject to stockholder approval, the 1998
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide
for automatic grant of options to purchase shares of Common Stock to non-
employee directors of the Company. The aggregate number of shares of Common
Stock that may be issued pursuant to options granted under the Directors' Plan
is 142,857 and options issued have a 10-year life. Pursuant to the terms of
the Directors' Plan, each non-employee director of the Company who is first
elected or appointed to be a non-employee director after the closing of the
Company's initial public offering and who is not holding an outstanding option
to purchase Common Stock on the date of such election or appointment shall
automatically be granted an option to purchase 8,571 shares of Common Stock or
8,571 shares less the shares
F-16
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
subject to any outstanding option held by such director at the date of such
election or appointment. In addition, each non-employee director who continues
to serve as a non-employee director of the Company will automatically be
granted an option to purchase 2,857 shares of Common Stock immediately
following the annual meeting of stockholders of the Company, which amount
shall be pro-rated for any non-employee director who has not continuously
served as a director for the 10-month period prior to the date of such annual
meeting of stockholders. Each initial grant and annual grant shall vest in
three equal annual installments over a 3-year period measured from the grant
date. The exercise price of initial grants and annual grants will equal the
fair market value of the Common Stock on the date of grant. The Directors'
Plan will terminate in June 2008, unless earlier terminated by the Board.
Subsequent to June 30, 1998, the Company assumed the lease for the office
space previously subleased by the Company from an affiliate and additional
space was leased from an unrelated party. The rental rate was at market rates
and, prior to the assignment of the lease, the Chairman of the Company
provided a guarantee for the lease. The lease expires in 2003 and requires
annual lease payments of $83,000 during the remainder of 1998 and $249,000,
$251,000, $260,000 and $260,000 in 1999, 2000, 2001 and 2002, respectively.
In September 1998, the Board of Directors of the Company approved a 1-for-
3.5 reverse split of Common and Preferred Stock to be effective immediately
prior to the effective date of the Company's initial public offering. All
Common and Preferred Stock information has been adjusted to reflect the stock
split as if such split had taken place at June 23, 1994 (inception of the
Company). See Note 3.
In September 1998, the Company entered into a $5.0 million revolving line of
credit with a bank. The loan will bear interest at the bank's prime rate,
payable quarterly, and repayment of any borrowings is due on September 4,
1999. A stockholder of the Company provided a personal guarantee of the
revolving line of credit in exchange for a warrant to acquire 57,142 shares of
Common Stock at an exercise price of $12.25 per share.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 6
Special Note Regarding Forward-Looking Statements ........................ 16
The Company .............................................................. 17
Use of Proceeds .......................................................... 18
Dividend Policy .......................................................... 18
Capitalization ........................................................... 19
Dilution ................................................................. 20
Selected Financial Data .................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 22
Business ................................................................. 26
Management ............................................................... 46
Principal Stockholders ................................................... 55
Certain Transactions ..................................................... 57
Description of Capital Stock ............................................. 59
Shares Eligible for Future Sale .......................................... 62
Underwriting ............................................................. 64
Legal Matters ............................................................ 67
Experts .................................................................. 67
Available Information .................................................... 67
Index to Financial Statements ............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF SENSUS]
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCBOSTON ROBERTSON STEPHENS
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 1, 1998
PROSPECTUS
3,000,000 SHARES
LOGO
SENSUS DRUG DEVELOPMENT CORPORATION
COMMON STOCK
----------
All of the 3,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), offered hereby are being offered by Sensus Drug Development
Corporation, a Delaware corporation ("Sensus" or the "Company"). Of the
3,000,000 shares of Common Stock offered hereby, 600,000 shares are being
offered for sale initially outside the United States and Canada by the
International Managers (the "International Offering") and 2,400,000 shares are
being offered for sale initially in a concurrent offering in the United States
and Canada by the U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offerings"). The initial public offering price and
the underwriting discount per share will be identical for both Offerings. See
"Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for information related
to the factors to be considered in determining the initial public offering
price of the Common Stock. The Company has applied to have the Common Stock
approved for inclusion on the Nasdaq National Market under the symbol "SDDC."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........... $ $ $
- -------------------------------------------------------------------------------
Total(3)............ $ $ $
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $830,000.
(3) The Company has granted the International Managers and the U.S.
Underwriters options to purchase up to an additional 90,000 shares and
360,000 shares of Common Stock, respectively, in each case exercisable
within 30 days after the date hereof, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
----------
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCBOSTON ROBERTSON STEPHENS
----------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain material United States
federal income and estate tax consequences of the ownership and disposition of
Common Stock by a holder who is not a United States person or entity (a "Non-
U.S. Holder"). As used in this discussion, the term "Non-U.S. Holder" means
any person or entity that is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual, a non-resident fiduciary
of a foreign estate or trust, or a foreign partnership. An individual may,
subject to certain exceptions, be deemed to be a resident alien (as opposed to
a non-resident alien) by virtue of being present in the United States on at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year (counting for
such purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year). Resident aliens are subject to United
States federal tax as if they were United States citizens and residents.
This discussion does not address all aspects of United States federal income
and estate taxes or consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder's tax position such as a dealer in
securities, an insurance company or a tax-exempt entity. Nor does it deal with
foreign, state and local consequences that may be relevant to Non-U.S.
Holders. Furthermore, this discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations promulgated thereunder and public administrative and judicial
interpretations thereof, all of which are subject to changes which could be
applied retroactively. EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED
TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY US, FEDERAL, STATE, MUNICIPAL OR
OTHER TAXING JURISDICTION OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
The Company does not currently intend to pay cash dividends on shares of
Common Stock. See "Dividend Policy". In the event that such dividends are paid
on shares of Common Stock, except as described below, dividends paid to a Non-
U.S. Holder of Common Stock will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the
United States. If the dividends are effectively connected with the conduct of
a trade or business by the Non-U.S. Holder within the United States and, if a
tax treaty applies, are attributable to a United States permanent
establishment of the Non-U.S. Holder, the dividends will be subject to United
States federal income tax on a net income basis at applicable graduated
individual or corporate rates and will be exempt from the 30% withholding tax
described above (assuming the necessary certification and disclosure
requirements are met). Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country for purposes of the withholding discussed
above (unless the payor has knowledge to the contrary), and, under currently
applicable United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under recently promulgated United States
Treasury regulations generally effective with respect to payments made after
December 31, 1999, however, a Non-U.S. Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate (and avoid backup withholding
as discussed below) will be required to satisfy specified certification and
other requirements, which will include filing a Form W-8 containing the Non-
U.S. Holder's name, address and a certification that such Holder is eligible
for the benefits of the treaty under its
64
<PAGE>
Limitations in Benefits Article. In addition, certain certification and
disclosure requirements must be met to be exempt from withholding under the
effectively connected income exemption discussed above.
A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate,
timely claim for refund with the United States Internal Revenue Service (the
"Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has
been a "United States real property holding corporation" (a "USRPHC") within
the meaning of section 897(c)(2) of the Code at any time within the shorter of
the five-year period preceding such disposition or such Non-U.S. Holder's
holding period (the "Required Holding Period"), (ii) the gain is effectively
connected with the conduct of a trade or business within the United States of
the Non-U.S. Holder and, if a tax treaty applies, is attributable to a
permanent establishment maintained by the Non-U.S. Holder, (iii) the Non-U.S.
Holder is an individual who holds the share of Common Stock as a capital asset
and is present in the United States for 183 days or more in the taxable year
of the disposition and either (a) such individual has a "tax home" (as defined
for United States federal income tax purposes) in the United States or (b) the
gain is attributable to an office or other fixed place of business maintained
in the United States by such individual, or (iv) the Non-U.S. Holder is
subject to tax pursuant to the Code provisions applicable to certain United
States expatriates. If an individual Non-U.S. Holder falls under clause (ii)
or (iv) above, he or she will be taxed on his or her net gain derived from the
sale under regular United States federal income tax rates. If the individual
Non-U.S. Holder falls under clause (iii) above, he or she will be subject to a
flat 30% tax on the gain derived from the sale which may be offset by United
States source capital losses (notwithstanding the fact that he or she is not
considered a resident of the United States). If a Non-U.S. Holder that is a
foreign corporation falls under clause (ii) above, it will be taxed on its
gain under regular graduated United States federal income tax rates and, in
addition, will under certain circumstances be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits" within
the meaning of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interest plus its other assets
used or held for use in a trade or business. The Company believes that it is
not currently a USRPHC. However, a Non-U.S. Holder would generally not be
subject to tax, or withholding in respect of such tax, on gain from a sale or
other disposition of Common Stock by reason of the Company's USRPHC status if
the Common Stock is regularly traded on an established securities market
("regularly traded") during the calendar year in which such sale or
disposition occurs, provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during the
Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-U.S. Holder owns in excess of 5% of the fair market value of
Common Stock (as described in the preceding paragraph), such Non-U.S. Holder
of Common Stock will be subject to United States federal income tax at regular
graduated rates under certain rules ("FIRPTA tax") on gain recognized on a
sale or other disposition of such Common Stock. In addition, if the Company is
or has been a USRPHC within the Required Holding Period and if the Common
Stock were not treated as regularly traded, a Non-U.S. Holder (without regard
to its ownership percentage) would be subject to withholding in respect of
FIRPTA tax at a rate of 10% of the amount realized on a sale or other
disposition of Common Stock and could be further subject to FIRPTA tax in
excess of the amounts withheld. Any amount withheld pursuant to such
withholding tax would be creditable against such Non-U.S. Holder's United
States federal income tax liability. Non-U.S. Holders are urged to consult
their tax advisors concerning the potential applicability of these provisions.
65
<PAGE>
FEDERAL ESTATE TAXES
An individual Non-U.S. Holder who (i) is neither a citizen nor resident of
the United States (as specifically defined for United States federal estate
tax purposes) at the time of his or her death and (ii) owns, or is treated as
owning Common Stock at the time of his or her death, or has made certain
lifetime transfers of an interest in Common Stock, will be required to include
the value of such Common Stock in his or her gross estate for federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect
to such dividends. These information reporting requirements apply regardless
of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder resides under the
provisions of an applicable income tax treaty or other agreement with the tax
authorities in that country.
United States backup withholding tax (which, in general, is a withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) generally will not apply to (a) the payment of dividends paid on
Common Stock to a Non-U.S. Holder that is either subject to the 30%
withholding discussed above or that is not so subject because an income tax &
treaty applies that reduces or eliminates the withholding, at an address
outside the United States (unless the payor has knowledge that the payee is a
United States person) or (b) the payment of the proceeds of the sale of Common
Stock to or through the foreign office of a broker. In the case of the payment
of proceeds from such a sale of Common Stock through a foreign office of a
broker that is a United States person or a "U.S. related person", however,
information reporting (but not backup withholding) is required with respect to
the payment unless the broker has documentary evidence in its files that the
owner is a Non-U.S. holder (and has no actual knowledge to the contrary) and
certain other requirements are met or the holder otherwise establishes an
exemption. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for United States federal income tax purposes under
current regulations, or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment
of the proceeds of a sale of shares of Common Stock to or through a United
States office of a broker is subject to information reporting and possible
backup withholding unless the owner certifies its non-United States status
under penalties of perjury or otherwise establishes an exemption. Any amount
withheld under the backup withholding rules from a payment to a Non-U.S.
Holder will be allowed as a refund or a credit against such Non-U.S. Holder's
United States federal income tax liability, provided that the required
information is furnished to the Service.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. In addition, the final
regulations permit the shifting of primary responsibility for withholding to
certain financial intermediaries acting on behalf of beneficial owners. The
final regulations are generally effective for payments made after December 31,
1999, subject to certain transition rules. Non-U.S. Holders should consult
their own tax advisor with respect to the impact, if any, of the final
regulations.
66
<PAGE>
UNDERWRITING
Merrill Lynch International, NationsBanc Montgomery Securities LLC and
BancBoston Robertson Stephens Inc. are acting as managers (the "International
Managers"). Subject to the terms and conditions set forth in an international
purchase agreement (the "International Purchase Agreement") among the Company
and the International Managers, and concurrently with the sale of 2,400,000
shares of Common Stock to the U.S. Underwriters (as defined below), the
Company has agreed to sell to the International Managers, and each of the
International Managers severally and not jointly has agreed to purchase from
the Company, the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
--------------------- ---------
<S> <C>
Merrill Lynch International.......................................
NationsBanc Montgomery Securities LLC.............................
BancBoston Robertson Stephens Inc.................................
-------
Total........................................................ 600,000
=======
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 600,000 shares of Common
Stock to the International Managers pursuant to the International Purchase
Agreement, the Company has agreed to sell to the U.S. Underwriters, and the
U.S. Underwriters severally have agreed to purchase from the Company, an
aggregate of 2,400,000 shares of Common Stock. The initial public offering
price per share and the total underwriting discount per share of Common Stock
are identical under the International Purchase Agreement and the U.S. Purchase
Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. Under certain circumstances, under the
International Purchase Agreement and the U.S. Purchase Agreement, the
commitments of non-defaulting Underwriters may be increased. The closings with
respect to the sale of shares of Common Stock to be purchased by the
International Managers and the U.S. Underwriters are conditioned upon one
another.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the International Managers and the U.S. Underwriters are permitted
to sell shares of Common Stock to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are U.S. or Canadian persons or to
persons they believe intend to resell to persons who are U.S. or Canadian
persons, except in each case for transactions pursuant to the Intersyndicate
Agreement.
The International Managers have advised the Company that the International
Managers propose initially to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The International Managers may
allow, and such dealers may reallow, a discount not in excess of $ per
share of Common Stock on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
67
<PAGE>
The Company has granted an option to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate
of 90,000 additional shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Managers may exercise this option solely to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby.
To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table. The
Company also has granted an option to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
360,000 additional shares of Common Stock to cover over-allotments, if any, on
terms similar to those granted to the International Managers.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price up to 10% of the shares offered hereby to be
sold to certain directors, officers, employees, stockholders and business
associates of the Company and related persons. The number of shares available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of pricing of the Offerings will be
offered by the Underwriters to the general public on the same terms as the
other shares offered hereby.
The Company, its officers, directors and certain stockholders have agreed,
subject to certain exceptions, not to directly or indirectly (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
for the sale of or otherwise dispose of or transfer any shares of Common Stock
or securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or thereafter acquired by the person executing the
agreement or with respect to which the person executing the agreement
thereafter acquires the power of disposition, or file a registration statement
under the Securities Act with respect to the foregoing or (ii) enter into any
swap or other agreement that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, without the prior written consent of Merrill Lynch on
behalf of the Underwriters for a period of 180 days after the date of this
Prospectus. See "Shares Eligible for Future Sale."
The Underwriters do not expect sales of the Common Stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations between the Company, the U.S. Representatives and the
International Managers. The factors considered in determining the initial
public offering price, in addition to prevailing market conditions, are price-
earnings ratios of publicly traded companies that the U.S. Representatives
believe to be comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry
in which it competes, and an assessment of the Company's management, its past
and present operations, the prospects for, and timing of, future revenues of
the Company, the present state of the Company's development, and the above
factors in relation to market values and various valuation measures of other
companies engaged in activities similar to the Company. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the Securities Act and other applicable securities laws, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the U.S. Representatives are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
68
<PAGE>
If the Underwriters create a short position Common Stock in connection with
the Offerings, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the U.S. Representatives may
reduce that short position by purchasing Common Stock in the open market. The
U.S. Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the shares of
Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the Common Stock to the extent
that it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the shares of Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the Closing
Date, will not offer or sell any shares of Common Stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995; (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Common Stock in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of Common
Stock to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or
any other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or indirectly, and
neither this Prospectus nor any other offering material or advertisements in
connection with the shares of Common Stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
In connection with the Company's October 1997 private placement of Series C
Preferred Stock, one of the U.S. Representatives, NationsBanc Montgomery
Securities LLC, acted as a placement agent, and, as consideration for its
services, received a warrant to purchase 65,714 shares of the Company's Series
C Preferred Stock at an exercise price of $10.50 per share, exercisable at any
time through October 10, 2002. Upon the consummation of the Offerings and
conversion of all outstanding shares of Preferred Stock into Common Stock, the
warrant shall become a warrant to purchase shares of Common Stock. The warrant
is exercisable on a net issuance basis, and the holder is entitled to certain
registration rights with respect to the Common Stock issuable upon exercise of
the warrant. See "Description of Capital Stock--Warrants," "--Registration
Rights" and "Certain Transactions."
69
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Cooley Godward
LLP, Palo Alto, California. Certain legal matters relating to the Offerings
will be passed upon for the Underwriters by Brown & Wood LLP, New York, New
York. Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors--No Assurance of Marketing
Approval; Government Regulation" and "Business--Government Regulation" will be
passed upon by Hyman, Phelps & McNamara, P.C.
EXPERTS
The financial statements of Sensus Drug Development Corporation at December
31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained
in this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates or accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
70
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 6
Special Note Regarding Forward-Looking Statements ........................ 16
The Company .............................................................. 17
Use of Proceeds .......................................................... 18
Dividend Policy .......................................................... 18
Capitalization ........................................................... 19
Dilution ................................................................. 20
Selected Financial Data .................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 22
Business ................................................................. 26
Management ............................................................... 46
Principal Stockholders ................................................... 55
Certain Transactions ..................................................... 57
Description of Capital Stock ............................................. 59
Shares Eligible for Future Sale .......................................... 62
Certain United States Federal Tax Considerations for Non-United States
Holders ................................................................. 64
Underwriting.............................................................. 67
Legal Matters ............................................................ 70
Experts................................................................... 70
Additional Information.................................................... 70
Index to Financial Statements ............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
[SENSUS LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCBOSTON ROBERTSON STEPHENS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee................................................... $ 15,340
NASD filing fee.................................................... 5,100
Nasdaq application and listing fee................................. 70,625
Blue sky qualification fee and expenses............................ 5,000
Printing and engraving expenses.................................... 150,000
Legal fees and expenses............................................ 400,000
Accounting fees and expenses....................................... 125,000
Directors and officers' insurance.................................. 23,100
Transfer agent and registrar fees.................................. 1,000
Miscellaneous...................................................... 34,835
--------
Total............................................................ $830,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation, as amended and restated,
provides for the elimination of liability for monetary damages for breach of
the directors' fiduciary duty of care to the Registrant and its stockholders.
These provisions do not eliminate the directors' duty of care and, in
appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
The Registrant expects to enter into agreements with its directors and
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The U.S. Underwriting Agreement and International Underwriting Agent, filed
as Exhibit 1.1 and Exhibit 1.2, respectively, to this Registration Statement
provides for indemnification by the Underwriters of the Registrant and its
officers and directors for certain liabilities arising under the Securities
Act or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since August 1, 1995, the Registrant has sold and issued the following
unregistered securities (all share numbers and prices reflect a 1-for-3.5
reverse split of the Company's Common Stock to be effected prior to the
closing of the Offerings):
(1) In October 1995, the Company sold an aggregate of 57,142 shares of
its Series A Preferred Stock to accredited investors for cash in the
aggregate amount of $350,000.
(2) In December 1995, the Company sold an aggregate of 136,241 shares of
its Series A Preferred Stock to accredited investors for cash in the
aggregate amount of $834,477.
(3) In January 1996, the Company sold an aggregate of 4,081 shares of its
Series A Preferred Stock to an accredited investor for cash in the
aggregate amount of $25,000.50.
(4) In February 1996, the Company sold an aggregate of 69,385 shares of
its Series A Preferred Stock to accredited investors for cash in the
aggregate amount of $425,001.50.
(5) In July 1996, the Company sold an aggregate of 240,816 shares of its
Series A Preferred Stock to accredited investors for cash in the aggregate
amount of $1,475,000.25. The Company also issued 114,492 shares of its
Series A Preferred Stock for technology valued at $701,266.
(6) In August 1996, the Company sold an aggregate of 5,714 shares of its
Series A Preferred Stock to an accredited investor for cash in the
aggregate amount of $35,000.
(7) In January 1997, the Company sold an aggregate of 326,530 shares of
its Series A Preferred Stock to accredited investors for cash in the
aggregate amount of $2,000,001.50.
(8) In March 1997, the Company sold an aggregate of 309,606 shares of its
Series B Preferred Stock to accredited investors for cash in the aggregate
amount of $2,167,302.
(9) In October 1997, the Company sold an aggregate of 2,674,340 shares of
its Series C Preferred Stock to accredited investors for cash in the
aggregate amount of $23,400,500.
(10) In October 1997, the Company issued a warrant to purchase 65,714
shares of its Series C Preferred Stock at an exercise price of $10.50 per
share to an accredited investor. The warrant expires in October 2002.
(11) In January 1998, the Company issued 57,142 shares of Common Stock to
Richard J. Hawkins in consideration for his past services in acting as
guarantor for loans granted to the Company by various financial
institutions.
(12) In September 1998, the Company issued a warrant to purchase 57,142
shares of Common Stock at an exercise price of $12.25 per share to an
accredited investor. The warrant expires in September 2003.
(13) Since inception, the Registrant has granted incentive stock options
to employees, directors and consultants under its 1996 Stock Option Plan
covering an aggregate of 438,571 shares of the Company's Common Stock, at
an average exercise price of $0.74 per share, and non-statutory stock
options to its outside directors covering an aggregate of 5,714 shares of
the Company's Common Stock, at an average exercise price of $0.88 per
share. The Registrant has granted non-statutory stock options outside of
the plan to its outside directors covering an aggregate of 57,142 shares of
the Company's Common Stock, at an average exercise price of $0.56 per
share. The Company sold an aggregate of 7,142 shares of its Common Stock to
employees, directors and consultants of the Registrant for consideration in
the aggregate amount of approximately $4,850 pursuant to the exercise of
stock options under the 1996 Stock Option Plan. The Company sold an
aggregate of 5,714 shares of its Common Stock to employees, directors and
consultants of the Registrant for consideration in the aggregate amount of
approximately $3,400 pursuant to the exercise of stock options outside of
the 1996 Stock Option Plan.
II-2
<PAGE>
The sales and issuances of securities in the transactions described in
paragraphs (1) through (12) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.
The sales and issuance of securities in the transaction described in
paragraph (13) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2* Amended and Restated Certificate of Incorporation of the Registrant to
be in effect immediately following the closing of the Offering.
3.3+ Bylaws of the Registrant as currently in effect.
3.4+ Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the Offering.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2+ Amended and Restated Investors' Rights Agreement between the
Registrant and certain investors, dated October 10, 1997.
4.3 Specimen Common Stock Certificate
4.4 Warrant to Purchase 65,714 shares of Series C Preferred Stock issued
to NationsBanc Montgomery Securities LLC on October 10, 1997.
4.5 Warrant to Purchase 57,142 shares of Common Stock issued to Robert S.
Hicks on September 4, 1998.
5.1* Opinion of Cooley Godward LLP.
10.1+ Registrant's 1998 Equity Incentive Plan and related documents.
10.2+ Registrant's 1998 Employee Stock Purchase Plan and related documents.
10.3+ Registrant's 1998 Non-Employee Directors' Stock Option Plan and
related documents.
10.4 Form of Indemnification Agreement to be entered into between the
Registrant and its officers and directors and list of directors and
officers to be subject to such agreement.
10.5**+ Manufacturing Services Agreement between the Registrant and Corning
Bio Inc., dated September 17, 1996; Amendment No. 1 to Manufacturing
Services Agreement between the Registrant and Covance Biotechnology
Systems, Inc. ("CBSI") dated July 3, 1997; Amendment No. 2 to
Manufacturing Services Agreement between the Registrant and CBSI,
dated October 3, 1997; Amendment No. 3 to Manufacturing Services
Agreement between the Registrant and CBSI, dated October 24, 1997;
Amendment No. 4 to Manufacturing Services Agreement between the
Registrant and CBSI, dated December 29, 1997; Amendment No. 5 to
Manufacturing Services Agreement between the Registrant and CBSI,
dated May 1, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
10.6**+ Letter of Intent between the Registrant and CBSI, dated April 8,
1998.
10.7**+ License Agreement between the Registrant and Genentech, Inc., dated
July 11, 1994; Amendment of License Agreement between the Registrant
and Genentech, Inc., dated December 21, 1994; Amendment of License
Agreement between the Registrant and Genentech, Inc., dated February
3, 1995; Amendment of License Agreement between the Registrant and
Genentech, Inc., dated March 31, 1995; Fourth Amendment to License
Agreement between the Registrant and Genentech, Inc., dated February
9, 1998; Fifth Amendment to License Agreement between the Registrant
and Genentech, Inc., dated May 19, 1998
10.8**+ Biotechnology Licensing and Transfer Agreement between Drug
Development Investment Corporation and Ohio University Edison Animal
Biotechnology Center, dated January 18, 1993.
10.9+ Clarification, dated July 14, 1994, to Biotechnology Licensing and
Transfer Agreement between id/2/-I, L.P. and Ohio University Edison
Animal Biotechnology Center, dated January 18, 1993.
10.10**+ Sublicense Agreement, dated July 14, 1994, between id/2/-I, L.P. and
Registrant concerning Biotechnology Licensing and Transfer Agreement,
dated January 18, 1993.
10.11**+ First Amendment, dated March 18, 1997, to Sublicense Agreement, dated
July 14, 1994, between id/2/-I, L.P. and Registrant.
10.12+ Assignment and Assumption Agreement, dated March 26, 1993, between
Drug Development Investment Corporation and id/2/-I, L.P. concerning
Biotechnology Licensing and Transfer Agreement, dated January 18,
1993.
10.13+ Amended Assignment and Assumption Agreement, dated March 26, 1993,
concerning Biotechnology Licensing and Transfer Agreement, dated
January 18, 1993 between Drug Development Investment Corporation and
id/2/-I, L.P.
10.14**+ Sponsored Research Agreement between the Drug Development Investment
Corporation and Ohio University Edison Animal Biotechnology Center,
dated January 18, 1993; First Amendment, dated September 14, 1993, to
Sponsored Research Agreement between the id/2/-I, L.P. and Ohio
University Edison Animal Biotechnology Center, dated January 18,
1993; Second Amendment, dated May 12, 1995, to Sponsored Research
Agreement between the id/2/-I, L.P. and Ohio University Edison Animal
Biotechnology Center, dated January 18, 1993
10.15+ Agreement between Registrant and Javelin Capital Fund, L.D.,
effective July 30, 1996; Amendment, dated March 19, 1997, to
Agreement between Registrant and Javelin Capital Fund, L.D.,
effective July 30, 1996.
10.16+ Board Observer and Visitation Rights Agreement between Registrant and
Goldman Sachs Group, L.P., dated March 20, 1997.
10.17+ Board Observer, Right of First Refusal and Standstill Agreement
between Registrant and Ross Financial Corporation, dated October 10,
1997.
10.18 Assignment of Office Space Lease between the Registrant and Drug
Development Investment Corp., a Texas corporation, dba id/2/, Inc.
("id/2/"), dated August 3, 1998; Office Lease between id/2/ and San
Jacinto Office Tower Limited Partnership, a Texas Limited
Partnership, dated March 17, 1993; First Amendment to Office Lease
between id/2/ and San Jacinto Office Tower Limited Partnership, a
Texas Limited Partnership, dated June 1, 1993; Second Amendment to
Office Space Lease between id/2/ and EOP-San Jacinto Office Tower
Limited Partnership, a Texas Limited Partnership, dated October 8,
1997; and Third Amendment between the Registrant and EOP-San Jacinto
Office Tower Limited Partnership, a Texas Limited Partnership, dated
August 7, 1998.
10.19 Employment Agreement between the Registrant and Richard J. Hawkins,
the Company's Chairman of the Board, dated September 15, 1998, to be
effective as of the closing date of the Offerings.
10.20 Employment Agreement between the Registrant and John A. Scarlett,
M.D., the Company's President and Chief Executive Officer, dated
September 15, 1998, to be effective as of the closing date of the
Offerings.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.21 Form of Employment Agreement between the Registrant and certain key
executive officers of the Company, to be effective as of the closing
date of the Offerings.
10.22 Revolving Promissory Note for $5,000,000 between the Registrant and
Chase Bank of Texas, National Association, dated September 4, 1998.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney. Reference is made to the signature page.
27+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted from this Registration Statement because they
are not required or the required information is included in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the U.S. Underwriting Agreement and the
International Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that: (i) for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time the Commission declared it
effective, and (ii) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
AUSTIN, STATE OF TEXAS, ON THE 30TH DAY OF SEPTEMBER, 1998.
Sensus Drug Development Corporation
/s/ John A. Scarlett, M.D.
By: _________________________________
Name: John A. Scarlett, M.D.
Title: President, Chief Executive
Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed below by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board September 30, 1998
____________________________________
Richard J. Hawkins
/s/ John A. Scarlett, M.D. President, Chief Executive September 30, 1998
____________________________________ Officer and Director
John A. Scarlett, M.D. (Principal Executive
Officer)
/s/ J. Donald Payne Senior Vice President, September 30, 1998
____________________________________ Finance and Administration,
J. Donald Payne Chief Financial Officer and
Secretary (Principal
Financial Officer)
* Treasurer and Assistant September 30, 1998
____________________________________ Secretary (Principal
Charles L. Cox Accounting Officer)
* Director September 30, 1998
____________________________________
Stuart Davidson
* Director September 30, 1998
____________________________________
E. Martin Gibson
* Director September 30, 1998
____________________________________
Lyle A. Hohnke
* Director September 30, 1998
____________________________________
Arthur H. Rubenstein, M.D.
* Director September 30, 1998
____________________________________
Joseph E. Smith
</TABLE>
*By: /s/ John A. Scarlett, M.D.
John A. Scarlett, M.D.
Attorney-in-Fact
(Signing under the authority of
a Power of Attorney previously
filed with the Securities and
Exchange Commission)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2* Amended and Restated Certificate of Incorporation of the Registrant to
be in effect immediately following the closing of the Offering.
3.3+ Bylaws of the Registrant as currently in effect.
3.4+ Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the Offering.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2+ Amended and Restated Investors' Rights Agreement between the
Registrant and certain investors, dated October 10, 1997.
4.3 Specimen Common Stock Certificate
4.4 Warrant to Purchase 65,714 shares of Series C Preferred Stock issued
to NationsBanc Montgomery Securities LLC on october 10, 1997.
4.5 Warrant to Purchase 57,142 shares of Common Stock issued to Robert S.
Hicks on September 4, 1997.
5.1* Opinion of Cooley Godward LLP.
10.1+ Registrant's 1998 Equity Incentive Plan and related documents.
10.2+ Registrant's 1998 Employee Stock Purchase Plan and related documents.
10.3+ Registrant's 1998 Non-Employee Directors' Stock Option Plan and
related documents.
10.4 Form of Indemnification Agreement to be entered into between the
Registrant and its officers and directors and list of directors and
officers to be subject to such agreement.
10.5**+ Manufacturing Services Agreement between the Registrant and Corning
Bio Inc., dated September 17, 1996; Amendment No. 1 to Manufacturing
Services Agreement between the Registrant and Covance Biotechnology
Systems, Inc. ("CBSI") dated July 3, 1997; Amendment No. 2 to
Manufacturing Services Agreement between the Registrant and CBSI,
dated October 3, 1997; Amendment No. 3 to Manufacturing Services
Agreement between the Registrant and CBSI, dated October 24, 1997;
Amendment No. 4 to Manufacturing Services Agreement between the
Registrant and CBSI, dated December 29, 1997; Amendment No. 5 to
Manufacturing Services Agreement between the Registrant and CBSI,
dated May 1, 1998.
10.6**+ Letter of Intent between the Registrant and CBSI, dated April 8, 1998.
10.7**+ License Agreement between the Registrant and Genentech, Inc., dated
July 11, 1994; Amendment of License Agreement between the Registrant
and Genentech, Inc., dated December 21, 1994; Amendment of License
Agreement between the Registrant and Genentech, Inc., dated February
3, 1995; Amendment of License Agreement between the Registrant and
Genentech, Inc., dated March 31, 1995; Fourth Amendment to License
Agreement between the Registrant and Genentech, Inc., dated February
9, 1998; Fifth Amendment to License Agreement between the Registrant
and Genentech, Inc., dated May 19, 1998
10.8**+ Biotechnology Licensing and Transfer Agreement between Drug
Development Investment Corporation and Ohio University Edison Animal
Biotechnology Center, dated January 18, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
10.9+ Clarification, dated July 14, 1994, to Biotechnology Licensing and
Transfer Agreement between id/2/-I, L.P. and Ohio University Edison
Animal Biotechnology Center, dated January 18, 1993.
10.10**+ Sublicense Agreement, dated July 14, 1994, between id/2/-I, L.P. and
Registrant concerning Biotechnology Licensing and Transfer Agreement,
dated January 18, 1993.
10.11**+ First Amendment, dated March 18, 1997, to Sublicense Agreement, dated
July 14, 1994, between id/2/-I, L.P. and Registrant.
10.12+ Assignment and Assumption Agreement, dated March 26, 1993, between
Drug Development Investment Corporation and id/2/-I, L.P. concerning
Biotechnology Licensing and Transfer Agreement, dated January 18,
1993.
10.13+ Amended Assignment and Assumption Agreement, dated March 26, 1993,
concerning Biotechnology Licensing and Transfer Agreement, dated
January 18, 1993 between Drug Development Investment Corporation and
id/2/-I, L.P.
10.14**+ Sponsored Research Agreement between the Drug Development Investment
Corporation and Ohio University Edison Animal Biotechnology Center,
dated January 18, 1993; First Amendment, dated September 14, 1993, to
Sponsored Research Agreement between the id/2/-I, L.P. and Ohio
University Edison Animal Biotechnology Center, dated January 18,
1993; Second Amendment, dated May 12, 1995, to Sponsored Research
Agreement between the id/2/-I, L.P. and Ohio University Edison Animal
Biotechnology Center, dated January 18, 1993
10.15+ Agreement between Registrant and Javelin Capital Fund, L.D.,
effective July 30, 1996; Amendment, dated March 19, 1997, to
Agreement between Registrant and Javelin Capital Fund, L.D.,
effective July 30, 1996.
10.16+ Board Observer and Visitation Rights Agreement between Registrant and
Goldman Sachs Group, L.P., dated March 20, 1997.
10.17+ Board Observer, Right of First Refusal and Standstill Agreement
between Registrant and Ross Financial Corporation, dated October 10,
1997.
10.18 Assignment of Office Space Lease between the Registrant and Drug
Development Investment Corp., a Texas corporation, dba id/2/, Inc.
("id/2/"), dated August 3, 1998; Office Lease between id/2/ and San
Jacinto Office Tower Limited Partnership, a TExas Limited
Partnership, dated March 17, 1993; First Amendment to Office Lease
between id/2/ and San Jacinto Office Tower Limited Partnership, a
Texas Limited Partnership, dated June 1, 1993; Second Amendment to
Office Space Lease between id/2/ and EOP-San Jacinto Office Tower
Limited Partnership, a Texas Limited Partnership, dated October 8,
1997; and Third Amendment between the Registrant and EOP-San Jacinto
Office Tower Limited Partnership, a Texas Limited Partnership, dated
August 7, 1998.
10.19 Employment Agreement between the Registrant and Richard J. Hawkins,
the Company's Chairman of the Board, dated September 15, 1998, to be
effective as of the closing date of the Offerings.
10.20 Employment Agreement between the Registrant and John A. Scarlett,
M.D., the Company's President and Chief Executive Officer, dated
September 15, 1998, to be effective as of the closing date of the
Offerings.
10.21 Form of Employment Agreement between the Registrant and certain key
executive officers of the Company, to be effective as of the closing
date of the Offerings.
10.22 Revolving Promissory Note for $5,000,000 between the Registrant and
Chase Bank of Texas, National Association, dated September 4, 1998.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney. Reference is made to the signature page.
27+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested.
+Previously filed.
<PAGE>
EXHIBIT 4.3
===============================================================================
COMMON STOCK SENSUS DRUG COMMON STOCK
DEVELOPMENT CORPORATION
NUMBER SHARES
SDDC
INCORPORATED UNDER THE SEE REVERSE FOR CERTAIN
LAWS OF THE STATE OF DELAWARE DEFINITIONS AND RESTRICTIONS
ON JUNE 23, 1994
CUSIP 81726Q 10 5
THIS CERTIFIES THAT
IS THE OWNER OF
SHARES OF THE COMMON STOCK, PAR VALUE $0.001 PER SHARE OF
======================= SENSUS DRUG DEVELOPMENT CORPORATION =================
transferable only the books of the Corporation by the holder, in person or by
duly authorized attorney, upon surrender of this Certificate properly
endorsed and assigned. This Certificate is not valid until countersigned by
the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[CORPORATE SEAL
OF SENSUS DRUG DEVELOPMENT]
/s/ J. Donald Payne /s/ John A. Scarlett
Senior Vice President President and
and Chief Financial Officer Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
(P.O. BOX 1596, DENVER CO 80201)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
SENSUS DRUG DEVELOPMENT CORPORATION
A statement of the rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares of stock
of the Corporation and upon the holders thereof as established by the
Certificate of Incorporation or by any certificate of determination of
preferences and the number of shares constituting each class and the
designations thereof, may be obtained by any stockholder upon request and
without charge at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-_________Custodian_________
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JP TEN - as joint tenants with Minors Act_________________
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated, ____________________________ X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE. PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT.
WARRANT TO PURCHASE
230,000 SHARES OF SERIES C PREFERRED STOCK
SENSUS DRUG DEVELOPMENT CORPORATION
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
THIS CERTIFIES THAT, for value received, Montgomery Securities (the
"Warrantholder") is entitled to purchase, on the terms hereof, Two Hundred
Thirty Thousand (230,000) shares of Series C Preferred Stock (the "Series C
Stock") of Sensus Drug Development Corporation, a Delaware corporation (the
"Company"), at a purchase price as set forth herein.
1. EXERCISE OF WARRANT.
-------------------
The terms and conditions upon which this Warrant may be exercised, and the
Series C Stock covered hereby (the "Warrant Stock") may be purchased, are as
follows:
1.1 Exercise. This Warrant may be exercised in whole or in part at any
--------
time on or after the date hereof, but in no case may this Warrant be exercised
later than 5:00, San Francisco time on October 10, 2002 (the "Termination
Date"), after which time this Warrant shall terminate and shall be void and of
no further force or effect.
1.2 Exercise Price. The purchase price for the shares of Series C Stock
--------------
to be issued upon exercise of this Warrant shall be $3.00 per share, subject to
adjustment as set forth herein (the "Exercise Price").
1.3 Method of Exercise. The exercise of the purchase rights evidenced by
------------------
this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Subscription attached hereto, to the
Company at its principal office and (b) the delivery of the Exercise Price by
check or bank draft payable to the Company's order for the number of shares for
which the purchase rights hereunder are being exercised or any other form of
consideration approved by the Company's Board of Directors.
1.4 Net Issuance.
------------
(a) Right to Convert. In addition to and without limiting the rights
----------------
of the Warrantholder under the terms of this Warrant, if the fair market value
of one share of the
1.
<PAGE>
Company's Series C Stock is greater than the Exercise Price of the Warrant (at
the date of calculation) the Warrantholder shall have the right to convert this
Warrant or any portion hereof (the "Conversion Right") into shares of Series C
Stock as provided in this Section 1.4 at any time or from time to time during
the term of this Warrant. Upon exercise of the Conversion Right with respect to
a particular number of shares subject to this Warrant, the Company shall deliver
to the Warrantholder (without payment by the Warrantholder of any exercise price
or any cash or other consideration) that number of shares of fully paid and
nonassessable Series C Stock computed using the following formula:
X = Y (A- B)
--------
A
Where X = the number of shares of Series C Stock to be issued to the
holder of the Warrant
Y = the number of shares of Series C Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (on the
Conversion Date)
A = the fair market value of one share of the Company's Series C
Stock on the Conversion Date (as defined below)
B = the Exercise Price of the Warrant (as adjusted to the
Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to this Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Warrantholder an amount in cash equal to
the fair market value of the resulting fractional share on the Conversion Date.
Shares issued pursuant to the Conversion Right shall be treated as if they were
issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
------------------
Warrantholder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Warrantholder
thereby intends to exercise the Conversion Right and indicating the number of
shares subject to this Warrant which are being surrendered in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of this Warrant together with the aforesaid written statement, or on
such later date as is specified therein (the "Conversion Date"). Certificates
for the shares issuable upon the exercise of the Conversion Right and, if
applicable, a new warrant evidencing the balance of the shares remaining subject
to this Warrant, shall be issued as of the Conversion Date and shall be
delivered to the holder promptly following the Conversion Date.
(c) Determination of Fair Market Value. If there is no public market
----------------------------------
for the Common Stock, then the fair market value of the Series C Stock shall be
determined by the Board of Directors of the Company. If the Warrantholder does
not agree to the value assigned by the Board of Directors, the Warrantholder
may, at the Warrantholder's expense, provide an
2.
<PAGE>
opinion from an investment banking firm of national reputation, selected by
mutual agreement of the Company and the Warrantholder. In such event, the Board
of Directors shall give good faith consideration to the opinion of such
investment banking firm and reach a final determination of the fair market value
of the Series C Stock.
In the event that the Company undertakes a public offering of its
Common Stock pursuant to which the Series C Stock automatically converts into
Common Stock under the the Company's Amended and Restated Certificate of
Incorporation, the fair market value of one share of the Common Stock shall be
determined as follows:
(i) If the Common Stock is traded on a stock exchange, the fair market
value of the Common Stock shall be deemed to be the average of the closing
prices of the Common Stock on the stock exchange determined by the Company's
Board of Directors to be the primary market for the Common Stock over the ten
(10) trading day period ending on the date prior to the Conversion Date, as such
prices are officially quoted in the composite tape of transactions on such
exchange; and
(ii) If the Common Stock is traded over-the-counter, the fair market
value of the Common Stock shall be deemed to be the average of the closing bid
prices (or, if such information is available, the closing selling prices) of the
Common Stock over the ten (10) trading day period ending on the date prior to
the Conversion Date, as such prices are reported by the National Association of
Securities Dealers through its Nasdaq National Market system or any successor
system.
1.5 Issuance of Shares. In the event that the purchase rights evidenced
------------------
by this Warrant are exercised in whole or in part, a certificate or certificates
for the purchased shares shall be issued to the Warrantholder as soon as
practicable. In the event the purchase rights evidenced by this Warrant are
exercised in part, the Company will also issue to the Warrantholder a new
warrant representing the unexercised purchase rights.
2. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES.
-------------------------------------------------------
The Exercise Price and the number of shares purchasable upon the exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 2. Upon each adjustment
of the Exercise Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number of
shares obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the Exercise Price
resulting from such adjustment.
2.1 Subdivision or Combination of Stock. In case the Company shall at any
-----------------------------------
time subdivide its outstanding shares of Series C Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Series C Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased.
3.
<PAGE>
2.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification.
----------------------------------------------------------------------
If at any time or from time to time the Holders of Series C Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,
(a) Series C Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Series C Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Series C Stock or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement (other than shares of Series C Stock
issued as a stock split or adjustments in respect of which shall be covered by
the terms of Section 2.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Series C
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clause (b) above and this clause (c)), which such
Holder would hold on the date of such exercise had be been the holder of record
of such Series C Stock as of the date on which holders of Series C Stock
received or became entitled to receive such shares or all other additional stock
and other securities and property.
2.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If
---------------------------------------------------------------
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Series C Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Series C Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Series C Stock
equal to the number of shares of such stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Series C Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby is in excess of the Exercise Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of shares purchasable and receivable upon
the exercise of
4.
<PAGE>
this Warrant) shall thereafter be applicable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument reasonably satisfactory in form and substance
to the Holders of a majority of the warrants to purchase Series C Stock then
outstanding, executed and mailed or delivered to the registered Holder hereof at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
2.4 Certain Events. If any change in the outstanding Series C Stock of
--------------
the Company or any other event occurs as to which the other provisions of this
Section 2 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Exercise
Price or the application of such provisions, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
2.5 Notices of Change.
-----------------
(a) Immediately upon any adjustment in the number or class of shares
subject to this Warrant and of the Exercise Price, the Company shall give
written notice thereof to the Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at least 10
business days prior to the date on which the Company closes its books or takes a
record for determining rights to receive any dividends or distributions.
(c) The Company shall also give written notice to the Holder at least
30 business days prior to the date on which an Organic Change shall take place.
3. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined by the Company's Board of Directors.
4. RESERVATION OF SERIES C STOCK AND COMMON STOCK.
----------------------------------------------
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Series C Stock and Common Stock, solely for
the purpose of effecting the exercise of this Warrant, such number of its shares
of Series C Stock and Common Stock into which such shares of Series C Stock may
at any time be converted as shall from time to time be
5.
<PAGE>
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Series C Stock and Common Stock shall not
be sufficient to effect the exercise of the entire Warrant, in addition to such
other remedies as shall be available to the holder of this Warrant, the Company
will use its reasonable best efforts to take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Series C Stock and Common Stock to such number of shares as shall be
sufficient for such purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
----------------------------
Prior to the exercise of this Warrant, the Warrantholder shall not be
entitled, by virtue of holding this Warrant, to any rights of a stockholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
6. LIMITATION OF LIABILITY.
-----------------------
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
-----------------------
7.1 Subject to compliance with applicable securities laws, this Warrant
and all rights hereunder are transferrable in whole or in part by the
Warrantholder. The transfer shall be recorded on the books of the Company upon
the surrender of this Warrant, properly endorsed, to the Company at its
principal offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the several holders one or more appropriate
new warrants.
7.2 Each holder agrees that this Warrant when endorsed in blank shall be
negotiable and that when so endorsed the holder may be treated by the Company
and all other persons dealing with this Warrant as the absolute owner for all
purposes and as the person entitled to exercise the purchase rights evidenced
hereby; provided, however, that until such time as the transfer is recorded on
the books of the Company, the Company may treat the registered holder of this
Warrant as the absolute owner.
7.3 All new warrants issued in connection with transfers, exchanges or
partial exercises shall be identical in form and provision to this Warrant
except as to the number of shares.
8. PAYMENT OF TAXES.
----------------
The Company shall pay all expenses in connection with, and all taxes and
other governmental charges (other than any thereof on, based on or measured by,
the net income of the
6.
<PAGE>
holder thereof) that may be imposed in respect of, the issue or delivery of the
securities issuable under this Warrant. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of the securities issuable
under this Warrant in any name other than that of the Warrantholder, and in such
case, the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the Company's satisfaction that no such tax or other charge is
due.
9. REGISTRATION RIGHTS.
-------------------
The Warrantholder shall have the registration rights with respect to the
securities issuable under this Warrant as are set forth in the Amended and
Restated Investor Rights Agreement ("Investor Rights Agreement") dated October
10, 1997 (a copy of which is attached hereto). For all such purposes, the
Warrantholder shall be deemed to be a party to said Investor Rights Agreement as
if the Warrantholder was an original signatory thereto, and shall have all the
rights, privileges and obligations granted to or imposed on a party thereto as
provided in this Section 9 and in said Investor Rights Agreement, and the
Warrantholder shall for all such purposes be treated as a "Holder" under said
Investor Rights Agreement and the securities issuable under this Warrant shall
be treated as "Registrable Securities" under said Investor Rights Agreement, as
such terms are defined therein.
10. NO IMPAIRMENT OF RIGHTS.
-----------------------
The Company hereby agrees that it will not, through the amendment of its
Certificate of Incorporation or otherwise, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
11. SUCCESSORS AND ASSIGNS.
----------------------
The terms and provisions of this Warrant shall be binding upon the Company
and the Warrantholder and their respective successors and assigns.
12. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
-------------------------------------------------
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
13. RESTRICTED SECURITIES.
---------------------
The Warrantholder understands that this Warrant and the securities
purchasable hereunder constitute "restricted securities" under the federal
securities laws inasmuch as they are, or will be, acquired from the Company in
transactions not involving a public offering and
7.
<PAGE>
accordingly may not, under such laws and applicable regulations, be resold or
transferred without registration under the Securities Act of 1933 or an
applicable exemption from registration. In this connection, the Warrantholder
acknowledges that Rule 144 of the Securities and Exchange Commission is not now,
and may not in the future be, available for resales of this Warrant and the
securities purchased hereunder.
14. SATURDAYS, SUNDAYS, HOLIDAYS.
----------------------------
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or Sunday or shall
be a legal holiday, then such action may be taken or such right may be
exercised, except as to the purchase price, on the next succeeding day not a
legal holiday.
SENSUS DRUG DEVELOPMENT
CORPORATION
By /s/ John A. Scarlett
-------------_-------
John A. Scarlett, M.D.
President and Chief Executive Officer
Dated: October 10, 1997
8.
<PAGE>
SUBSCRIPTION
Sensus Drug Development Corporation
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions
of the Warrant dated ___________, 1997 held by the undersigned, __________
shares of the Series C Stock of Sensus Drug Development Corporation, a Delaware
corporation.
Payment of the per share purchase price required under such Warrant
accompanies this Subscription:
The undersigned hereby represents and warrants that the undersigned is
acquiring such stock for its own account and not for resale or with a view to
distribution of any part thereof and accepts such shares subject to the terms
and conditions of the Warrant:
Dated: , 19__
_________________________________
Print Name of Warrantholder
By ______________________________
Address: _________________________________
_________________________________
9.
<PAGE>
EXHIBIT 4.5
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT.
WARRANT TO PURCHASE
200,000 SHARES OF COMMON STOCK
SENSUS DRUG DEVELOPMENT CORPORATION
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
THIS CERTIFIES THAT, for value received, R. Steven Hicks (the
"Warrantholder") is entitled to purchase, on the terms hereof, Two Hundred
Thousand (200,000) shares of Common Stock (the "Common Stock") of Sensus Drug
Development Corporation, a Delaware corporation (the "Company"), at a purchase
price as set forth herein.
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and the
Common Stock covered hereby (the "Warrant Stock") may be purchased, are as
follows:
1.1 EXERCISE. This Warrant may be exercised in whole or in part at any
time on or after the date hereof, but in no case may this Warrant be exercised
later than 5:00 p.m., Austin, Texas time on September ___, 2003 (the
"Termination Date"), after which time this Warrant shall terminate and shall be
void of no further force or effect.
1.2 EXERCISE PRICE. The purchase price for the shares of Common Stock to
be issued upon exercise of this Warrant shall be $3.50 per share, subject to
adjustment as set forth herein (the "Exercise Price").
1.3 METHOD OF EXERCISE. The exercise of the purchase rights evidenced by
this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Subscription attached hereto, to the
Company at its principal office and (b) the delivery of the Exercise Price by
check or bank draft payable to the Company's order for the number of shares for
which the purchase rights hereunder are being exercised or any other form of
consideration approved by the Company's Board of Directors.
1.4 ISSUANCE OF SHARES. In the event that the purchase rights evidenced
by this Warrant are exercised in whole or in part, a certificate or certificates
for the purchased shares shall be issued to the Warrantholder as soon as
practicable. In the event the purchase rights evidenced by this Warrant are
exercised in part, the Company will also issue to the Warrantholder a new
warrant representing the unexercised purchase rights.
1.
<PAGE>
2. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES
The Exercise Price and the number of shares purchasable upon the exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 2. Upon each adjustment
of the Exercise Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number of
shares obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the Exercise Price
resulting from such adjustment.
2.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any
time subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased.
2.2 DIVIDENDS. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(A) Any shares of stock or other securities which are at any time
directly or indirectly convertible into or exchangeable for Common Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution,
(B) any cash paid or payable otherwise than as a cash dividend, or
(C) Common Stock or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement (other than shares of Common Stock
issued as a stock split or adjustments in respect of which shall be covered by
the terms of Section 2.1 above), then and in each such case, the Holder hereof
shall, upon the exercise of this Warrant, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of stock and other
securities and property (including cash in the cases referred to in clause (b)
above and this clause (c)), which such Holder would hold on the date of such
exercise had be been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and property.
2.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions
2.
<PAGE>
shall be made by the Company whereby the Holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby; provided, however, that in the event
the value of the stock, securities or other assets or property (determined m
good faith by the Board of Directors of the Company) issuable or payable with
respect to one share of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby is
in excess of the Exercise Price hereof effective at the time of a merger and
securities received in such reorganization, if any, are publicly traded, then
this Warrant shall expire unless exercised prior to such Organic Change. In the
event of -any Organic Change, appropriate provision shall be made by the Company
with respect to the rights and interests of the Holder of this Warrant to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Common Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
2.4 CERTAIN EVENTS. If any change in the outstanding Common Stock of the
Company or any other event occurs as to which the other provisions of this
Section 2 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Exercise
Price or the application of such provisions, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
2.5 NOTICES OF CHANGE.
(A) Immediately upon any adjustment in the number or class of shares
subject to this Warrant and of the Exercise Price, the Company shall give
written notice thereof to the Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company shall give written notice to the Holder at least ten
(10) business days prior to the date on which the Company closes its books or
takes a record for determining rights to receive any dividends or distributions.
3.
<PAGE>
(C) The Company shall also give written notice to the Holder at least
thirty (30) business days prior to the date on which an Organic Change shall
take place.
3. FRACTIONAL SHARES.
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined by the Company's Board of Directors.
4. RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the exercise of this
Warrant; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the exercise of the entire
Warrant, in addition to such other remedies as shall be available to the holder
of this Warrant, the Company will use its reasonable best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
Prior to the exercise of this Warrant, the Warrantholder shall not be
entitled, by virtue of holding this Warrant, to any rights of a stockholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
6. LIMITATION OF LIABILITY.
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
7.1 Subject to compliance with applicable securities laws, this Warrant
and all rights hereunder are transferable in whole or in part by the
Warrantholder. The transfer shall be recorded on the books of the Company upon
the surrender of this Warrant, properly endorsed, to the Company at its
principal offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the several holders one or more appropriate
new warrants.
4.
<PAGE>
7.2 Each holder agrees that this Warrant when endorsed in blank shall be
negotiable and that when so endorsed the holder may be treated by the Company
and all other persons dealing with this Warrant as the absolute owner for all
purposes and as the person entitled to exercise the purchase rights evidenced
hereby; provided, however, that until such time as the transfer is recorded on
the books of the Company, the Company may treat the registered holder of this
Warrant as the absolute owner.
7.3 All new warrants issued in connection with transfers, exchanges or
partial exercises shall be identical in form and provision to this Warrant
except as to the number of shares.
8. PAYMENT OF TAXES.
The Company shall pay all expenses in connection with, and all taxes and
other governmental charges (other than any thereof on, based on or measured by,
the net income of the holder thereof) that may be imposed in respect of, the
issue or delivery of the securities issuable under this Warrant. The Company
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of the securities issuable under this Warrant in any name other than that of the
Warrantholder, and in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax or other charge has been paid or it
has been established to the Company's satisfaction that no such tax or other
charge is due.
9. NO IMPAIRMENT OF RIGHTS.
The Company hereby agrees that it will not, through the amendment of its
Certificate of Incorporation or otherwise, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
10. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the Company
and the Warrantholder and their respective successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
5.
<PAGE>
12. RESTRICTED SECURITIES.
The Warrantholder understands that this Warrant and the securities
purchasable hereunder constitute "restricted securities" under the federal
securities laws inasmuch as they are, or will be, acquired from the Company in
transactions not involving a public offering and accordingly may not, under such
laws and applicable regulations, be resold or transferred without registration
under the Securities Act of 1933 or an applicable exemption from registration.
In this connection, the Warrantholder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resales of this Warrant and the securities purchased hereunder.
13. SATURDAYS, SUNDAYS, HOLIDAYS.
If the last or appointed day for the taking of any action or the expiration
of any right required or granted hereto shall be a Saturday or Sunday or shall
be a legal holiday, then such action may be taken or such right may be
exercised, except as to the purchase price, on the next succeeding day not a
legal holiday.
SENSUS DRUG DEVELOPMENT CORPORATION
By: /s/ John A. Scarlett
-------------------------------------
John A. Scarlett, M.D.
President and Chief Executive Officer
Dated: September 4, 1998
6.
<PAGE>
SUBSCRIPTION
Sensus Drug Development Corporation
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions of
the Warrant dated September ___, 1998 held by the undersigned, ________ shares
of the Common Stock of SENSUS DRUG DEVELOPMENT CORPORATION, a Delaware
corporation.
Payment of the per share purchase price required under such Warrant
accompanies this Subscription.
The undersigned hereby represents and warrants that the undersigned is
acquiring such stock for its own account and not for resale or with a view to
distribution of any part thereof and accepts such shares subject to the terms
and conditions of the Warrant:
Dated: _________, 19 ___
___________________________
Print Name of Warrantholder
By:________________________
Address:___________________
___________________________
7.
<PAGE>
EXHIBIT 10.4
THIS AGREEMENT is made and entered into this [ day of , 19 ] by
and between SENSUS DRUG DEVELOPMENT CORPORATION, a Delaware corporation (the
"Corporation"), and ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as [an/a officer/director] of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors and executive
officers of the Corporation, including persons serving at the request of the
Corporation in such capacities with other corporations or enterprises, as
authorized by the Delaware General Corporation Law, as amended (the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its directors and executive officers with
respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as [A DIRECTOR/AN
EXECUTIVE OFFICER] of the Corporation, the Corporation has determined and agreed
to enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as [A
DIRECTOR/AN EXECUTIVE OFFICER] after the date hereof, the parties hereto agree
as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as [A
DIRECTOR/AN EXECUTIVE OFFICER] of the Corporation or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of his ability so
long as he is duly elected and qualified in accordance with the provisions of
the Bylaws or other applicable charter documents of the Corporation or such
affiliate; provided, however, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent may
have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in any
such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such
1.
<PAGE>
amendment permits the Corporation to provide broader indemnification rights than
the Bylaws or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(A) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(B) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 41
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(A) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(B) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(C) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(D) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(E) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
2.
<PAGE>
(F) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(A) the Corporation will be entitled to participate therein at its
own expense;
(B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall
3.
<PAGE>
have reasonably concluded, and so notified the Corporation, that there is an
actual conflict of interest between the Corporation and Agent in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Agent's separate counsel shall be at the expense of the
Corporation. The Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Corporation or as to
which Agent shall have made the conclusion provided for in clause (ii) above;
and
(C) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of
4.
<PAGE>
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(A) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE>
(B) If to the Corporation, to:
Sensus Drug Development Corporation
San Jacinto Center
98 San Jacinto Boulevard, Suite 430
Austin, TX 78701
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
SENSUS DRUG DEVELOPMENT CORPORATION
By:__________________________________________
Print Name:__________________________________
Title:_______________________________________
AGENT
_____________________________________________
Print Name:__________________________________
Address:
_____________________________________________
_____________________________________________
6.
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS COVERED UNDER AN
INDEMNIFICATION AGREEMENT WITH THE REGISTRANT
The following executive officers and directors of the Company have
entered into an Indemnification Agreement with the Company:
NAME POSITION
- ---- --------
Richard J. Hawkins Chairman of the Board and Director
John A. Scarlett, M.D. President, Chief Executive Officer and Director
Robert J. Davis, Pharm.D. Executive Vice President
William F. Bennett, Ph.D. Senior Vice President, Research and Chief
Scientific Officer
Edward G. Calamai, Ph.D. Senior Vice President, Operations
J. Donald Payne, CPA Senior Vice President, Finance and
Administration, Secretary and Chief
Financial Officer
Magnus Precht Senior Vice President, Sales and Marketing
Charles L. Cox Treasurer and Assistant Secretary
Stuart Davidson Director
E. Martin Gibson Director
Lyle Hohnke, Ph.D. Director
Arthur H. Rubenstein, M.D. Director
Joseph E. Smith Director
<PAGE>
EXHIBIT 10.18
ASSIGNMENT OF OFFICE SPACE LEASE
For good and valuable consideration, the receipt of which is hereby
acknowledged, Drug Development Investment Corp., a Texas corporation, dba id2,
Inc., in its corporate capacity and as the sole general partner of id2-I, L.P.
("Assignor") hereby assigns, grants and conveys unto Sensus Drug Development
Corp. ("Assignee") all of Assignor's right, title and interest in and to that
certain Office Space Lease by and between San Jacinto Office Tower Limited
Partnership as Landlord and Drug Development Investment Corp. dba id2, Inc. and
id2-I, L.P. as Tenant dated March 17, 1993, as thereafter amended (the "Lease"),
for all premises covered by the Lease and located at 98 San Jacinto Center, 98
San Jacinto Blvd., Austin, Texas 78701.
Assignee agrees to (a) assume all of Assignor's obligations as Lessor under
such Lease and its subsequent amendments, and (b) indemnify and hold Assignor
and each guarantor of the Lease harmless from and against any and all past,
present and future expenses, claims or liabilities with respect to such Lease.
This Agreement shall be governed by the laws of the state of Texas, and may
be signed in multiple counterparts.
Dated the 3rd day of August, 1998.
ASSIGNOR:
DRUG DEVELOPMENT INVESTMENT
CORP., dba id2, Inc. and as sole partner of
id2-I, L.P., a Texas limited partnership
By: /s/ John A. Scarlett
--------------------
Its Duly Authorized Representative
ASSIGNEE:
SENSUS DRUG DEVELOPMENT CORP.
By: /s/ John A. Scarlett
--------------------
Its Duly Authorized Representative
<PAGE>
BASIC LEASE INFORMATION
Date of Lease: March 17, 1993
Tenant: Drug Development Investment Corp., a Texas corporation d/b/a
id2-I, L.P., a Texas limited partnership
Address of Tenant: 230 San Jacinto Center
98 San Jacinto Blvd.
Austin, TX 78701
Contact: Mr. Richard J. Hawkins Telephone: (512) ___-____
Landlord: San Jacinto Office Tower Limited Partnership
Address of Landlord: 300 San Jacinto Center
98 San Jacinto Blvd.
Austin, TX 78701
Contact: Mr. Bret Messer Telephone: (512) 320-5678
Premises: Suite No. 230, which is located in the office building, commonly
referred to as San Jacinto Center (the "Building") which has
been constructed on the land (the "Land") located on Lot 1 of
San Jacinto Center, an addition to the City of Austin, Texas,
according to the Plat thereof recorded in Volume 89, Page 21 of
the Plat Records of Travis County, Texas, which Premises are
outlined in the plan attached hereto as Exhibit "A."
Lease Term: The period commencing on May 1, 1993 (the "Commencement Date")
and, subject to and upon the terms and conditions set forth in
the Lease, or in any exhibit or addendum thereto, continuing for
60 calendar months thereafter, unless sooner terminated;
provided, however, if the Premises are not ready for occupancy
for any reason other than Tenant's Delay (as defined in the
Lease), then, as Tenant's sole and exclusive remedy, the
Commencement Date shall be delayed one day for each day the
Premises are not ready for occupancy; provided further, that in
the event the Commencement Date were the first day of the next
full calendar month and rent shall be prorated for the first
partial month of the Lease.
Net Rentable Area of the Premises: approximately 3,188 square feet
Base Rent: Base Rent for the Lease Term shall be $2,324.58 per month,
calculated at $8.75 per annum per square foot of Net Rentable
Area of the Premises, all as adjusted pursuant to Exhibit "C"
attached hereto and incorporated herein.
Estimate of Tenant's Occupancy Costs (as defined in the Lease) for the first
Calendar Year (as defined in the Lease):
$1,907.49 per month, calculated at $7.18 per annum per square
foot of Net Rentable Area of the Premises.
<PAGE>
Security Deposit: $4,232.07
Permitted Use: Tenant shall use and occupy the Premises for business offices
and for no other use or purpose without the prior written
consent of Landlord.
Parking: Subject to the terms and provisions of Rider 102 attached hereto and
incorporated by reference herein, two reserved and three unreserved
parking spaces shall be available to Tenant throughout the term of
this Lease; provided, however, that Landlord shall have the right,
from time to time throughout the Lease Term, upon 30 days' prior
written notice to Tenant, to terminate Tenant's right to lease one of
the aforementioned reserved parking spaces until further notice to
Tenant that such reserved parking space is again available (if ever).
The charge for each reserved parking space for the Lease Term shall be
$80.00 per month payable to the garage operator no later than the
fifth day of each month. The charge for each unreserved parking space
for the Lease Term shall be $60.00 per month payable to the garage
operator no later than the fifth day of each month.
This Basic Lease Information is hereby incorporated into and made a part of the
lease attached hereto (the "Lease").
Each reference in the Lease to any of the information or definitions set forth
in this Basic Lease Information shall mean and refer to the information and
definitions hereinabove set forth and shall be used in conjunction with the
provisions of the Lease. In the event of any direct conflict between this Basic
Lease Information and the Lease, this Basic Lease Information shall control;
provided, however, that those provisions of the Lease (including its Exhibits
and Riders) which expressly require an adjustment or modification to any of the
matters set forth in this Basic Lease Information shall supersede the provisions
of this Basic Lease Information.
<TABLE>
LANDLORD: Tenant:
<S> <C>
San Jacinto Office Tower Limited DRUG DEVELOPMENT INVESTMENT CORP.,
Partnership, a Texas limited partnership a Texas corporation d/b/a id2, Inc.
By: Equity Assets Management, Inc., its By: /s/ Richard J. Hawkins
authorized agent -------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Directors
By: /s/ Richard J. Berk
-------------------------------- Id2-I, L.P., a Texas limited partnership
Name: Richard J. Berk
Title: Vice President
Owner Representation
By: Drug Development Investment Corp., a
Texas corporation d/b/a id2, Inc., its sole
general partner
By: /s/ Richard J. Hawkins
-------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Directors
</TABLE>
<PAGE>
OFFICE SPACE LEASE
by and between
SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP
a Texas limited partnership,
as Landlord
and
DRUG DEVELOPMENT INVESTMENT CORP., a Texas corporation
d/b/a Id2, Inc.
and
id2 - I. L.P.,
a Texas limited partnership
as Tenant
Dated: March 17, 1993
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OFFICE SPACE LEASE
THIS OFFICE SPACE LEASE (this "Lease") is made and entered into this 17th
day of March, 1993, by and between SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP,
a Texas limited partnership (hereinafter called "Landlord"), and DRUG
DEVELOPMENT INVESTMENT CORP., a Texas corporation d/b/a id2, Inc. and id2-I,
L.P., a Texas limited partnership (hereinafter jointly called "Tenant"):
WITNESSETH:
Landlord, in consideration of the rent to be paid and the covenants and
agreements to be performed by Tenant, as hereinafter set forth, does hereby
Lease, Demise and Let unto Tenant and Tenant accepts that certain office space
containing the Net Rentable Area (as defined in Rider No. 101) provided for in
the Basic Lease Information attached hereto, located on the floor shown and
designated on the floor plan attached hereto as Exhibit "A" (the "Premises") in
Landlord's building commonly known as San Jacinto Center (the "Building")
located on Lot 1 of San Jacinto Center, an addition to the City of Austin,
Texas, according to the Plat thereof recorded in Volume 89, Page 21, of the Plat
Records of Travis County, Texas (the "Land"), for the Lease Term (as hereinafter
defined), all upon and subject to the following terms, provisions, covenants,
agreements, and conditions:
1. LEASE TERM. Subject to the provisions of Paragraph 7 below, this
Lease shall commence on the date and continue for the calendar months provided
for in the Basic Lease Information.
2. BASE RENT. Tenant covenants and agrees to pay Landlord in currency of
the United States of America that at the time of payment is legal tender for
payment of public and private debts, without demand, setoff or deduction
whatsoever, except as otherwise expressly provided in this Lease, the base
annual rental (the "Base Rent") as provided for in the Basic Lease Information.
Tenant shall pay the Base Rent in equal monthly installments equal to one-
twelfth (1/12th) of the product of the total square feet of Net Rentable Area in
the Premises multiplied by the rate per square foot of Net Rentable Area for the
applicable Lease Year, each in advance on the first day of each month during the
Lease Term.
3. ADDITIONAL RENT.
(a) In addition to the Base Rent, Tenant also covenants and agrees to
pay as additional rent under this Lease at the times and in the manner as
hereinafter provided, an amount ("Tenant's Occupancy Costs") equal to Tenant's
Proportionate Share of Operating Costs (as such terms are defined in said Rider
No. 101).
(b) Prior to the Commencement Date and the beginning of each Calendar
Year (as defined in said Rider No. 101) or as soon as practical thereafter,
Landlord shall compute and deliver to Tenant a bona fide estimate of Tenant's
Occupancy Costs for the respective Calendar Year and without further notice
Tenant shall pay to Landlord in monthly installments one-twelfth (1/12th) of
such estimate simultaneously with Tenant's payment of the monthly installment of
Base Rent. For purposes of notice to Tenant hereunder, Landlord's estimate of
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Tenant's Occupancy Costs for the first Calendar Year is as provided for in the
Basic Lease Information.
(c) Unless delayed by causes beyond Landlord's reasonable control,
within one hundred fifty (150) days after the end of any respective Calendar
Year, Landlord shall give Tenant a written notice setting out the actual
Operating cost of the Building and Land and the actual calculation of Tenant's
Occupancy Costs incurred during the foregoing Calendar Year. If the aggregate
of the monthly installments of the Tenant's Occupancy Costs actually paid to
Landlord during such Calendar Year differs from the amount of Tenant's Occupancy
Costs that should have been paid, then:
(i) If the actual costs exceed the costs paid, then Tenant
covenants and agrees to pay the difference to Landlord within ten (10) days
after receipt of the written notice from Landlord specifying the amount owed; or
(ii) If the costs paid exceed the actual costs, then Landlord
shall, at Landlord's option, either apply the difference as a credit against the
next maturing installments of Tenant's Occupancy Costs or reimburse such excess
amount to Tenant within ten (10) days after the Landlord's delivery of the
written notice specifying the amount owed.
4. PAYMENT AND PERFORMANCE. Tenant agrees to pay all rents and sums
provided to be paid by Tenant hereunder at the times and in the manner herein
provided, without any set-off, deduction or counterclaim whatsoever, except as
otherwise expressly provided in this Lease. Should this Lease commence on a day
other than the first day of a calendar month or terminate on a day other than
the last day of a calendar month, the rent for such partial month shall be
proportionately reduced. The obligation of Tenant to pay such rent is an
independent covenant, and no act or circumstance whatsoever, whether such act or
circumstance constitutes a breach of covenant by Landlord or not, shall release
Tenant from the obligation to pay rent. Time is of the essence in the
performance of all of Tenant's and Landlord's respective obligations hereunder.
Any amount which becomes owing by Tenant to Landlord hereunder shall bear
interest from the date past due until paid at an annual rate (the "Past Due
Rate") equal to the lesser of (i) five percent (5%) in excess of the prime rate
of major lending institutions published in the Wall Street Journal on the date
of Tenant's default or (ii) the maximum nonusurious rate which shall mean the
highest rate which, when multiplied times the amount owing, shall not result in
charging interest in excess of the maximum amount of interest which Landlord is
legally entitled to contract for, charge or collect under applicable state or
federal law.
5. SECURITY DEPOSIT. Tenant has deposited with Landlord on the date of
the execution of this Lease the sum of $4,232.07 as security for the full and
faithful performance by Tenant of Tenant's covenants and obligations hereunder.
Such security deposit shall not bear interest and shall not be considered an
advance payment of rent or a measure or limitation of Landlord's damages in case
of default by Tenant. In the event Tenant defaults in the performance of any of
the covenants or obligations to be performed by it hereunder, including but not
limited to the payment of all rent to be paid hereunder, Landlord may, from time
to time, without prejudice to any other remedy, use such security deposit to the
extent necessary to make good any arrearages in rent or in any sum as to which
Tenant is in default or otherwise obligated to pay hereunder and to pay for any
other damages, injury, expense, or liability caused to
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Landlord by such default, including any damages or deficiency in the reletting
of the Premises, whether such damages or deficiency may accrue before or after
termination of this Lease. Following any such application of the security
deposit, Tenant shall pay and be obligated to pay to Landlord on demand the
amount so applied in order to restore the security deposit to its original
amount. Landlord may commingle such security deposit with Landlord's other
funds. If Tenant is not then in default hereunder on the date which this Lease
is terminated, any remaining balance of the security deposit shall be returned
by Landlord to Tenant upon termination of this Lease and after delivery by
Tenant of possession of the Premises to Landlord in accordance with the terms
and conditions of this Lease. Notwithstanding the foregoing, Landlord has
collaterally assigned its interest in the Premises during the Lease Term,
including the security deposit, to Manufacturers Hanover Trust Company, its
successors and assigns ("Lender"), and Landlord's liability for the return of
such security deposit is expressly subject to Lender's consent to and release of
such security deposit, and Tenant agrees to look solely to Lender and the terms
of any Subordination, Nondisturbance and Attornment Agreement entered into with
Lender for the return of such security deposit.
6. INSTALLATION OF IMPROVEMENTS. Landlord has made no representations or
warranties as to the condition of the Premises, the Building or the Land, nor
has Landlord made any commitments to remodel, repair or redecorate except as
expressly set forth in the Work Letter attached hereto as Exhibit "D" and made a
part hereof for all purposes. Landlord will install or cause to be installed in
the Premises all improvements shown on the Work Letter upon the terms and
conditions set forth in the Work Letter. Otherwise, Tenant acknowledges that
Tenant is accepting the Premises on an "as is" basis.
7. COMPLETION OF IMPROVEMENTS AND COMMENCEMENT DATE. If the Premises are
not ready for occupancy by Tenant on the Commencement Date, the obligations of
Landlord and Tenant shall nevertheless continue in full force and effect,
including the obligation of Tenant to commence paying rent on the Commencement
Date provided that if the Premises are not ready for occupancy for any reason
other than Tenant's Delay (as defined in Exhibit "D" attached hereto), then the
rent shall abate and not commence or become due until the date that the
leasehold improvements to the Premises are Substantially Complete (as
hereinafter defined). Any such abatement of rent, however, shall constitute
full settlement of all claims that Tenant may otherwise have against Landlord by
reason of the Premises not being ready for occupancy by Tenant on the
Commencement Date. Notwithstanding the foregoing, if Tenant, with Landlord's
consent, occupies the Premises after the Premises are Substantially Complete but
prior to the beginning of the Lease Term, all of the terms and provisions of
this Lease shall be in full force and effect from the commencement of such
occupancy, and the Lease Term shall commence on the date on which Tenant first
occupies the Premises (which date shall be deemed to be the Commencement Date
hereunder) and shall expire the same period of months after the Commencement
Date as set forth in Paragraph 1 above; and no change shall occur in the length
of the Lease Term. By moving into the Premises or taking possession thereof,
Tenant accepts the Premises as suitable for the purposes for which the same are
leased and accepts the Building and each and every appurtenance thereof, and
waives any and all defects therein; provided, however, that it is agreed that
Tenant shall have the right to accept the Premises after moving therein or
taking possession thereof subject to the punch list described or referred to in
Exhibit "C-1" attached hereto, and Landlord and Tenant shall promptly execute
and delivery, each to the other, an Acceptance of Premises Memorandum, the form
of which is attached hereto as Exhibit
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"C" and made a part hereof for all purposes. For the purposes hereof, the term
"Substantially Complete" shall mean the first to occur of the following:
(a) the date Landlord substantially completes the work required of it
under the terms of the Work Letter being executed contemporaneously herewith the
form of which is attached hereto as Exhibit "D"; or
(b) the Date Landlord would have substantially completed the work
required of it under the terms of the aforesaid Work Letter but for Tenant's
Delay; or
(c) the date Tenant takes possession of the Premises.
If for any reason a dispute arises as to any of the dates described above,
a certificate furnished by Landlord's architect or space planner certifying the
date on which the Premises were Substantially Complete, shall be conclusive and
binding upon the parties hereto.
8. LANDLORD'S OBLIGATIONS. So long as Tenant is not in default under
this Lease, Landlord agrees to furnish facilities to provide for the following
services:
(a) air conditioning, both heating and cooling (as required by the
seasons), from 7:00 a.m. to 7:00 p.m. on weekdays and on Saturdays from 8:00
a.m. to 1:00 p.m. (except on legal holidays designated in the Building Rules and
Regulations) and at such temperatures and in such amount as may in the sole
judgment of Landlord be reasonably required for comfortable use and occupancy
under normal business operations; provided, that circulating air will not be
available other than by air conditioning and if Tenant shall require air
conditioning at any time other than the hours and the days above specified,
Landlord shall furnish the same upon a written request of Tenant delivered to
the Building management office before 3:00 p.m. of the business day of the extra
usage, and for such service Tenant shall pay Landlord as additional rent within
ten (10) days after receipt of a bill therefor, the sum of $25.00 per hour per
air handler unit (subject to adjustments to reflect increases in labor and
utility costs as reasonably determined by Landlord);
(b) hot and cold water supplied from the regular supply of water to
the Building at points of supply provided for general use of tenants of the
Building through fixtures installed by Landlord or by Tenant with Landlord's
prior written consent;
(c) janitor service to the Premises on weekdays other than holidays
and such window washing and wall cleaning as may in the judgment of Landlord be
reasonably required;
(d) automatic passenger elevators where applicable, provided that
Landlord may reasonably limit the number of elevators to be in operation on
Saturdays,, Sundays, holidays and before and after normal business hours, as
further set forth in the Building Rules and Regulations;
(e) freight elevator service in common with other tenants but only
when scheduled through the Building management office;
(f) restroom facilities;
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(g) electric lighting for all public areas and special service areas
of the Building in the manner and to the extent deemed by Landlord to be
reasonable; and
(h) replacement of Building standard lighting tubes.
9. ELECTRICAL USAGE. Landlord shall furnish sufficient power for (a)
lighting, (b) typewriters, voice writers, calculating machines, and other
standard office machines of similar low electrical consumption, (c) desktop
computers, facsimiles, printers, reprographic [provided however that if the
foregoing equipment in this subsection (c) requires a dedicated circuit, Tenant
shall pay to Landlord all costs associated with the installation, repair and
maintenance of such dedicated circuit], and (d) electricity for electronic data
processing equipment, special lighting in excess of Building standard, or any
equipment or machines not standard office machines or which, in any event,
require a nominal voltage of more than 120 volts single phase; provided,
however, Tenant shall give Landlord written notice prior to placing any
equipment, machines, or special lighting in the Premises which may consume in
excess of such normal low usage machines, and Landlord, at Tenant's expense to
be reimbursed to Landlord as additional rent upon demand, will make reasonable
efforts to supply such service through the then existing feeders servicing the
Building. Tenant shall pay not only Tenant's Proportionate Share (as defined in
Rider No. 101 attached hereto) of the cost of the standard electricity furnished
to the Building, but also, upon demand and receipt by Tenant of reasonable
documentation, the total cost of any of Tenant's consumption in excess of those
normal office machine requirements. If Tenant has any equipment or machines
that require such excess amounts of electricity, Landlord reserves the right, at
its sole option, to install a submeter(s), at Tenant's expense to be reimbursed
to Landlord as additional rent upon demand, for the Premises or any part or
parts thereof. If Tenant has excess electricity requirements for which Landlord
does not elect to install submeter(s), Landlord's engineer shall determine the
amount of excess electricity to be allocated to Tenant based on the power
requirements of any such equipment, machines, or special lighting. Whenever
heat-generating machines or equipment (other than such standard office machines)
which effect the temperatures otherwise maintained by the air conditioning
system, are used in the Premises by Tenant, Landlord shall have the right to
install supplemental air conditioning units in the Premises, and the cost
thereof, including the cost of installation, operation, use and maintenance,
shall be paid as additional rent by Tenant to Landlord on demand. Any riser or
risers or wiring to meet Tenant's excess electrical requirements will be
installed by Landlord upon written request of Tenant, at the sole cost and
expense of Tenant to be reimbursed to Landlord as additional rent upon demand,
if, in Landlord's sole judgment, the same are necessary and will not cause
permanent damage or injury to the Building or the Premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repair, or expenses, or interfere with or disturb other tenants or
occupants.
10. SERVICE INTERRUPTIONS. Landlord does not warrant that any of the
services provided for in Paragraphs 8 and 9 above will be free from any slow-
down, fluctuation, interruption, or stoppage nor from any change in quality,
character, or availability resulting from causes beyond the reasonable control
of Landlord or from any voluntary agreements between Landlord and any
governmental bodies or regulatory agencies, or from the maintenance, repair,
substitutions, or replacement of the equipment furnishing such service, and
specifically, no such slow-down, interruption, stoppage or change shall ever be
construed as an eviction, actual or
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constructive, of Tenant nor shall same cause any abatement of the rent payable
hereunder or in any manner or for any purpose relieve Tenant from any of its
obligations hereunder, and in no event shall Landlord be liable for loss or
damage to persons or property, or in default hereunder, as a result thereof.
Landlord agrees to use reasonable diligence to resume the affected service.
Notwithstanding the foregoing, in the event of the failure to furnish, any
stoppage of or other interruption in the furnishing of the services or utilities
described in Paragraphs 8 and 9 above which continues for five (5) consecutive
business days after receipt by Landlord of written notice thereof from Tenant,
and such failure, stoppage or interruption is not caused by Force Majeure (as
hereinafter defined), a casualty covered by Paragraph 18 below, a failure on the
part of a public utility, or by any act or omission of Tenant, its agents,
employees or contractors. Tenant shall be entitled, as its sole and exclusive
remedy, to an abatement of Base Rent and Tenant's Occupancy Costs in proportion
to the untenantability of the Premises caused by such failure, stoppage or
interruption, with such abatement to begin on the sixth (6th) consecutive
business day after the receipt by Landlord of written notice of such occurrence
and continuing until such failure, stoppage or interruption has been cured.
11. ASSIGNMENT AND SUBLETTING.
(a) In the event Tenant should desire to assign this Lease or sublet
the Premises or any part thereof, Tenant shall give Landlord written notice of
such desire at least sixty (60) days in advance of the date on which Tenant
desires to make such assignment or sublease, which notice shall contain the name
of the proposed assignee or subtenant and the nature and character of the
business of the proposed assignee or subtenant, the term, use, rental rate and
other particulars of the proposed subletting or assignment, including without
limitation, evidence satisfactory to Landlord that the proposed subtenant or
assignee is financially responsible and will immediately occupy and thereafter
use the Premises (or any sublet portion thereof) for the remainder of the Lease
Term (or for the entire term of the sublease, if shorter). Landlord shall then
have a period of thirty (30) days following receipt of such notice within which
to notify Tenant in writing that Landlord elects (1) to terminate this Lease as
to the space so affected as of the date so specified by Tenant for such
assignment or subletting, or (2) to permit Tenant to assign this Lease or sublet
such space, or (3) if, in Landlord's good faith judgment, such proposed assignee
or subtenant does not meet Landlord's then current requirements for new tenants
of comparable space in the Building, to refuse to consent to Tenant's assignment
or subleasing of such space and to continue this Lease in full force and effect
as to the entire Premises. If Landlord shall fail to notify Tenant in writing
of such election within said thirty (30) day period, Landlord shall be deemed to
have elected option (3) above. If Landlord consents to an assignment or
sublease, Tenant agrees to provide, at its expense, direct access from the
assignment or subletting upon Tenant's payment to Landlord of any reasonable
costs incurred by Landlord in reviewing and approving such requested assignment
or subletting, including, without limitation, Landlord's attorneys' fees. No
assignment or subletting by Tenant shall relieve Tenant of any obligations under
this Lease. Consent of Landlord to a particular assignment or sublease or other
transaction shall not be deemed a consent to any other or subsequent
transaction. Without limiting the foregoing, any refusal by Landlord to consent
to any assignment or sublease shall be deemed a reasonable withholding of
Landlord's consent in the event of the refusal or failure of any mortgage, deed
of trust holder or other secured party so entitled, to consent to such
assignment or sublease.
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(b) If Landlord consents to any subletting or assignment by Tenant as
herein above provided, and subsequently any rents received by Tenant under any
such sublease are in excess of the rent payable by Tenant to Landlord or Tenant
receives any additional consideration from the assignee under any such
assignment, then Landlord may, at its option, either (1) declare such excess
rents under any sublease or such additional consideration for any assignment to
be due and payable by Tenant to Landlord as additional rent hereunder, or (2)
elect to cancel this Lease as to the space assigned or sublet and at Landlord's
option, enter into a lease directly with such assignee or subtenant, without
liability to Tenant.
(c) Landlord shall have the right to transfer and assign, in whole or
in part, all its rights and obligations hereunder and in the Building and
property referred to herein, and in such event and upon assumption by the
transferee of Landlord's obligations hereunder (any such transferee to have the
benefit of, and be subject to, the provisions of this Lease) no further
liability or obligation shall thereafter accrue against Landlord hereunder.
(d) No assignment or sublease shall release Tenant or Tenant's
guarantor from any obligations hereunder. In the event Tenant is in default
under any of the terms or conditions of this Lease, then Landlord, in addition
to any other remedies, may collect all rents coming due directly from any
subtenant and apply same against any sums due Landlord by Tenant, but Tenant
shall not be released from any further liability or obligations because of such
collections by Landlord, except to the extent of the amount of rents actually
received by Landlord from any subtenant. A consent to one sublease or
assignment shall not be considered a consent to any future subleases or
assignments.
(e) If Tenant is a corporation and if at any time during the Lease
Term the person or persons who own the voting shares at the time of the
execution of this Lease cease for any reason, including but not limited to
merger, consolidation or other reorganization involving another corporation, to
own a majority of such shares, or if Tenant is a partnership and if at any time
during the Lease Term the general partner or partners who own the general
partnership interests in the partnership at the time of the execution of this
Lease cease for any reason to own a majority of such interests (except as the
result of transfers by gift, bequest or inheritance to or for the benefit of
members of the immediate family of such original shareholder(s) or partner(s)),
such an event shall be deemed to be an assignment requiring Tenant to comply
with the terms hereof. The preceding sentence shall not apply whenever Tenant
is a corporation the outstanding stock of which is listed on a recognized
security exchange, or if at least eighty percent (80%) of its voting stock is
owned by another corporation, the voting stock of which is so listed.
(f) Tenant shall not mortgage, pledge, or otherwise encumber its
interest in this Lease or in the Premises.
12. USE AND OCCUPANCY. Tenant (and its permitted assignees and
subtenants) covenants and agrees that the Premises shall be used and occupied by
Tenant only for the Permitted Use set forth in the Basic Lease Information and
for no other purpose, and Tenant agrees to use and maintain the Premises in a
clean, careful, safe, and proper manner and to comply with all applicable laws,
ordinances, orders, rules, and regulations of all governmental bodies (state,
federal and municipal). Tenant agrees not to commit waste nor suffer or permit
waste to be committed or to allow or permit any nuisance on or in the Premises
nor will Tenant
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use the Premises for any purposes, directly or indirectly, that are forbidden by
law, ordinance, governmental or municipal regulation or ordinance or which are
dangerous to life, limb or property or for lodging or sleeping purposes. Tenant
will conduct its business and occupy the Premises and will control its agents,
employees, licensees, and invitees in such a manner so as not to create any
nuisance or interfere with, annoy, or disturb any of the other tenants in the
Building or Landlord in its management of the Building and so as not to injure
the reputation of the Building. Tenant shall not use the Premises or allow or
permit same to be used in any way or for any purpose that Landlord may deem to
be extra hazardous on account of the possibility of fire or other casualty or
which will increase the rate of fire or other insurance for the Building or its
contents or which may render the Building uninsurable at normal rates by
responsible insurance carriers authorized to do business in the State of Texas,
or which may render void or voidable any insurance on the Building and, in the
event that there are increased insurance premiums because of Tenant's use of the
Premises, then, in addition to any other remedies Landlord may have hereunder,
Tenant shall pay such increase to Landlord within ten (10) days of being billed
by Landlord, provided that such bill from Landlord shall include a copy of
premium notices or other documents supplied by the insurer identifying
specifically the use of the Premises by Tenant causing the increased insurance
premium and specifically identifying the dollar amount of that increase. Tenant
shall not erect, place, or allow to be placed any sign, advertising matter,
stand, booth, or showcase in or upon the doorsteps, vestibules, halls,
corridors, doors, walls, windows, or pavement of the Building or the Land
(except for lettering on the door or doors to the Premises as allowed by the
Rules and Regulations attached hereto as Exhibit "B") without the prior written
consent of Landlord.
13. ALTERATIONS AND ADDITIONS BY TENANT. Tenant shall not make or allow
to be made any alterations, improvements, or additions in or to the Premises
without first obtaining the written consent of Landlord, and all alterations,
additions, and improvements made to or fixtures or other improvements placed in
or upon the Premises, whether temporary or permanent in character, by either
party (except only moveable office furniture and equipment not attached to the
Building) shall be deemed a part of the Building and with respect to Tenant's
alterations, additions, improvements, and fixtures, they shall remain Tenant's
property until the expiration or earlier termination of the Lease at which time
they shall become the property of Landlord without compensation to Tenant.
Alterations, improvements, and additions in and to the Premises requested by
Tenant shall be in accordance with plans and specifications which have been
previously submitted to and approved in writing by Landlord. Such work shall be
performed at Tenant's expense and accomplished either by Landlord or by
contractors and subcontractors approved in writing by Landlord. If such work is
performed by Landlord, Landlord shall be entitled to a construction supervision
fee in the amount of five percent (5%) of the cost of any alterations,
improvements or additions made by Landlord in or to the Premises at the request
of Tenant. If such work is not performed by Landlord, then all work performed
by other contractors and subcontractors shall be subject to the following
conditions:
(a) A certificate of insurance for each contractor and subcontractor
must be submitted to the Landlord for approval prior to commencement of
construction.
(b) Tenant shall insure that all workmen will be cooperative with
Building personnel and comply with all Building rules and regulations.
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(c) All construction shall be done in a good and workmanlike manner
and shall be subject to approval by Landlord upon completion, which approval
shall not be withheld unreasonably.
(d) Lien releases in recordable form from each contractor and
subcontractor must be submitted to the Landlord within five (5) days after
completion.
(e) All construction shall comply with all applicable governmental
laws, rules and regulations.
14. REPAIR AND MAINTENANCE BY TENANT. Tenant will not in any manner
deface or damage the Building or Land and will pay, as additional rent, on
demand, the cost of replacing any damage done to the Building or Land or any
part thereof by Tenant or Tenant's agents, employees, contractors or invitees.
Except to the extent Landlord is expressly so obligated hereunder, Tenant shall
keep the Premises including all fixtures and improvements installed by or for
Tenant in good and tenantable condition and shall promptly make all necessary
non-structural repairs and replacements thereto except those caused by fire or
other casualty covered by Landlord's insurance on the Building, all at Tenant's
sole expense, under the supervision and with the approval of Landlord. Said
repairs and replacements shall be equal in quality and class to the original
work. Without diminishing such obligation of Tenant and in addition to any
other remedies Landlord may have, if Tenant fails to make such repairs and
replacements within fifteen (15) days after the occurrence of the damage or
injury, Landlord may at its option make such repairs and replacements and Tenant
shall pay Landlord the cost there of as additional rental hereunder upon demand.
15. MECHANIC'S LIENS. Tenant will not permit any mechanic's or
materialman's lien or liens to be placed upon the Premises or improvements
thereon or the Building or Land during the term hereof caused by or resulting
from any work performed, materials furnished or obligations incurred by or at
the request of Tenant and nothing in this Lease contained shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied, by inference or otherwise, to any contractor, subcontractor, laborer
or materialman for the performance of any labor or the furnishing of any
materials that would give rise to the filing of any mechanic's, materialman's,
or other liens against the interest of Landlord in the Building, the Land or the
Premises. In the case of the filing of any such mechanic's and materialman's
lien on the interest of Landlord or Tenant in the Premises or the Building or
Land resulting from work performed, materials furnished or obligations incurred
by or at the request of Tenant, Tenant shall cause the same to be discharged of
record or adequately bonded around within twenty (20) days after the filing of
same. If Tenant shall fail to discharge or adequately bond around such lien
within such period, then, in addition to any other right or remedy of Landlord,
Landlord may, but shall not be obligated to, discharge the same either by paying
the amount claimed to be due or by procuring the discharge of such lien by
deposit in court or bonding. Any amount paid by Landlord for any of the
aforesaid purposes, together with all reasonable legal and other expenses of
Landlord in defending any such action or procuring the discharge of such lien,
shall be paid by Tenant to Landlord as additional rent on demand.
16. INDEMNITY AND NON-LIABILITY. Landlord will not be liable for and
Tenant will indemnify and hold Landlord harmless from all suite, liability,
fines, claims, demands, actions,
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damages, losses, costs and expense, including, but not limited to, Landlord's
reasonable attorney's fees for any injury or death to persons, any loss or
damage to property, or any loss of or damage to Tenant's business caused wholly
or in part by (i) the negligence of, (ii) an act, omission or misconduct of,
(iii) a breach of this Lease by or (iv) the use or occupancy of the Premises by,
Tenant, its employees, agents, servants, contractors, licensees, invitees or
subtenants. If Landlord shall, without fault on its part, be made a party to any
action commenced by or against Tenant, Tenant shall protect, indemnify and hold
Landlord harmless therefrom and shall pay to Landlord all costs, expenses, and
reasonable attorneys' fees incurred by Landlord in connection therewith. Unless
caused by the negligence or willful misconduct of Landlord, Landlord shall not
be liable or responsible for any loss or damage to property or death or injury
to persons occasioned by theft, fire, act of God, injunction, riot, strike, war,
court order, other governmental action or other matters beyond the control of
Landlord, or by or through the acts, misconduct or omissions of other tenants,
or by the Building or its improvements becoming out of repair, or the leakage or
failure of any pipes, wiring or fixtures, or the backing up of any drains. The
provisions of this Paragraph shall survive the expiration or earlier termination
of this Lease.
17. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the
following rights, exercisable without notice [except with respect to
subparagraphs (e) and (g)] and without liability to Tenant for damage or injury
to property, persons, or business and without effecting an eviction,
constructive or actual, or disturbance of Tenant's use or possession or giving
rise to any claim for setoff or abatement of rent:
(a) To change the Building's name or street address.
(b) To install, affix, and maintain any and all signs on the exterior
and interior of the Building.
(c) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators, and similar
equipment, and to control all internal lighting that may be visible from the
exterior of the Building.
(d) To designate, restrict, and control all sources within the
Building from which Tenant may obtain food and beverages or other services.
(e) To enter upon the Premises at reasonable hours to exercise its
rights hereunder or inspect same or clean or make repairs or alterations (but
without any obligation to do so, except as expressly provided for herein) or to
show the Premises to prospective lenders or purchasers, and, during the last
nine (9) months of the Lease Term, to show them to prospective tenants at
reasonable hours and, if they are vacated, to prepare them for reoccupancy.
(f) To retain at all times, and to use in case of emergency or
catastrophe, at the request of Tenant, or to exercise rights or discharge
obligations specifically granted to landlord elsewhere in this Lease, keys to
all doors within and into the Premises. No locks shall be changed or added
without the prior written consent of Landlord.
(g) To decorate and to make repairs, alterations, additions, changes,
or improvements, whether structural or otherwise, in and about the Building, or
any other part
<PAGE>
thereof, and for such purposes to enter upon the Premises and, during the
continuance of any of said work, to temporarily close doors, entryways, public
space, and corridors in the Building, to interrupt or temporarily suspend
Building services and facilities and to change the arrangement and location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets, or other public parts of the Building, all without abatement of rent or
affecting any of Tenant's obligations hereunder, so long as access to the
Premises is not unreasonably restricted.
(h) To have and retain paramount title to the Premises free and clear
of any act of Tenant purporting to burden or encumber such premises.
(i) To grant to anyone the exclusive right to conduct any specific
type of business or render any specific type of service in or to the Building.
(j) To approve the weight, size, and location of safes and other heavy
equipment and articles in and about the Premises and the Building and to require
all such items and all furniture and similar items to be moved into and out of
the Building and Premises only at such times and in such manner as Landlord
shall direct in writing. Movements of Tenant's property into or out of the
Building and within the Building are entirely at the risk and responsibility of
Tenant.
(k) To prohibit the placing of vending or dispensing machines of any
kind in or about the Premises without the prior written permission of Landlord.
(l) To take all such reasonable measures as Landlord may deem
advisable for the security of the Building and its occupants, including without
limitation, the search of all persons entering or leaving the Building, the
evacuation of the Building for cause, suspected cause, or for drill purposes,
the temporary denial of access to the Building, and the closing of the Building
after regular working hours, on business days and on Sundays, and legal
holidays, subject, however, to Tenant's right to admittance when the Building is
closed after regular working hours under such reasonable regulations as Landlord
may prescribe from time to time which may include by way of example but not of
limitation, that persons entering or leaving the Building, whether or not during
regular working hours, identify themselves to a security officer by registration
or otherwise and that said persons establish their right to enter or leave the
Building. Notwithstanding the foregoing, Landlord shall not be obligated to
provide any of the above security measures and Landlord shall not be liable to
Tenant or Tenant's employees, customers or invitees for any damages, costs or
expenses which occur for any reason in the event such security measures are not
properly installed, monitored or maintained or any such services are not
property provided, nor shall Landlord be liable to Tenant or Tenant's employees,
customers or invitees for any damages or losses caused by theft, burglary,
assault, vandalism or other crimes. Landlord strongly encourages Tenant to
secure Tenant's own insurance, in excess of the amount required elsewhere in
this Lease, and/or to provide Tenant's own security measures, to protect against
the above occurrences if Tenant desires additional coverage for such risks.
18. FIRE OR OTHER CASUALTY. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged by fire or other
casualty that substantial alteration or reconstruction
<PAGE>
of the Building shall, in Landlord's sole opinion, be required (whether or not
the Premises shall have been damaged by such fire or other casualty) or in the
event there is less than two (2) years of the Lease Term remaining or in the
event any mortgagee under a mortgage or deed of trust covering the Building
should require that the material uninsured loss to the Building, Landlord may,
at its option, terminate this Lease and the term and estate hereby granted by
notifying Tenant in writing of such termination within sixty (60) days after the
date of such damage, in which event the rent hereunder shall be abated as of the
date of such damage. If Landlord does not thus elect to terminate this Lease,
Landlord shall within seventy-five (75) days after the date of such damage
commence to repair and restore the Building and shall proceed with reasonable
diligence to restore the Building (except that Landlord shall not be responsible
for delays outside its control) to substantially the same condition in which it
was immediately prior to the happening of the casualty, except that Landlord
shall not be required to rebuild, repair, or replace any part of Tenant's
furniture or furnishings or of fixtures and equipment owned or removable by
Tenant under the provisions of the Lease. Notwithstanding the foregoing,
Landlord's obligation to restore the Building shall not require Landlord to
expend for such repair and restoration work more than the insurance proceeds
actually received by the Landlord as a result of the casualty. Landlord shall
not be liable for any inconvenience or annoyance to Tenant or injury to the
business of Tenant resulting in any way from such damage or the repair thereof;
except that during the time and to the extent that the Premises are unfit for
occupancy, the Landlord shall, at its option, either furnish the Tenant with
comparable office space at prevailing market rates or a fair diminution of rent,
the choice of which will be at the Landlord's sole discretion. Any insurance
which may be carried by Landlord or Tenant against loss or damage to the
Building or to the Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control. If the Premises or any other portion
of the Building is damaged by fire or other casualty resulting from the fault or
negligence of Tenant or any of Tenant's agents, employees, or invitees, the rent
hereunder shall not be diminished nor shall Landlord have any obligation to
furnish Tenant with comparable office space during the repair of such damage,
and Tenant shall be liable to Landlord for the cost of the repair and
restoration of the Building caused thereby to the extent such cost and expense
is not covered by insurance proceeds.
19. CONDEMNATION. If all of the Building and Land or the Premises, or so
much of either as would materially interfere with Tenant's use of the remainder,
shall be taken for any public or quasi-public use under any governmental law,
ordinance or regulation or by right of eminent domain or should be sold to the
condemning authority in lieu of condemnation or, if any taking would materially
interfere with the use of the Building, Land or the Premises for the purposes
for which they are then being used, then this Lease shall terminate as of the
date when physical possession of the Building and Land or the Premises is taken
by the condemning authority. If less than the whole or a material part of the
Building and Land or the Premises is thus taken or sold and there is no such
material interference, then Landlord shall have the option to terminate this
Lease effective as of the date title shall vest in the condemnor or transferee.
In the event this Lease is to be terminated as a result of a total or a partial
condemnation as described in this Paragraph, Tenant shall have the right to
vacate the Premises at any time within sixty (60) days preceding the date that
title vests in or physical possession is taken by the condemning authority, and
this Lease shall terminate as of the date such vacation by Tenant is complete.
The rent payable hereunder shall be diminished by an amount representing that
part of said rent as shall properly be allocable to the portion of the Premises
which was so taken or sold,
<PAGE>
provided that if this Lease has been terminated pursuant to this Paragraph 19,
Tenant's obligations under this Lease otherwise accruing after such termination
date shall cease and come to an end. Landlord shall receive the entire award
from any taking or condemnation (or the entire compensation paid because of any
transfer by agreement), and Tenant shall have no claim thereto, provided that
Tenant may apply for and retain any separate award attributable to (a)
interference with Tenant's business, (b) the cost of Tenant's relocation and (c)
the unamortized value (amortized evenly over the Lease Term) of leasehold
improvements paid for by Tenant without reimbursement from Landlord ("Tenant's
Costs"), so long as Tenant provides Landlord with written evidence of Tenant's
Costs within thirty (30) days after the Commencement Date.
20. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for all taxes
levied or assessed against Tenant's personal property, furniture, alterations,
improvements, or fixtures in the Premises including any sales and use taxes
associated with materials and/or services in connection with the Premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and if Landlord elects or is required to pay the
same or if the assessed value of Landlord's property is increased by inclusion
of Tenant's personal property, furniture, alterations, improvements or fixtures
in the Premises for which Tenant is liable hereunder, provided that Landlord
first shall provide to Tenant evidence reasonably sufficient to show that the
increase in taxes is attributable to the inclusion of Tenant's personal
property, furniture, alterations, improvements or fixtures in the Premises.
21. WAIVER OF SUBROGATION AND INSURANCE.
(a) Each party hereto waives any and every claim which arises or may
arise in its favor and against the other party hereto, or anyone claiming
through or under them, by way of subrogation or otherwise, for any and all loss
of, or damage to, any of its property (whether or not such loss or damage is
caused by the fault or negligence of the other party or anyone for whom said
other party may be responsible), which loss or damage is covered (or, with
respect to loss of or damage to any of Tenant's property, could have been
covered by fire and extended coverage insurance covering Tenant's personal
property and moveable trade fixtures in the Premises to the extent of full
replacement value) by valid and collectible fire and extended coverage insurance
policies, to the extent that such loss or damage is insurable under said
insurance policies. Said waivers shall be in addition to, and not in limitation
or derogation of, any other waiver or release contained in this Lease with
respect to any loss or damage to property of the parties hereto. In the event
that Tenant is permitted to and self-insures any risk which would have been
covered by the insurance required to be carried by Tenant pursuant to Section
21(b) of this Lease, or if Tenant fails to carry any insurance required to be
carried by Tenant pursuant to Section 21(b) of this Lease, then all loss or
damage to Tenant, its leasehold interest, its business, its property, the
Premises or any additions or improvements thereto or contents thereof shall be
deemed covered by and recoverable by Tenant under valid and collectible policies
of insurance.
(b) Tenant shall at its sole cost and expense, procure and maintain
through the term of this Lease a policy or policies of insurance insuring Tenant
against any and all liability for injury to or death of a person or persons and
for damage to or destruction of property occasioned by or arising out of or in
connection with the use or occupancy of the Premises or by
<PAGE>
the condition of the Premises (including the contractual liability of Tenant to
indemnify Landlord contained herein) with a combined single limit of $1,000,000
for bodily injury and/or property damages, and Tenant shall provide Landlord
with evidence thereof. All insurance shall be written by an insurance company or
companies satisfactory to Landlord and licensed to do business in the State of
Texas with Landlord and any other party in interest from time to time designated
by Landlord named as additional insiders without restriction. If Tenant has an
umbrella or excess policy, Tenant will name Landlord as an additional insured
without restriction on all layers of umbrella or excess policies. Tenant shall
obtain a written obligation on the part of each insurance company to notify
Landlord at least ten (10) days prior to cancellation of such insurance. Such
policies or duly executed certificates of insurance relating thereto shall be
promptly delivered to Landlord within five (5) days after the execution of this
Lease and renewals thereof as required shall be delivered to Landlord at least
thirty (30) days prior to the expiration of the respective policy terms. If
Tenant fails to comply with the foregoing requirements relating to insurance,
Landlord may, at its sole option, obtain such insurance and Tenant shall pay as
additional rent to Landlord on demand the premium cost thereof.
(c) Landlord shall maintain at the expense of Landlord, (i) fire and
extended coverage insurance on the base building portion of the Building
Standard (as defined in Exhibit "D") improvements located in the Premises in
amounts reasonably determined by Landlord to cover the replacement value of such
components of the Building and (ii) comprehensive general liability insurance in
the amount of not less than $500,000 in respect of personal injury or death in
respect of any one occurrence and of not less than $100,000 for property damage
in any one occurrence. Said insurance shall be issued by a reputable insurance
company authorized to do business in Texas.
22. SURRENDER UPON TERMINATION. At the expiration or termination of this
Lease, whether caused by lapse of time or otherwise. Tenant shall at once
remove all furniture, movable trade fixtures and equipment, and surrender
possession of the Premises and deliver the Premises to Landlord in as good
repair and condition as the commencement of Tenant's occupancy, reasonable wear
and tear and damages or destruction by fire or other insured casualty expected,
and shall deliver to Landlord all keys to the Premises. All furniture, movable
trade fixtures and equipment shall be removed in a good and workmanlike manner
so as not to damage the Premises or the Building or the structural qualities of
the Building or the plumbing, electrical lines, or other utilities. Tenant, or
Landlord at Tenant's expense, shall repair any damage to the Premises or the
Building and Land caused by such removal. All furniture, movable trade fixtures
and equipment installed by Tenant not removed at the expiration of this Lease or
within fifteen (15) days after any other termination shall thereupon be
conclusively presumed to have been abandoned by Tenant and Landlord may, at its
option, take over the possession of such property and either:
(a) Declare same to be the property of Landlord by written notice
thereof to Tenant; or
(b) At the sole risk, cost, and expense of Tenant remove the same or
any part thereof in any manner that Landlord shall choose and store or dispose
of the same without incurring liability to Tenant or any other person.
<PAGE>
Nothing contained in this Paragraph 22 shall prejudice or impair Landlord's
rights as a lienholder and secured party under Paragraph 27 hereof, and the
rights granted to Landlord under this Paragraph 22 shall be cumulative of its
rights as lienholder and secured party.
23. EVENTS OF DEFAULT.
(a) The following events shall be deemed to be events of default by
Tenant under this Lease:
(i) Tenant shall fail to pay when due hereunder any installment
of the rent hereby reserved or any other sum of money payable by Tenant to
Landlord; or
(ii) Tenant shall fail to comply with or observe any other term,
provision, or covenant of this Lease, and Tenant has not cured such failure
(except for the failure to pay rent) within twenty (20) days after the
occurrence of such failure; or
(iii) Tenant or any guarantor of Tenant's obligations hereunder
(hereinafter called "Guarantor") shall make a transfer in fraud of creditors, or
shall make an assignment for the benefit of creditors, or Tenant or any
Guarantor shall admit in writing its inability to pay its debts as they become
due; or
(iv) Tenant or any Guarantor shall file a petition under any
section or chapter of the Bankruptcy Reform Act of 1978, as amended, or under
any similar law or statute of the United States or any State thereof, or Tenant
or any Guarantor shall be adjudged bankrupt or insolvent in proceedings failed
against Tenant or any Guarantor thereunder; or a petition or answer proposing
the adjudication of Tenant or any Guarantor as a bankrupt or its similar law
shall be filed in any court and such petition or answer shall not be discharged
within sixty (60) days after the filing thereof; or
(v) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any Guarantor or of the Premises or
of any of Tenant's property located thereon; or
(vi) The leasehold estate hereunder shall be taken or attempt to
be taken by execution or other process of law in any action against Tenant; or
(vii) Tenant shall abandon or vacate any substantial portion of
the Premises for a period of time in excess of five (5) days without written
permission of Landlord, except in connection with a sublease or assignment of
this Lease approved by Landlord.
(b) In an event of default shall have occurred, Landlord shall have,
in addition to such other rights or remedies as are contained within this Lease
or at law or in equity, the right at its election, then or any time thereafter
while such event of default shall continue, to pursue any one or more of the
following remedies:
(i) Terminate this Lease by giving notice thereof to Tenant, in
which event Tenant shall immediately surrender the Premises to Landlord and if
Tenant fails to do so, Landlord may without prejudice to any other remedy which
it may have for possession or
<PAGE>
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises, or any
part thereof, and by force, if reasonably necessary, without being liable for
prosecution or any claim of damages therefor and Tenant hereby agrees to pay to
Landlord on demand the amount of all loss or damage which Landlord may suffer by
reason of such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise including loss of rental for the remainder of
the Lease Term and interest thereon at the Past Due Rate from the date of the
default.
(ii) Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying the Premises, or any part
thereof, by force, if reasonably necessary, without having any civil or criminal
liability therefor and without terminating this Lease. Landlord may (but shall
be under no obligation to) relet the Premises or any part thereof for the
account of Tenant, in the name of Tenant or Landlord or otherwise, without
notice to Tenant, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions (which may include concessions or free rent) and
for such uses as Landlord in its absolute discretion may determine and Landlord
may collect and receive any rents payable by reason of such reletting: and
Tenant covenants and agrees to pay Landlord on demand all reasonable expenses
necessary to relet the Premises which shall include the cost of renovating,
repairing, and altering the Premises for a new tenant or tenants, advertisements
and brokerage fees, and Tenant further covenants and agrees to pay Landlord on
demand any deficiency that may arise by reason of such reletting together with
interest on all sums due thereon as the Past Due Rate from the date of the
default. Landlord shall not be responsible or liable for any failure to relet
the Premises or any part thereof or for any failure to collect any rent due upon
any such reletting. No such re-entry or taking of possession of the Premises by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease unless a written notice of such termination is given to Tenant pursuant to
subparagraph 23(b)(i) above.
(iii) Make such payments and/or take such action (including,
without limitation, entering upon the Premises, by force if reasonably
necessary, without having any civil or criminal liability therefor) and do
whatever Tenant is obligated to do under the terms of this Lease and Tenant
covenants and agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in thus affecting compliance with Tenant's obligations under
the Lease together with interest thereon at the Past Due Rate from the date paid
by Landlord, and Tenant further agrees that Landlord shall not be liable for any
damages resulting to Tenant from such action, unless caused by the negligence or
willful misconduct of Landlord.
(iv) Collect, from time to time, by suit or otherwise, each
installment of rent or other sum as it becomes due hereunder, or to enforce,
from time to time, by suit or otherwise, any other term or provision hereof on
the part of Tenant required to be kept or performed.
(v) In order to regain possession of the Premises and to deny
Tenant access thereto, Landlord or its agent may, at the expense and liability
of the Tenant, alter or change any or all locks or other security devices
controlling access to the Premises without posting or giving notice of any kind
to Tenant (except as expressly set forth in this Lease), in which event Landlord
shall place a written notice on Tenant's front door stating the name and
<PAGE>
address or telephone number of the individual or company from which access to
the new key may be obtained. However, Landlord shall have no obligation to
provide Tenant a key or grant Tenant access to the Premises so long as Tenant is
in default under this Lease. Tenant shall not be entitled to recover possession
of the Premises, terminate this Lease or recovery any actual, incidental,
consequential, punitive, statutory or other damages or award of attorneys' fees,
by reason of Landlord's alteration or change of any lock or other security
device and the resulting exclusion from the Premises of the Tenant or Tenant's
agents, servants, employees, customers, licensees, invitees or any other persons
from the Premises. Landlord may, without notice, remove and either dispose of or
store, at Tenant's expense, any property belonging to Tenant that remains in the
Premises after Landlord has regained possession thereof.
(vi) Terminate this Lease by giving Tenant notice hereof, in
which event Tenant shall pay to Landlord the sum of (i) all rent accrued
hereunder through the date of termination, and (iii) an amount equal to (A) the
total rent that Tenant would have been required to pay for the remainder of the
Lease Term discounted to present value at a rate of seven percent (7%) per
annum, minus (B) the then present fair rental value of the Premises for such
period, similarly discounted at a rate of seven percent (7%) per annum, after
deducting all anticipated costs of reletting and Landlord's expenses for keeping
the Premises in good order.
(c) No repossession or re-entering on the Premises or any part thereof
and no reletting of the Premises or any part thereof shall terminate this Lease,
unless a notice of such intention be given to Tenant.
(d) No right or remedy herein conferred upon or reserved to Landlord
is intended to be exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. In addition to other remedies provided in this Lease, Landlord shall
be entitled, to the extent permitted by applicable law, to injunctive relief in
case of the violation, or attempted or threatened violation, of any of the
covenants, agreements, conditions, or provisions of this Lease, or to a decree
compelling performance of any of the other covenants, agreements, conditions, or
provisions of this Lease, or to any other remedy allowed to Landlord at law or
in equity.
24. NO IMPLIED WAIVER. The failure of Landlord to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power, or remedy contained in this Lease shall not be construed as a
waiver or a relinquishment thereof for the future. The waiver of or redress for
any violation of any term, covenant, agreement, or condition contained in this
Lease or contained in the Rules and Regulations attached hereto as Exhibit "B"
shall not prevent a subsequent act, which would have originally constituted a
violation from having all the force and effect of an original violation. No
express waiver shall affect any condition other than the one specified in such
waiver and that one only for the time and in the manner specifically stated. A
receipt by Landlord of any rent with or without knowledge of the breach of any
covenant or agreement contained in this Lease shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord.
Receipt by Landlord of Tenant's keys to the Premises shall not constitute an
acceptance or surrender of the Premises.
<PAGE>
25. WAIVER BY TENANT. Tenant hereby waives and surrenders for itself and
all claiming by, through, and under it, including creditors of all kinds,
(a) any right and privilege which it or any of them may have under any
present or future constitution, statute or rule of law to redeem the Premises or
to have a continuance of this Lease for the term thereby demised after
termination of Tenant's right of occupancy by order or judgment of any court or
by any legal process or writ, or under the terms of this Lease, or after the
termination of the terms of this Lease as herein provided; and
(b) the benefits of any present or future constitution, statute, or
rule of law which exempts property from liability for debt or for distress for
rent; and
(c) the provision of law relating to notice and/or delay in levy of
execution in case of eviction of a tenant for nonpayment of rent.
26. ATTORNEYS' FEES AND LEGAL EXPENSES. In the event either party
defaults in the performance of any of the terms, covenants, agreements or
conditions contained in this Lease to be performed by such party, and the
aggrieved party places the enforcement of this Lease in the hands of an
attorney, or files suit upon the same, the prevailing party shall recover all of
its reasonable attorneys' fees and court costs from the non-prevailing party.
27. LANDLORD'S LIEN. In consideration of the mutual benefits arising
under this Lease, Tenant hereby grants to Landlord a lien and security interest
on all property of Tenant now or thereafter placed in or upon the Premises, and
such property shall be and remain subject to such lien and security interest of
Landlord for payment of all rent and other sums agreed to be paid by Tenant
herein. Said lien and security interest shall be in addition to all rent and
other sums agreed to be paid by Tenant herein. Said lien and security interest
shall be in addition to and cumulative of the Landlord's liens provided by law.
Tenant shall not remove any of said property from the Premises in the event
Tenant is in default under this Lease. Upon the occurrence and event of default
by Tenant under this Lease, Landlord may, in addition to any other remedies
provided herein, enter upon the Premises and take possession of any and all
furniture, fixtures, equipment, supplies, and other property of Tenant situated
in, on, upon, or about the Premises, without liability for trespass or
conversion, and sell the same at public or private sale, with or without having
such property at the sale, after giving Tenant reasonable notice of the time and
place of any public sale or of the time after which any private sale is to be
made; and at any such public sale, Landlord or its assigns may purchase the same
or any portion thereof unless prohibited by law. The proceeds of any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorneys' fees and
other expenses incurred by Landlord), shall be applied as a credit against the
indebtedness secured by the security interest granted in this Paragraph 27. Any
surplus shall be paid to Tenant or as otherwise required by law; and Tenant
shall promptly pay any deficiencies forthwith. This Lease shall constitute a
security agreement under the Taxes Uniform Commercial Code so that Landlord
shall have and may enforce a security interest on all property of Tenant now or
hereafter placed in or upon the Premises by Tenant. Simultaneously with the
execution of this Lease, Tenant has executed as debtor the financing statements
attached hereto as Exhibit "E-1" or "E-2" and incorporated by reference herein
and agrees to execute such additional financing statement or statements as
Landlord may hereafter request in order that such
<PAGE>
security interest or interests may be protected pursuant to said Code. Landlord
may at its election at any time file a copy of this Lease as a financing
statement. Landlord, as secured party, shall be entitled to all of the rights
and remedies afforded a security party under the Texas Uniform Commercial Code,
which rights and remedies shall be in addition to and cumulative of the
Landlord's liens and rights provided by law or by the other terms and provisions
of this Lease. Upon request by Landlord, Tenant shall promptly provide the name
and address of any entity that has or claims to have an interest in any property
located on the Premises and a description of such property. Failure to provide
such list following Landlord's request shall result in a presumption that all
property located in the Premises is owned by or otherwise belongs to Tenant free
from all claims, liens, or security interests of any third party or parties.
Without intending to exclude any other manner of giving Tenant any required
notice, the requirement for reasonable notice shall be met if such notice is
given in the manner prescribed in this Lease at least ten (10) days before the
date of the sale. Landlord shall have all of the rights and remedies of a
secured party under applicable law. Upon written request by Tenant, Landlord
shall execute an agreement subordinating the foregoing lien of Landlord, in
substantially the form of Exhibit "1" attached hereto and made a part hereof.
28. SUBORDINATION.
(a) Tenant acknowledges that this Lease and all rights of Tenant
hereunder are and shall remain subject and subordinate to that certain Deed of
Trust, Security Agreement, Fixtures Financing Statement and Assignment of Rents
and Leases dated December 13, 1991, executed by Landlord for the benefit of
Lender covering Landlord's interest in the Building and the Land, and recorded
in Volume 11584, Page 0737, of the Real Property Records of Travis County,
Texas, and any and all advances made on the security thereof and to any and all
increases, renewals, modifications, consolidations, replacements and extensions
and Tenant has, as of the date hereof, executed and delivered to Landlord that
certain Subordination, Non-Disturbance Agreement attached hereto as Exhibit "F"
and incorporated by reference herein (the "Non-Disturbance Agreement").
Notwithstanding the foregoing, Tenant acknowledges that Lender shall be under no
obligation to execute the Non-Disturbance Agreement in the event the Net
Rentable Area of the Premises is less than 2,500 square feet.
(b) This Lease and all rights of Tenant hereunder shall be subject and
subordinate to any deeds of trust, mortgages or other instruments of security
which may hereafter cover the Building and the Land or any interest of Landlord
therein, and of any and all advances made on the security thereof, and to any
and all increases, renewals, modifications, consolidations, replacements and
extensions of any of such deeds of trust, mortgages or instruments of security,
subject to the approval and execution by Tenant and the holder or holders of
such deeds of trust, mortgages, or other instruments of security, which approval
and execution shall not be unreasonably withheld or delayed, of a subordination,
non-disturbance, and attornment agreement by the terms of which such holder or
holders recognize this Lease and covenant to give Tenant, so long as Tenant
attorns to any purchaser or purchasers of the Building and the Land or any
interest of Landlord therein through foreclosure or other disposition thereof
and Tenant is not in default under this Lease, the right of quiet enjoyment of
the Premises. Tenant shall upon demand and at any time or times execute,
acknowledge, and deliver to Landlord such other and further instruments and
certificates that, in the judgment of Landlord, may be necessary or proper to
confirm or evidence such subordination.
<PAGE>
29. QUIET ENJOYMENT. The Tenant, upon paying the Base Rent, any
additional rent, and any other sums required to be paid by the terms of this
Lease, and upon performing and observing the covenants and stipulations set
forth herein, shall peaceably hold and enjoy the Premises during the said term
subject to the terms and conditions hereof and to any liens, ordinances,
easements, restrictions or covenants to which this Lease is subject.
30. NOTICE TO LANDLORD. In the event of any act or omission by Landlord
which would give Tenant the right to damages from Landlord or the right to
terminate this Lease by reason of a constructive or actual eviction from all or
part of the written notice of such act or omission to Landlord and Landlord's
mortgagees, if any, and Landlord or Landlord's mortgagees shall fail to correct
the breach or default within thirty (30) days after the notice, or such longer
period of time as may be reasonably necessary provided Landlord or Landlord's
mortgagee has commenced to correct the breach or default within such thirty (30)
day period and diligently pursues such to completion.
31. HOLDING OVER BY TENANT. Should Tenant or any of its successors in
interest continue to hold the Premises after the termination of this Lease,
whether such termination occurs by lapse of time or otherwise, such holding over
shall, unless otherwise agreed by Landlord in writing, constitute and be
construed as a tenancy at will, at a daily rental equal to one-thirtieth (1/30)
of an amount equal to the greater of double the amount of the monthly rental
payable during the last month prior to the termination of this Lease or one
hundred fifty percent (150%) of the market rate for which similar space in the
Building is then being leased by Landlord, and upon and subject to all of the
other terms, provisions, covenants, and agreements on the part of Tenant
hereunder except any right to renew this Lease. No payments of money by Tenant
to Landlord after the termination thereof shall be valid unless and until the
same shall be reduced to writing and signed by both Landlord and Tenant.
Nothing in this Paragraph 31 shall be construed as giving Tenant the right to
hold over beyond the date of the expiration of this Lease nor preclude Landlord
from having the right to dispossess or otherwise terminate Tenant's right of
possession. Any tenancy at will is terminable upon notice from Landlord.
32. RULES AND REGULATIONS. Tenant and Tenant's agents, employees, and
invitees will comply with all requirements of the Rules and Regulations (as
changed from time to time as hereinafter provided) which are attached hereto as
Exhibit "B." Landlord shall at all times have the right to change such Rules
and Regulations or to promulgate other Rules and Regulations in such reasonable
manner as may be deemed advisable for the safety, care, or cleanliness of the
Building and related facilities or premises, and for preservation of good order
therein; provided, however, that such changes shall not become effective and a
part of this Lease until a copy thereof shall have been delivered to Tenant and
provided further that Landlord shall use reasonable efforts to enforce such
rules in a fair and equitable manner among all tenants in the Building and shall
not make any rule that would deprive Tenant (except in times of emergency) of
access to and use of the Premises during evenings, weekends and holidays.
Tenant shall further be responsible for the compliance with such Rules and
Regulations by the employees, servants, agents, visitors, and invitees of
Tenant. Landlord shall not be responsible to Tenant for failure of any person
to comply with such Rules and Regulations.
33. ESTOPPEL CERTIFICATE AND TENANT'S FINANCIAL STATEMENTS. Tenant will,
at any time and from time to time, upon not less than twenty (20) days' prior
request by Landlord or
<PAGE>
any successor of Landlord or by the holder of any deed of trust or mortgage
covering the Land and Building or any interest of Landlord therein, execute,
acknowledge, and deliver to Landlord an estoppel certificate prepared by
Landlord (or by any such successor of Landlord or by any such holder)
certifying, if true and accurate at the time (and if not, stating why) that this
Lease is the entire agreement between the parties; that this Lease is in full
force and effect and specifying any modifications; the dates to which the rent
has been paid and that no rent under this Lease has been paid more than thirty
(30) days in advance of its due date; that the Tenant has unconditionally
accepted the Premises; that any improvements required by the terms of this Lease
to be made by Landlord have been completed to the satisfaction of Tenant; that
the address for notices to be sent to Tenant is as set forth in this Lease; that
Tenant, as of the date of such certificate, has no charge, lien or claim of
offset, deduction or counterclaim under this Lease or otherwise against rents or
other charges due or to become due hereunder; that Landlord, any such successor
or holder, and any assignee of any such entity may rely upon the estoppel
certificate being given by Tenant; and either stating that to the knowledge of
the signer of such certificate no default of Landlord exists hereunder or
specifying each such default of which the signer may have knowledge; it being
intended that any such certificate by Tenant may be relied upon by any
prospective purchaser or mortgagee of the Building. In addition to the matters
described above, the above-described certificate shall include and Tenant shall
certify, if true and accurate at the time (and if not, stating why) as to
matters regarding the Lease as reasonably requested by Landlord. The certificate
shall also contain an acknowledgment by Tenant of receipt of notice of the
assignment of this Lease to such holder and the agreement by Tenant with such
holder that from and after the date of such certificate, Tenant will not pay any
rent under this Lease more than thirty (30) days in advance of its due date,
will not surrender or consent to the modification of any of the terms of this
Lease nor to the termination of this Lease by Landlord, and will not seek to
terminate this Lease by reason of any act or omission of Landlord until Tenant
shall have first given written notice of such act or omission to the holder of
such deed of trust or mortgage (at such holder's last address furnished to
Tenant) and until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such holder shall have the right, but
shall not be obligated, to remedy such act or omission; provided, however, that
(i) the agreement of Tenant described in this sentence will be of no effect
under such certificate unless Tenant is furnished by such holder with a copy of
any assignment to such holder of Landlord's Interest in this Lease within ninety
(90) days after the date of such certificate, and (ii) the agreement of Tenant
with such holder that is embodied in such certificate shall terminate upon the
subsequent termination of any such assignment. If requested by Landlord, Tenant
shall also furnish to Landlord, within thirty (30) days of such request (which
Landlord shall not make more often than once in any twelve (12) month period), a
statement of the financial condition of Tenant in a form reasonably satisfactory
to Landlord. Landlord will at any time and from time to time, upon not less than
thirty (30) days' prior request by Tenant, any successor in interest of Tenant
or by any of Tenant's lenders, execute, acknowledge and deliver to Tenant an
estoppel certificate prepared by Tenant (or by any such successor or lender of
Tenant) in form and substance equivalent of the estoppel certificate Tenant has
agreed to provide Landlord pursuant to this Paragraph 33.
34. LIMITATION OF LIABILITY. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the then
interest of Landlord in the Building and Land and Landlord, its officers,
directors, employees, agents and partners shall not be personally liable for any
deficiency. This clause shall not be deemed to limit or deny any
<PAGE>
remedies which Tenant may have in the event of default by Landlord hereunder
which do not involve the personal liability of Landlord. Notwithstanding
anything contained in this Lease to the contrary, in the event Landlord sells,
assigns, transfers, or conveys its interest in the Land and the Building.
Landlord shall have no liability for any acts or omissions that occur after the
date of said sale, assignment, transfer, or conveyance. The provisions of this
Paragraph shall survive the expiration of earlier termination of this Lease.
35. NOTICES. Each provision of this Lease, or of any applicable
governmental laws, ordinances, regulations, and other requirements with
reference to the sending, mailing, or delivery of any notice or with reference
to the making of any payment by Tenant to Landlord, shall be deemed to be
complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord in Travis County, Texas, at the
address hereinbelow set forth, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith:
San Jacinto Office Tower Limited Partnership
300 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
Attn: Property Manager
(b) Any notice or document delivered by Tenant to Landlord hereunder
shall be delivered to Landlord at the address hereinbelow set forth, or at such
other address as Landlord may specify from time to time by written notice
delivered in accordance herewith:
With a copy to: Equity Assets Management, Inc.
2 North Riverside Plaza, Suite 1601
Chicago, Illinois 60606
Attn: Vice President, Ownership Representation
(c) Any notice or document delivered by Landlord to Tenant hereunder
shall be delivered to Tenant at the address hereinbelow set forth, or at such
other address as Tenant may specify from time to time by written notice
delivered in accordance herewith:
230 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
Attn: Richard J. Hawkins
(d) Any notice or document required to be delivered hereunder shall be
deemed to be delivered, whether actually received or not, when deposited in the
United States mail, postage paid, certified mail, return receipt requested,
addressed to the respective party at the respective addresses set out above, or
at such other address as they have theretofore specified by written notice.
<PAGE>
36. USE TAX. Notwithstanding any other provision herein, Tenant shall pay
as and when they become due and before the same become delinquent any and all
licenses, charges, and other fees of every kind and nature arising out of or in
connection with the Tenant's use or occupancy of the Premises, including but not
limited to license fees, business license tax, the amount of any privilege,
sales, excise, or other tax (other than income or franchise tax) imposed upon
rentals herein provided to be paid by Tenant or upon the Landlord in an amount
measured by such rentals received by Landlord.
37. EXECUTION AND APPROVAL OF LEASE. Employees or agents of Landlord's
broker, if any, or Landlord's building manager, if any, have no authority to
make or agree to make a lease or any other agreement or undertaking in
connection herewith. The submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation of, or
option for, the Premises and this document for examination and negotiation does
not constitute an offer to lease, or a reservation of, or option for, the
Premises and this document becomes effective and binding only upon the execution
and delivery hereof by Landlord or Landlord's authorized agent and Tenant. All
negotiations, considerations, representations and understandings between
Landlord and Tenant are incorporated herein and may be modified or altered only
by agreement in writing between Landlord and Tenant, and no act or omission of
any employee or grant of Landlord, Landlord's broker, if any, or Landlord's
building manager, if any, shall alter, change or modify any of the provisions
hereof.
38. SEVERABILITY. Each and every covenant and agreement contained in this
Lease is, and shall be construed to be, a separate and independent covenant and
agreement. If any term or provision of this Lease or the application thereof to
any person or circumstances shall to any extent be invalid and unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby and in lieu of such invalid or
unenforceable clause, there shall be added as a part of the Lease a clause as
similar in terms to such invalid or unenforceable clause as may be possible and
be legal, valid and enforceable.
39. NO MERGER. There shall be no merger of this Lease or of the leasehold
estate hereby created with the fee estate in the Premises or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as well as the fee estate in the Premises
or any interest in such fee estate.
40. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action (other than the payment of money) to be taken by a party to this Lease,
that party shall not be liable or responsible for, and there shall be excluded
from the computation for any such period of time, any delays due to strikes,
acts of God, shortages of labor or materials, war, governmental laws,
regulations, restrictions, or any other cause of any kind whatsoever which is
beyond the control of that party ("Force Majeure").
41. GENDER. Words of any gender used in this Lease shall be held and
construed to include any other gender and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
<PAGE>
42. JOINT AND SEVERAL LIABILITY. If there is more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. If there
is a guarantor of Tenant's obligations hereunder, the obligations of Tenant
shall be joint and several obligations of Tenant and such guarantor, and
Landlord need not first proceed against Tenant hereunder before proceeding
against such guarantor, nor shall any such guarantor be released from its
guarantee for any reason whatsoever, including, but not limited to, any
amendment of this Lease, any forbearance by Landlord or waiver of any of
Landlord's rights, the failure to give Tenant or such guarantor any notices, or
the release of any party liable for the payment of Tenant's obligations
hereunder.
43. ENTIRE AGREEMENT AND AMENDMENT. This Lease contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior and contemporaneous agreements, understandings,
promises, and representations made by either party to the other concerning the
subject matter hereof and the terms applicable hereto. Landlord's agents have
made no representations or promises with respect to the Premises of the Building
except as herein expressly set forth and no rights, easements, or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this Lease. This Lease shall not be altered, waived, amended
or extended, except as expressly set forth in the provisions of this Lease.
This Lease shall not be altered, waived, amended or extended, except by a
written agreement signed by the parties hereto, unless otherwise expressly
provided herein. Neither this Lease nor a memorandum of this Lease shall be
recorded in the public records of the county in which the Building is located
without the prior written consent of Landlord.
44. PARAGRAPH HEADINGS. The paragraph headings contained in this Lease
are for convenience only and shall in no way enlarge or limit the scope or
meaning of the various and several paragraphs hereof.
45. BINDING EFFECT. All of the covenants, agreements, terms, and
conditions to be observed and performed by the parties hereto shall be
applicable to, binding upon and inure to the benefit of their respective heirs,
personal representatives, successors, and, their respective assigns, subject to
the provisions of Paragraphs 11, 34 and 46 hereof.
46. TRANSFER OF LANDLORD'S RIGHTS. Subject to any express provisions of
this Lease to the contrary, in the event Landlord transfers its interest in the
Building, Landlord shall thereby be released from any further obligations
hereunder, and Tenant agrees to look solely to the successor in interest of
Landlord for the performance of such obligations.
47. BROKERAGE. Tenant and Landlord represent and warrant to each other
that such party has not had any dealing with any realtor, broker or agent in
connection with this Lease or the negotiation thereof, except for First Office
Management and Asset Investment Corp. to which Landlord shall be liable for the
payment of all fees, commissions, and other compensation and charges pursuant to
separate written agreements between Landlord and each such broker, and Landlord
and Tenant each agree to indemnify and hold the other harmless from and against
any and all costs, expenses or liability, including, but not limited to,
reasonable attorney's fees, resulting from any breach of this representation or
warranty.
<PAGE>
48. NO THIRD PARTY BENEFICIARY. This Lease is for the sole benefit of
Landlord, its successors and assigns, and Tenant, its permitted successors and
assigns, and is not for the benefit of any third party.
49. SUBSTITUTION OF PREMISES. At any time after the execution of this
Lease with not less than sixty (60) days' prior written notice, Landlord may
substitute for the Premises other premises in the Building (the "New Premises"),
in which event the New Premises shall be deemed to be the Premises for all
purposes hereunder provided: (a) the New Premises shall contain at least the
same Net Rentable Area as the Premises, (b) the Base Rent and Tenant''
Proportionate Share shall be proportionately adjusted based upon the size of the
New Premises, (c) the New Premises shall have been finished out in no less than
the same overall manner as the Premises, (d) the New Premises shall be of
similar structural integrity, quality and convenience, (e) Landlord shall pay
Tenant's reasonable moving expenses and (f) the terms of this Lease, other than
those dealing specifically with the physical features or location of the
Premises, shall apply to the New Premises. If Tenant fails to vacate the
Premises after demand therefor by Landlord, Tenant shall thereupon be in default
under the Lease.
50. HAZARDOUS WASTE. The term "Hazardous Substances," as used in this
Lease, shall mean pollutants, contaminants, toxic or hazardous wastes,
radioactive materials or any other substances, the use and/or the removal of
which is required or the use of which is restricted, prohibited or penalized by
any "Environmental Law," which term shall mean any federal, state or local
statute, ordinance, regulation or other law of a government or quasi-
governmental authority relating to pollution or protection of the environment or
the regulation of the storage or handling of Hazardous Substances. Landlord
hereby represents to Tenant that to Landlord's current actual knowledge, there
are currently no Hazardous Substances stored or used in the Building or the
Premises, no underground storage tanks located on or under the Land and no
asbestos used in the construction of the Building or any leasehold improvements
in the Building. Tenant hereby agrees that: (i) Tenant, its agents, employees
and contractors will not conduct any activity on the Premises that will produce
any Hazardous Substance; (ii) Tenant, its agents, employees and contractors will
not use the Premises in any manner for the storage of any Hazardous Substances;
(iii) Tenant will not permit any Hazardous Substances to be brought onto the
Premises and if so brought or found located thereon, the same shall be
immediately removed, with proper disposal, and all required clean-up procedures
shall be diligently undertaken by Tenant at its sole cost pursuant to all
Environmental Laws. If at any time during or after the term of this Lease, the
Premises is found to be contaminated with Hazardous Substances and such
contamination is the result of action by Tenant, its agents, employees or
contractors, Tenant shall diligently institute proper and thorough clean-up
procedures, at Tenant's sole cost. If at any time during the Lease Term, the
Premises is found to be contaminated with Hazardous Substances, and such
contamination is the result of action by Landlord, Landlord shall diligently
institute proper and thorough clean-up procedures, at Landlord's sole cost.
Landlord agrees to indemnify and hold Tenant harmless from all fines,
reimbursement, restitution, response costs, cleanup costs, claims, demands,
actions, liabilities, costs, expenses, damages, penalties and obligations of any
nature arising from or as a result of any contamination of the Premises with
Hazardous Substances as a result of Landlord's actions or otherwise arising from
the use of the Land or Building by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from all fines, reimbursement, restitution, response
costs, cleanup costs, claims, demands, actions, liabilities, costs, expenses,
damages, penalties and obligations of any nature arising from or as a result of
<PAGE>
any contamination of the Premises with Hazardous Substances (other than as a
result of Landlord's actions), or otherwise arising from the use of the
Premises, Land or Building by Tenant. The foregoing indemnification and the
responsibilities of Tenant and Landlord shall survive the termination or
expiration of this Lease.
51. APPLICABLE LAW. This Lease shall be governed in all respects by the
laws of the State of Texas. It is the intent of Landlord and Tenant to conform
strictly to all applicable state and federal usury laws. All agreements between
Landlord and Tenant, whether now existing or hereafter arising and whether
written or oral, are hereby expressly limited so that in no contingency or event
whatsoever shall the amount contracted for, charged or received by Landlord for
the use, forbearance or detention of money hereunder or otherwise exceed the
maximum amount which Landlord is legally entitled to contract for, charge or
collect under applicable state or federal law. If, from any circumstance
whatsoever, fulfillment of any provision hereof at the time performance of such
provision shall be due shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall be automatically
reduced to the limit of such validity, and if from any such circumstance,
Landlord shall ever receive as interest or otherwise an amount in excess of the
maximum that can be legally collected, then such amount which would be excessive
interest shall be applied to the reduction of the rent; and if such amount which
would be excessive interest exceeds the rent, then such additional amount shall
be refunded to Tenant.
52. AUTHORITY. In the event Tenant is a corporation (including any form
of professional association), partnership (general or limited) or other form of
organization other than an individual, then each individual executing or
attesting this Lease on behalf of Tenant hereby covenants, warrants and
represents (i) that such individual is duly authorized to execute or attest and
deliver this Lease on behalf of Tenant in accordance with the organizational
documents of Tenant; (ii) that this Lease is binding upon Tenant; (iii) that
Tenant is duly organized and legally existing in the state of its organization,
and is qualified to do business in the state in which the Premises is located;
(iv) that upon request, Tenant will provide Landlord with true and correct
copies of all organizational documents of Tenant and any amendments thereto; and
(v) that the execution and delivery of this Lease by Tenant will not result in
any breach of, or constitute a default under, any mortgage, deed of trust,
lease, loan, credit agreement, partnership agreement or other contract or
instrument to which Tenant is a party or by which Tenant may be bound. If
Tenant is a corporation, Tenant will, prior to the Commencement Date, deliver to
Landlord a copy of a resolution of Tenant's board of directors authorizing or
ratifying the execution and delivery of this Lease, which resolution will be
duly certified to Landlord's satisfaction by the secretary or assistant
secretary of Tenant. Tenant acknowledges that the financial capability of
Tenant to perform its obligations hereunder is material to Landlord and that
Landlord would not enter into this Lease but for its belief, based on its review
of Tenant's financial statements, that Tenant is capable of performing such
financial obligations. Tenant hereby represents, warrants and certifies to
Landlord that its financial statements previously furnished to Landlord were at
the time given true and correct in all material respects and that there have
been no material subsequent changes thereto as of the date of this Lease.
53. WARRANTY OF GOOD TITLE. Landlord warrants and represents to Tenant
that Landlord owns good and sufficient right, title and interest in and to the
Land and all
<PAGE>
improvements thereto, including, without limitation, the Building, such that
Landlord may enter into this Lease and be bound by its terms. In entering into
this Lease with Landlord, Tenant is specifically relying on this representation
of good title by Landlord.
54. CANCELLATION OPTION.
(a) Provided Tenant is not in default hereunder at both the time of
exercise of such option and the Cancellation Date (as hereinafter defined), and
subject to the requirements of this Paragraph 54, Tenant shall have the option
to terminate this Lease (the "Cancellation Option") at any time after the last
day of the twenty-fourth (24th) calendar month of the Lease Term, such
termination to be effective on the date (the "Cancellation Date") which is six
(6) months after the date Landlord receives written notice from Tenant of the
exercise of such right. In order to exercise the Cancellation Option, Tenant
must (i) provide six (6) months' prior written notice to Landlord of Tenant's
exercise of the Cancellation Option, (ii) pay to Landlord, at the same time that
Tenant delivers to Landlord the foregoing notice of cancellation, a cancellation
fee in the amount of $8,464.14 (if Tenant notifies Landlord of its exercise of
the Cancellation Option prior to the last day of the thirty-sixth (36th)
calendar month of the Lease Term) and (iii) execute a written lease agreement
with Landlord on or before the Cancellation Date (the "New Lease") in accordance
with subsection (b) below. The payment of the cancellation fee described in
(ii) above shall not reduce any of Tenant's obligations under this Lease
accruing up to and including the Cancellation Date. There shall be no such
cancellation fee due and payable in the event Tenant notifies Landlord of its
exercise of the Cancellation Option after the last day of the thirty-sixth
(36th) calendar month of the Lease Term. In the event that Tenant fails to
comply with all the terms and conditions set forth in items (i), (ii) and (iii)
above, the Cancellation Option shall be void and of no further force and effect.
(b) The New Lease shall be for a term of no less than sixty (60)
months commencing the day after the Cancellation Date and shall cover space in
the Building containing not less than 6,000 square feet of Net Rentable Area in
a location designated by Landlord, subject to the availability of such space in
the Building, "upon all of the same terms and conditions set forth in the Lease,
except as provided above and as set forth below:
(i) The Base Rent for the Lease Term of the New Lease shall be
the Fair Market Value Rental Rate for such new space as of the applicable
commencement date set forth above, as determined by Landlord in good faith. As
used in this Paragraph, the term "Fair Market Value Rental Rate" shall mean the
annual rental rate being charged as of the date such rental is to become
effective hereunder for tenants then initially occupying space of comparable
size and condition (to the space for which the Fair Market Value Rental Rate is
being determined) in the Building if, but only if, there is then an active
leasing market for initial occupancies of such comparable space in the Building.
If no active leasing market for initial occupancies in the Building then exists,
then the Fair Market Value Rate shall mean the annual rental rate then being
charged in the Market Area (as defined below) for tenants then initially
occupying space in comparable buildings in the Market Area, for space of
comparable size and condition to the space for which the Fair Market Value
Rental Rate is being determined. In either case, the Fair Market Value Rental
Rate shall take into consideration use, location and floor level within the
building, the location, quality and age of the building, the definition of
rentable area or net rentable area, as the case may be, with respect to which
such rental rates are
<PAGE>
computed, leasehold improvements provided or to be provided, the term of the
lease under consideration, the extent of the services provided or to be
provided, applicable distinctions between "gross" leases and "net" leases, base
year or dollar amount for escalation purposes (both operating costs and ad
valorem/real estate taxes), any other adjustments (including by way of indices)
to base rental (taking into consideration rent concessions and abatement for
purposes of computing "effective" rental rates only and in no event shall there
be any rental abatement under this Lease other than as specifically provided in
this Lease), credit standing and financial stature of tenant, the time the
rental rate under consideration was agreed upon and became or is to become
effective, and any other relevant term or condition in making such evaluation.
As used herein, the "Market Area" means the downtown area of Austin, Texas,
bounded on the south by Town Lake, on the north by 12th Street, on the east by
Red River and on the west by Guadalupe.
(ii) Any space leased by Tenant under this Paragraph shall be
tendered by Landlord and accepted by Tenant in its then "AS IS" condition,
provided that Landlord shall provide to Tenant the renovation allowance (if any)
which was assumed in Landlord's determination of the Fair Market Value Rental
Rate. Unless then otherwise agreed in writing by Landlord and Tenant, such
allowance shall be furnished to Tenant pursuant to, and Tenant shall comply
with, the Renovation Work Letter attached hereto and made a part hereof as
Exhibit "G".
(iii) Tenant's rights under this Paragraph 54 are personal with
respect to Tenant, and any assignment or subletting by Tenant shall
automatically terminate its rights under this Paragraph 54.
(iv) Landlord shall not be liable for the failure to give
possession of any space leased under this Paragraph to Tenant by reason of the
unauthorized holding over or retention of possession by any other tenant,
tenants, or occupants thereof, nor shall such failure impair the validity of
this Lease, nor extend the term thereof.
(v) The unamortized portion (as of the Cancellation Date) of all
up front costs paid by the Landlord in connection with this Lease (i.e.,
brokerage commissions plus the Leasehold Improvement Allowance), together with
interest thereon at the rate of 13% per annum, shall be amortized evenly over
the lease term of the New Lease and shall be added to the Base Rent under the
New Lease.
(vi) In the event that any such space is not available in the
Building and/or in the event that Tenant fails to execute a lease for such space
prior to the Cancellation Date, such exercise of the Cancellation Option shall
be null and void; provided, however, that the foregoing unavailability of space
shall not preclude Tenant from exercising the Cancellation Option later in the
Lease Term, subject to all of the terms and conditions hereof.
55. TEMPORARY STORAGE SPACE. Landlord shall provide temporary storage
space to Tenant prior to the Commencement Date at no cost to Tenant, subject to
availability of such space in the Building. Such storage space shall be in a
location to be determined by Landlord, in Landlord's sole discretion, which
shall contain no more than 500 square feet. The term of such temporary lease
shall not exceed 60 days and such space shall be used by Tenant solely for the
purpose of temporarily storing Tenant's personal property, furniture and
equipment.
<PAGE>
56. TEMPORARY PREMISES. Tenant shall lease from Landlord upon all of the
terms and conditions of this Lease, as modified by this Paragraph, that certain
area within the Building containing approximately 2,352 square feet of Net
Rentable Area, known as Suite 1450 and as shown on Exhibit "A-1" attached hereto
and made a part hereof (the "Temporary Premises"). The Lease Term for the
Temporary Premises shall commence on the day which is three (3) business days
after Landlord notifies Tenant that the Temporary Premises is available for
occupancy, and shall end on the day before the Commencement Date. The Base Rent
for the Temporary Premises shall be $1,500.00 per month. Tenant shall accept
the Temporary Premises in its "AS IS" condition and Landlord shall have no
obligation to provide any improvements to or perform any work in the Temporary
Premises.
57. AFFILIATED ENTITIES. Tenant and Landlord acknowledge that Tenant is
engaged in the business of acquiring, developing and marketing technologies, and
that in connection with this business, it may from time to time form affiliated
entities which will undertake various development or marketing activities.
These affiliated entities shall be subject to the control of or under common
control with Tenant and may employ their own personnel. Such personnel may
maintain offices within the Premises in connection with their work on behalf of
such affiliated entities. Such occupancy of the Premises by such personnel
shall be subject to and in accordance with all of the terms and conditions of
this Lease and the foregoing shall not be deemed in any manner to release or
otherwise modify in any manner Tenant's obligations under this Lease.
58. RIDERS AND EXHIBITS. The following number Exhibits and Riders are
attached hereto and incorporated herein by reference as if copied herein in
full.
Exhibit "A": Floor Plan of Premises
Exhibit "A-1": Floor Plan of Temporary Premises
Exhibit "B": Building Rules and Regulations
Exhibit "C": Acceptance of Premises Memorandum
Exhibit "C-1": Punch List
Exhibit "D": Work Letter
Exhibit "E-1": Secretary of State Financing Statement
Exhibit "E-2": Travis County Clerk's Financing Statement
Exhibit "F": Subordination, Non-Disturbance and Attornment
Agreement
Exhibit "G": Renovation Work Letter
Exhibit "H": Lease Guaranty
Exhibit "I": Agreement Regarding Lender's Security Interest
Rider No. 101 Definitions Regarding Calculation of Tenant's
Occupancy Costs and Calculation of Net Rentable Area
Rider No. 102 Parking
<PAGE>
IN WITNESS WHEREOF, this Lease is hereby executed in multiple originals as
of the date first above set forth.
LANDLORD
SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, a
Texas limited partnership
By: Equity Assets Management, Inc., its
authorized agent
By: /s/ Richard J. Berk
--------------------------------------------
Name: Richard J. Berk
Title: Vice President, Ownership Representation
TENANT
DRUG DEVELOPMENT INVESTMENT CORP., a Texas
corporation d/b/a id2, Inc.
By: /s/ Richard J. Hawkins
--------------------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Directors
ID2 1, L.P., A TEXAS LIMITED PARTNERSHIP
By: Drug Development Investment Corp., a Texas
corporation d/b/a id2, Inc., its sole
general partner
By: /s/ Richard J. Hawkins
-------------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Director
<PAGE>
EXHIBIT "H"
GUARANTY OF LEASE
WHEREAS, Drug Development Investment Corp. d/b/a id2 I, L.P. (jointly,
"Tenant") have entered into that certain Lease Agreement (the "Lease") date
March 17, 1993 with San Jacinto Office Tower Limited Partnership ("Landlord");
and
WHEREAS, Landlord was not willing to enter into the Lease without the
receipt of this Guaranty executed and acknowledge by the undersigned;
NOW, THEREFORE, to induce Landlord to execute the Lease, as a material
consideration and inducement therefore (recognizing without the execution and
delivery of this Guaranty Landlord would not be willing to enter into the Lease
Amendment), and recognizing the benefit of the Lease to the undersigned, the
undersigned hereby agree as follows:
The undersigned (herein called "Guarantors" whether one or more), hereby
unconditionally, jointly and severally guarantee observance by Tenant of all the
monetary obligations, duties, covenants, agreements and conditions provided in
the Lease, as same may hereafter be amended from time to time, to be observed by
Tenant during the term of the lease (including specifically and without limiting
the generality of the foregoing, payment by Tenant of all rental and other
amounts and damages of whatsoever kind or nature which may be or become due from
Tenant under the terms of or in connection with the Lease). This guaranty is
unconditional and the liability of Guarantors shall be absolute, in the same
manner as if Guarantors, jointly and severally, were named in and had signed the
Lease as "Tenant" thereunder. Guarantors agree that bankruptcy, insolvency,
lack of corporate capacity or any other disability or impediment against
enforcement of full liability of Tenant named in the Lease shall in no way
impair or affect Guarantors' liability and obligation hereunder, and, without
limitation of the foregoing. Guarantors agree that in the event that Tenant
shall become insolvent or shall be adjudicated a bankrupt, or shall file a
petition for reorganization, arrangement or other relief under any present or
future provisions of the Bankruptcy Code, or if such a petition be filed by
creditors of Tenant, or if Tenant shall seek a judicial readjustment of the
rights of its creditors under any present or future federal or state law or if a
receiver of all or part of Tenant's property and assets is appointed by any
state or federal court, no such proceeding or action taken therein shall modify,
diminish or in any way affect the liability of Guarantors under this guaranty,
and the liability of Guarantors of the Tenant's obligations under the Lease
shall be of the same scope as if Guarantors had themselves, jointly and
severally, executed the Lease, and no "rejection" and/or "termination" of the
Lease in any of the proceedings referred to above shall be effective to limit,
release and/or terminate the continuing liability of Guarantors to Landlord
under this guaranty with respect to the Lease and such liability of Guarantors
shall be unaffected by any such "rejection" and/or "termination" in said
proceedings. It shall not be necessary or required in order to maintain and
enforce Guarantors' liability hereunder that demand be made upon Tenant or that
action be commenced or prosecuted against Tenant or that any effort be made to
enforce the liability or responsibility of Tenant for performance of its
obligations or duties under or in connection with the Lease, and it shall not be
<PAGE>
required that Tenant or any other party liable on such lease be joined in any
action brought against Guarantors for enforcement of Guarantors' liability and
responsibility under this guaranty or that judgement have theretofore been
obtained against Tenant or any other party liability therefor on or in
connection with any such claim. Guarantors agree that no waiver by Landlord or
forbearance or delay by Landlord in asserting or enforcing any rights or
remedies of Landlord against or with respect to Tenant or any other party who
may be or becomes responsible for performance of any such Tenant's obligations
or duties shall in any way affect, impair or release Guarantors' liability
hereunder. Likewise, Guarantors agree that no assignment or subletting of the
Lease or of all or any part of the leased premises by such Tenant shall in any
way impair, affect or release Guarantors' liability hereunder. Guarantors
expressly waive and agree that no notice of default by Tenant or other notice or
demand need be given by Landlord to Guarantors as a condition of maintaining or
enforcing Guarantors' liability and obligations under this guaranty. Guarantors
expressly agree that no notice of amendment or modification of the Lease need be
given by Landlord or Tenant to Guarantors as a condition of maintaining or
enforcing Guarantors' liability and obligations under this guaranty. Guarantors
expressly agree that any amendment or modification of the Lease be made by
Landlord and Tenant, as provided in such lease, with or without the approval of
Guarantors, and that any such amendment will be deemed part of the Lease for
purposes of this guaranty. Likewise, Guarantors agree that Landlord's release
or subordination or failure or delay to enforce or seek to realize upon any
security now or hereafter held or acquired by Landlord for performance of any of
the obligations or duties of Tenant under or in connection with the Lease shall
in no way impair, affect or release Guarantors' liability hereunder, and that
Landlord's action (at Landlord's election) in terminating such lease or in
taking or retaking possession of the leased premises as therein provided
following default by Tenant shall not release or impair Guarantors' liability
hereunder and that no notice of such termination or of such entry or re-entry by
Landlord need be given to Guarantors. Without limitation of anything herein to
the contrary, Guarantors agree that any wavier by Lessor or forbearance or
failure or delay by Lessor in asserting or enforcing its rights against any of
the undersigned under this guaranty shall in no way affect, impair or release
the liability of any of the other Guarantors hereunder.
NOTHWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF
GUARANTOR HEREUNDER, SHALL BE LIMITED TO $75,807.00, PLUS ALL COSTS, INCLUDING
WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, INCURRED IN ENFORCING THIS
GUARANTY (THE "GUARANTEED AMOUNT"). THE GUARANTEED AMOUNT SHALL BE REDUCED BY
$1,263.46 FOR EACH FULL MONTH OF THE LEASE TERM IN WHICH TENANT PERFORMS ALL OF
ITS MONETARY OBLIGATIONS UNDER THE LEASE.
This guaranty shall be enforceable and shall be performed in Travis County,
Texas.
<PAGE>
WITNESS the execution hereof effective as of the date of execution and
delivery of the Lease.
Address: __________________________________________
230 San Jacinto Center Richard J. Hawkins
98 San Jacinto Blvd.
Austin, TX 78701
<PAGE>
EXHIBIT "F"
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THE STATE OF TEXAS (SECTION)
(SECTION)
COUNTY OF TRAVIS (SECTION)
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT dated as of
________________________, 19____, is executed by and among SAN JACINTO OFFICE
TOWER LIMITED PARTNERSHIP, a Texas limited partnership, with its address at Two
North Riverside Plaza, Chicago, Illinois 60606, (hereinafter called "Landlord").
MANUFACTURERS HANOVER TRUST COMPANY, a New York banking corporation, its
successors and assigns, with its address at 270 Park Avenue, 38th Floor, New
York, New York 10017 (hereinafter called "Mortgagee"), and DRUG DEVELOPMENT
INVESTMENT CORP., a Texas corporation d/b/a id2, Inc. and id2 I, L.P., a Texas
limited partnership, with its address at 230 San Jacinto Center, 98 San Jacinto
Blvd., Austin, Texas 78701 (hereinafter jointly called "Tenant");
RECITALS
WHEREAS, Landlord and Tenant have entered into a certain Lease Agreement
dated March 17, 1993 (the "Lease") covering certain demised premises more fully
described in the Lease (the "Premises") located in Landlord's office building
situated in Lot 1, San Jacinto Center, an addition to the City of Austin, Texas,
according to the plat thereof recorded in Volume 89, Page 21 of the Plan Records
of Travis County, Texas (the "Property");
WHEREAS, by Deed of Trust, Security Agreement, Fixtures Financing Statement
and Assignment of Rents and Leases dated December 13, 1991, and recorded in
Volume 11584, Page 0737 of the Real Property Records of Travis County, Texas
(the "Deed of Trust"), Landlord granted to Mortgagee a first mortgage lien and
security interest in the Property; and
WHEREAS, Tenant desires to be assured of its continued enjoyment and
occupancy of the Premises subject to the provisions of the Lease and Mortgagee
desires to be assured of Tenant's attornment to any purchaser at a foreclosure
sale of the Property pursuant to the provisions of the Deed of Trust;
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable consideration, the mutual covenants and agreements
herein contained, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto, intending to be legally bound hereby, covenant and agree as
follows:
<PAGE>
1. The Lease and all estates, options, liens and charges therein contained
or created thereunder are and shall be subject and subordinate to the lien and
security interest of the Deed of Trust insofar as it affects the real property,
fixtures and personal property owned by Landlord of which the Premises forms a
part, and to all amendments, supplements, renewals, modifications,
consolidations, replacements and extensions thereof, to the full extent of the
indebtedness secured by the Deed of Trust.
2. In the event Mortgagee takes possession of the Premises as mortgagees-
in-possession or in the event of the Mortgagee or its Trustee or Substitute
Trustee forecloses the lien and security interest of the Deed of Trust, or in
the event Mortgagee accepts from Landlord or its successor or permitted assignee
a deed in lieu of foreclosure or otherwise, then and in any such event,
Mortgagee, for itself and its successor and assigns, shall not affect or disturb
Tenant's right to the use, quiet enjoyment and possession of the Premises in the
exercise of Mortgagee's rights under the Deed of Trust so long as Tenant is not
in default of the provisions of the Lease, which default has continued beyond
the expiration of any applicable grace or cure period provided in the Lease, if
any.
3. In the event that Mortgagee succeeds to the interest of Landlord under
the Lease and/or becomes the legal and beneficial owner in fee simple of the
Property, Mortgagee and Tenant shall be bound to one another, as landlord and
tenant, respectively, pursuant to the provisions of the Lease, and accordingly,
from and after the date on which Mortgagee succeeds to the interest of Landlord
under the Lease a/or becomes the legal and beneficial owner in fee simple of the
Property, Mortgagee, as landlord, shall have the rights and remedies of landlord
under the Lease and Tenant, as tenant, shall have the rights and remedies of
tenant under the Lease; provided, however, that Mortgagee shall not be:
(a) liable for any act or omission of any prior landlord (including
the Landlord); or
(b) subject to any offsets, counterclaims or defenses which Tenant
might have against any prior landlord (including the Landlord); or
(c) bound by any base rent, additional rent or other sums for more
than one (1) month in advance which Tenant might have paid to any prior landlord
(including the Landlord) under the Lease; or
(d) bound by any amendment or modification of the Lease made without
Mortgagee's prior written consent, if such prior written consent had been
required under the Lease; or
(e) liable to return or otherwise account for any security deposit
deposited by Tenant with Landlord unless such security deposit has actually been
delivered by Landlord to Mortgagee; or
(f) except to the extent expressly provided in the Lease, bound by or
liable for any contract or other agreement between Landlord and Tenant or
between Landlord and any other person or entity, which contract or agreement
pertains to the construction or installation of any leasehold improvements in
the Premises.
<PAGE>
4. In the event that anyone (other than Mortgagee) acquires legal and
beneficial fee simple title to the Property upon the foreclosure of the lien and
security interest of the Deed of Trust, or upon the sale of the Property by
Mortgagee or its successors or assigns after foreclosing the lien and security
interest of the Deed of Trust or accepting from Landlord or its successor or
permitted assignee a deed in lieu of foreclosure of otherwise, Tenant shall not
terminate the Lease by reason thereof, but Tenant shall attorn to the new owner
of the Property and remain bound under the provisions of the Lease to the new
owner of the Property if the new owner agrees in writing to be bound to Tenant
under the provisions of the Lease.
5. In the event Mortgagee becomes a mortgagee-in-possession of the
Property or exercises its rights and remedies under the assignment of rents and
leases contained in the Deed of Trust and upon Mortgagee's written instructions
to Tenant, Tenant agrees to make all payments due under the Lease payable
directly to Mortgagee.
6. Tenant hereby agrees:
(a) not to alter or modify the Lease in any respect without the prior
written consent of Mortgagee, if the Lease requires Mortgagee's prior written
consent to such alteration or modification;
(b) to deliver to Mortgagee (or any successor in interest of Mortgagee
under the Deed of Trust) a duplicate copy of each notice of default delivered by
Tenant to Landlord under the Lease, at the same time as such notice is given to
Landlord;
(c) that Tenant is now the sole owner of the leasehold estate created
by the Lease and shall not hereafter assign the Lease or sublet the Premises or
portion thereof without the prior written consent of Mortgagee and that
notwithstanding any such assignment or sublease, Tenant shall remain primarily
liable for the performance of the provisions of the Lease, except as otherwise
specifically provided in the Lease;
(d) not to terminate the Lease by reason of any default of Landlord
without prior written notice of such default given by Tenant to Mortgagee and
the lapse thereafter of such time period as provided in the Lease for Landlord
to remedy such default, within which time period Mortgagee, at its option, may
remedy any such default; provided, however, that with respect to any default of
Landlord under the Lease which cannot be remedied within such time period, if
Mortgagee commences to cure such default within such time period and thereafter
diligently proceeds with such cure efforts, Mortgagee shall be permitted such
additional time (not to exceed ninety (90) days after said written notice from
Tenant to Mortgagee) as is reasonably necessary to complete the cure of such
default before Tenant shall seek to terminate the Lease;
(e) not to prepay or anticipate the payment of base rent, additional
rent or other sums due under the Lease beyond one (1) month in advance;
(f) to promptly certify, to the best of Tenant's knowledge, in writing
to Mortgagee, in connection with any proposed assignment of the Deed of Trust,
whether or not any default on the part of Landlord than exists under the Lease;
and
<PAGE>
(g) the Tenant shall not mortgage, encumber, pledge or grant a
security interest in the leasehold interest of Tenant under the Lease.
7. Landlord shall have the right as provided in the Deed of Trust, at its
option, to subordinate the lien and security interest of the Deed of
Trust to the Lease, without notice to or consent of Tenant.
8. This Agreement shall be binding upon the parties hereto and their
respective heirs, executors, administrators, legal representatives,
successors and assigns.
9. This Agreement shall not be amended or modified unless such amendment
or modification is in writing executed by each of the parties hereto.
10. This Agreement shall be governed by an construed and enforced in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date above written.
LANDLORD:
SAN JACINTO OFFICE TOWER LIMITED
PARTNERSHIP, a Texas limited partnership
By: Equity Assets Management, Inc.
its authorized agent
By:_____________________________________
RICHARD J. BERK
VICE PRESIDENT
OWNERSHIP REPRESENTATION
<PAGE>
MORTGAGEE:
MANUFACTURERS HANOVER TRUST COMPANY.,
a New York banking corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
TENANT:
DRUG DEVELOPMENT INVESTMENT CORP.,
a Texas corporation d/b/a id2, Inc.
By:_____________________________________
RICHARD J. HAWKINS
CHAIRMAN OF THE BOARD OF DIRECTORS
id2 - I, L.P., a Texas limited
partnership
DRUG DEVELOPMENT INVESTMENT CORP.,
a Texas corporation d/b/a id2, Inc., its
sole general partner
By:_____________________________________
RICHARD J. HAWKINS
CHAIRMAN OF THE BOARD OF DIRECTORS
<PAGE>
THE STATE OF _________ (SECTION)
(SECTION)
COUNTY OF ___________ (SECTION)
This instrument was acknowledged before on ____________________, 1993, by
Richard J. Berk, a Vice President of Equity Assets Management, Inc., as
authorized agent for SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, a Texas
limited partnership, on behalf of said limited partnership.
(SEAL) ________________________________________
Notary Public in and for
The State of _________
________________________________________
Printed Name of Notary
My Commission Expires:__________________
THE STATE OF _________ (SECTION)
(SECTION)
COUNTY OF ___________ (SECTION)
This instrument was acknowledged before on ____________________,
19___, by ___________________________ President of MANUFACTURERS HANOVER TRUST
COMPANY, a New York banking corporation, on behalf of said banking corporation.
(SEAL) ________________________________________
Notary Public in and for
The State of Texas
________________________________________
Printed Name of Notary
My Commission Expires:__________________
<PAGE>
THE STATE OF TEXAS (SECTION)
(SECTION)
COUNTY OF TRAVIS (SECTION)
This instrument was acknowledged before on ____________________, 1993,
by Richard J. Hawkins, Chairman of the Board of Directors of DRUG DEVELOPMENT
INVESTMENT CORP., a Texas corporation d/b/a id2, Inc., on behalf of said
corporation.
(SEAL) ________________________________________
Notary Public in and for
The State of Texas
________________________________________
Printed Name of Notary
My Commission Expires:__________________
THE STATE OF TEXAS (SECTION)
(SECTION)
COUNTY OF TRAVIS (SECTION)
This instrument was acknowledged before on ____________________, 1993,
by Richard J. Hawkins, Chairman of the Board of Directors of DRUG DEVELOPMENT
INVESTMENT CORP., a Texas corporation d/b/a id2, Inc., sole general partner of
id2 I, L.P., a Texas limited partnership, on behalf of said limited
partnership.
(SEAL) ________________________________________
Notary Public in and for
The State of Texas
________________________________________
Printed Name of Notary
My Commission Expires:__________________
<PAGE>
RIDER NO. 101
TO LEASE BY AND BETWEEN
SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, AS LANDLORD
AND
DRUG DEVELOPMENT INVESTMENT CORP. D/B/A/ ID2, INC. AND ID2 I, L.P. AS TENANT
DEFINITIONS REGARDING CALCULATION OF TENANT'S OCCUPANCY COSTS AND CALCULATION OF
NET RENTABLE AREA.
1. For purposes of this Lease, the term "Tenant's Proportionate Share"
shall mean the percentage obtained by dividing the number of square feet of Net
Rentable Area in the Premises by 391,741 square feet of Net Rentable Area
(hereby stipulated as being the total of the number of square feet of Net
Rentable Area in all office space in the Building).
2. For purposes of the Lease, the term "Operating Costs" shall mean any
and all costs, expenses and disbursements of every kind and character (subject
to the limitations set forth below) which Landlord shall incur, pay or become
obligated to pay in connection with the ownership of any estate or interest in,
operating, maintenance, cleaning, repair, replacement, and security of the
Building, determined in accordance with generally accepted accounting principles
consistently applied, including but not limited to the following:
(a) Wages and salaries of all employees engaged in the operation,
repair, replacement, maintenance and security of the Building and Land,
including taxes, insurance and benefits relating thereto.
(b) All supplies, equipment and materials used in the operation
cleaning, maintenance, repair, replacement, and security of the Building and
Land.
(c) Annual cost of all capital improvements made to the Building and
Land which, although capital in nature, can reasonably be expected to reduce the
normal operating costs thereof, together with all capital improvements made to
the Building and Land in order to comply with any statutes, rules, regulations
or directives promulgated by any governmental authority relating to access for
the disabled, energy, conservation, public safety or security, each, as
amortized over the useful life of such improvements by Landlord for federal
income tax purposes.
(d) Cost of all utilities other than the cost of electricity supplied
to tenants of the Building and Land which is separately reimbursed to Landlord
by such tenants.
(e) Cost of all cleaning, maintenance and service agreements on
equipment, including alarm service, window cleaning, elevator maintenance and
janitorial service.
(f) Cost of all insurance related to the Building, plus any
deductible, including without limitation, the cost of casualty and liability
insurance applicable to the
<PAGE>
Building and Landlord's personal property used in connection therewith and the
cost of rent loss or business interruption insurance; provided however, if such
insurance is provided in the form of master policies, then an equitable portion
of the premiums therefor shall be included herein.
(g) All taxes and assessments and governmental charges whether
federal, state, county, or municipal and whether they be by taxing districts or
authorities presently taxing or by others, subsequently created or otherwise,
and any other taxes and assessments attributable to the Building and the Land,
including any sales or uses taxes associated with materials and services but
excluding, however, Federal and State taxes on income.
(h) Cost of repairs, replacement, cleaning and general maintenance of
the Building and Land.
(i) Cost of cleaning, service or maintenance contracts with
independent contractors, and the equipment therein, for the operation, cleaning,
maintenance, repair, replacement, landscaping or security of the Building and
the Land.
(j) A Management Fee in the amount of four (4%) of the gross revenues
received by Landlord with respect to the Building and Land.
(k) All landscaping expenses and costs of repairing, resurfacing and
striping of the parking areas.
There are specifically excluded from the definition of the term "Operating
Costs" expenses for capital improvements made to the Building, other than
capital improvements described in subparagraph (c) above and except for items
which, though capital for accounting purposes, are properly considered
maintenance and repair items, such as painting of common areas, replacement of
carpet in elevator lobbies, and the like; any amounts for which Landlord becomes
liable as a result of any claims against Landlord arising from Landlord's actual
or alleged negligence in the ownership and operation of the Land and the
Building; any general overhead and administrative expense of Landlord to the
extent not directly attributable to the Land or the Building; any penalty or
fine incurred by Landlord; rental under any and all ground or underlying leases;
any wages, salaries, compensation or contract or subcontract expenses of persons
not directly involved in the management, operation or repair of the Building;
any expenses for which Landlord is otherwise paid or reimbursed; legal,
accounting, inspection, survey or other fees incurred in connection with any
financing or refinancing obtained by landlord, or which are otherwise not
incurred primarily and directly in connection with the management, operation,
maintenance or repair of the Building; contributions to any sinking fund for the
repair or replacement of equipment or facilities in the Building unless such
sinking fund is used to pay capital items which would otherwise be passed
through and such expenses paid out of the sinking fund are not included in
Operating Costs at the time that they are paid, excess electricity costs
specifically paid by Tenant pursuant to Paragraph 9 of this Lease; expenses for
repair, replacements and general maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alterations attributable solely to tenants of
the Building other than Tenant; interest, amortization or other payments on
loans to Landlord; depreciation of the Building; leasing commissions, legal
expenses and other expenses incurred in connection with negotiations or disputes
with other tenants or occupants or prospective tenants or occupants of the
Building;
<PAGE>
and income, excess profits or franchise taxes or other such taxes imposed on or
measured by the income of Landlord from the operation of the Building.
With respect to any Calendar Year or partial Calendar Year during the Lease
Term in which the Building is not occupied to the extent of one hundred percent
(100%) of the rentable area thereof, the Operating Costs for such period shall,
for the purposes hereof, be increased to the amount which would have been
incurred had the Building been occupied to the extent of one hundred percent
(100%) of the rentable area thereof and building standard services had been
provided through the entire Building provided that Tenant's Proportionate Share
shall never be calculated so as to the result in a recovery by Landlord of more
than the actual Operating Costs for such period. Moreover, if by reason of
vacancies in the Building, the calculation of Tenant's Proportionate Share would
result in an amount that is increased beyond that which would apply if the
Building were fully occupied, Tenant's Proportionate Share shall be limited to
that which would reasonably apply based on full occupancy.
3. The term "Net Rentable Area," as used herein, shall refer to (i) in
the case of a floor leased to a single tenant, Net Useable Area (defined below)
plus a pro rate allocation of the square footage of the General Common Areas
(defined below), and (ii) in the case of a floor leased to more than one tenant,
Net Useable Area, plus a pro rata allocation of the square footage of the
General Common Areas and a pro rata allocation of the Square footage of the On-
Floor Common Areas. No deductions from Net Rentable Area shall be made for
columns or projections necessary to the Building.
4. The term "Net Useable Area," as used herein, shall refer to (i) in the
case of a floor leased to a single tenant, all floor area measured from the
inside surface of the opposite outer glass line, excluding only Service Areas
and General Common (defined below), and (ii) in the case of a floor leased to
more than one tenant, all floor area within the inside surface of the outer
glass line of the Building enclosing the Premises and measured to the midpoint
of demising walls (i.e., walls separating the Premises from area leased to or
held for lease to other tenants, from On-Floor Common Areas (defined below), and
from General Common Areas, excluding only Service Areas (defined below).
5. "Service Areas" shall mean the areas within (and measured from the
midpoint of the walls enclosing) the Building's stairs, fire towers, elevator
shafts, flues, vents, stacks, pipe shafts and vertical ducts. Areas for the
specific use of Tenant and installed at the request of Tenant, such as special
stairs or elevators, are not included within the definition of Service Areas.
6. "General Common Areas" shall mean those areas within (and measured
from the midpoint of the walls enclosing) the Building's elevator machine rooms,
main mechanical and electrical rooms, public lobbies, management office and
other areas not leased or held for lease within the Building but which are
necessary or desirable for the proper utilization of the Building or to provide
customary services to the Building. The allocation of the square footage of the
General Common Areas shall be equal to the total General Common Areas within the
Building multiplied by a fraction, the numerator of which is the Net Rentable
Area of the Leased Premises (excluding only the allocation of the General Common
Areas) and the denominator of which is the Net Rentable Area (excluding only the
General Common Areas) of all office space leased or held for lease in the
Building.
<PAGE>
7. "On-Floor Common Areas" shall mean all areas within (and measured from
the midpoint of the walls enclosing) public corridors, elevator foyers,
restrooms, mechanical rooms, janitor closets, telephone and equipment rooms, and
other similar facilities for the use of all tenants on the floor on which the
leased premises are located. In the case of a floor leased to more than one
tenant, the allocation of the square footage of the On-Floor Common Areas on
said floor shall be equal to the total On-Floor Common Areas on said floor
multiplied by a fraction, the numerator of which is the Net Rentable Area of
the portion of the leased premises (excluding the allocation of the General
Common Areas and excluding the allocation of the On-Floor Common Areas) and the
denominator of which is the Net Rentable Area (excluding the allocation of the
General Common Areas and excluding the allocation of the On-Floor Common Areas)
of all office space leased or held for lease on said floor.
8. "Calendar Year" shall mean the twelve month period beginning on
January 1 and ending on December 31 of the applicable calendar year.
9. "Lease Year" shall mean, respectively, the twelve-month period
beginning on the Commencement Date and on each successive anniversary of the
Commencement Date thereafter during the Lease Term. Each such Lease Year shall
end on the day preceding the next anniversary on the Commencement Date.
<PAGE>
RIDER NO. 102
TO LEASE BY AND BETWEEN
SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, AS LANDLORD
AND
DRUG DEVELOPMENT INVESTMENT CORP. D/B/A/ ID2, INC. AND ID2 I, L.P. AS TENANT
PARKING
Subject to the further provisions of this Rider No. 102, at all times
during the Lease Term and any renewals or extensions thereof, and conditioned
upon this Lease and any renewals or extensions thereof being in full force and
effect and there being no default under this Lease as defined therein, Landlord
hereby agrees to make available to Tenant, and Tenant hereby agrees to pay for
and take, during the Lease Term, and any extension or renewal thereof, the
reserved and unreserved parking spaces for automobiles in the Building's parking
garage as provided for in the Basic Lease Information.
Tenant shall pay for such parking spaces at the rates and in the manner
provided for in the Basic Lease information. Tenant shall not have the right to
more reserved or unreserved parking spaces than the number set forth above. All
parking space payments shall be payable to the independent contractor which
Landlord hires from time to time to operate the parking garage unless otherwise
directed by Landlord. With respect to unreserved spaces, Tenant shall not be
assigned to designated parking stalls, but shall be permitted to use whatever
stalls are available, on unassigned and unreserved, first-come, first-served
basis in areas of the parking garage designated by Landlord.
At Landlord's request, Tenant and its employees shall enter into a
parking agreement with Landlord and/or its garage operator regarding the parking
spaces available to Tenant hereunder. Additionally, Landlord and its garage
operator shall have the right from time to time to promulgate reasonable rules
and regulations regarding the parking spaces available to Tenant hereunder and
others, including but not limited to, the flow of traffic to and from various
parking areas, angles and direction of parking and the like. Tenant agrees to
comply with such rules and regulations (and reasonable additions and amendments
thereto) as Landlord and its garage operator may promulgate from time to time.
In the event of any conflict between the terms and provisions of the parking
agreement and the terms and provisions of the rules and regulations, the terms
and provisions of the rules and regulations shall control. In the event of any
conflict between the terms and provisions of the parking agreement and/or the
rules and regulations and the terms and provisions of this Lease, the terms and
provisions of the Lease shall control.
Landlord and its garage operator will not be responsible for money,
jewelry, or other personal property lost or stolen in or from the parking
garage, uncovered parking areas, or public areas regardless of whether such loss
or theft occurs when the garage or such areas are locked or otherwise secured
against entry or not.
<PAGE>
EXHIBIT "C"
ACCEPTANCE OF PREMISES MEMORANDUM
THIS ACCEPTANCE OF PREMISES MEMORANDUM (this "Memorandum") is entered into
on this ____ day of ______ 1993, by and between SAN JACINTO OFFICE TOWER LIMITED
PARTNERSHIP, a Texas limited partnership, as Landlord ("Landlord"), and DRUG
DEVELOPMENT INVESTMENT CORP., a Texas corporation d/b/a id2 L.P., a Texas
limited partnership, jointly as Tenant ("Tenant"). Unless otherwise defined
herein, all capitalized terms used herein shall have the same meaning ascribed
to such terms in the Lease (as hereinafter defined).
WITNESSETH:
WHEREAS, as of June 1, 1993, Landlord and Tenant entered into that certain
Office Space Lease (the "Lease") whereby Landlord leased certain Premises
located in the Building to Tenant pursuant to certain terms and provisions more
particularly described therein;
WHEREAS, certain Leasehold Improvements to the Premises have been
constructed and installed for the benefit of Tenant in accordance with the Space
Plan and the Construction Documents and upon the terms and conditions set forth
in the Work Letter; and
WHEREAS, as provided in Paragraph 7 of the Lease, Tenant desires to take
possession of and accept the Premises subject to the terms and provisions
hereof;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and in the Lease, and other good and valuable
consideration, Landlord and Tenant hereby expressly covenant, acknowledge, and
agree as follows:
1. Except for the specific items described in the "punch list" attached
hereto as Exhibit "C-1" and incorporated herein by reference for all purposes,
which Landlord shall endeavor to remedy within ___ (__) business days hereof,
Landlord has fully completed the Leasehold Improvements, alterations or
modifications to the Premises in accordance with the Space Plan and the
Construction Documents and approved Change Orders, if any, and pursuant to the
Work Letter.
2. The Premises are tenantable and ready for immediate occupancy by
Tenant, Landlord has no further obligation to install or construct any Leasehold
Improvements, modifications or alterations to the Premises (except as described
in Exhibit "C-1" attached hereto) and, except as described in Exhibit "C-1"
attached hereto, the Premises are satisfactory to Tenant in all respects.
3. The Commencement Date of the Lease is July 19, 1993. Pursuant to the
provisions of the Lease, the first monthly installment of Base Rent
[became/shall become] due and payable on July 19, 1993.
4. The expiration date of the Lease shall be July 18, 1998.
5. The Premises contains approximately 3,337 square feet of Net Rentable
Area.
<PAGE>
6. Base Rent: Base Rent for the Lease Term shall be $2,433.23 per month,
calculated at $8.75 per annum per square foot of Net Rentable Area of the
Premises.
7. Except as specifically set forth herein, as of the date of this
Memorandum, the Lease has not been modified, altered, supplemented, superseded,
or amended in any respect.
8. All terms, provisions, and conditions of the Lease are and remain in
full force and effect, and are hereby expressly ratified, confirmed, restated,
and reaffirmed in each and every respect.
IN WITNESS WHEREOF, this Memorandum is executed by Landlord and Tenant on
the date first set forth above.
LANDLORD:
SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, a
Texas Limited Partnership
By: Equity Assets Management, Inc., its
authorized agent
By: /s/ Kim Koehn
------------------------------------------
Name: Kim Koehn
Title: Vice President, Ownership Representation
ADDRESS:
San Jacinto Office Tower Limited Partnership
300 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
Attn: Property Manager
TENANT:
DRUG DEVELOPMENT INVESTMENT CORP., a Texas
corporation d/b/a id2, Inc., a Texas corporation
By: /s/ Richard J. Hawkins
------------------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Directors
<PAGE>
ID2 -- L.L.P., A TEXAS LIMITED PARTNERSHIP
By: /s/ Richard J. Hawkins
------------------------------------------
Name: Richard J. Hawkins
Title: Chairman of the Board of Directors
ADDRESS:
230 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
Attn: Richard J. Hawkins
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
This instrument was acknowledged before me on January 19, 1994, by Kim
Koehn, a Vice President of Equity Assets Management, Inc., as authorized agent
for SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, a Texas limited partnership,
on behalf of said limited partnership.
[SEAL] /s/ Donann Scott
-------------------------------------
Notary Public in and for
The State of Texas
Donann Scott
-------------------------------------
Printed Name of Notary
My Commission Expires: 9/28/96
--------------
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
This instrument was acknowledged before me on January 5, 1994 by
Richard J. Hawkins, Chairman of the Board of Directors of DRUG DEVELOPMENT
INVESTMENT CORP., a Texas corporation d/b/a id2, Inc. on behalf of said
corporation.
[SEAL] /s/ Brenda K. Hindsman
-------------------------------------
Notary Public in and for
The State of Texas
Brenda K. Hindsman
-------------------------------------
Printed Name of Notary
My Commission Expires: December 2, 1995
----------------
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
This instrument was acknowledged before me on January 5, 1994, by
Richard J. Hawkins, Chairman of the Board of Directors of Drug Development
Investment Corp., a Texas corporation d/b/a id2, Inc. sole general partner of
id2- L.L.P., a Texas limited partnership, on behalf of said limited partnership.
[SEAL] /s/ Brenda K. Hindsman
-------------------------------------
Notary Public in and for
The State of Texas
Brenda K. Hindsman
-------------------------------------
Printed Name of Notary
My Commission Expires: December 2, 1995
----------------
<PAGE>
EXHIBIT "C-1"
PUNCH LIST
All punch list items have been completed.
<PAGE>
GUARANTY OF LEASE
WHEREAS, DRUG DEVELOPMENT INVESTMENT CORP. d/b/a id2, Inc. and id2--L.L.P.
(jointly, "Tenant") have entered into that certain Lease Agreement (the "Lease")
dated March 17, 1993 with SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP
("Landlord"); and
WHEREAS, Landlord was not willing to enter into the Lease without the
receipt of this Guaranty executed and acknowledged by the undersigned;
NOW, THEREFORE, to induce Landlord to execute the Lease, as a material
consideration and inducement therefore (recognizing without the execution and
delivery of this Guaranty, Landlord would not be willing to enter into the Lease
Amendment), and recognizing the benefit of the Lease to the undersigned, the
undersigned hereby agree as follows:
The undersigned (herein called "Guarantors" whether one or more) hereby
unconditionally, jointly and severally guarantee observance by Tenant of all the
monetary obligations, duties, covenants, agreements and conditions provided in
the Lease, as same may hereafter be amended from time to time, to be observed by
Tenant during the term of the Lease (including specifically and without limiting
the generality of the foregoing, payment by Tenant of all rental and other
amounts and damages of whatsoever kind or nature which may be or become due from
Tenant under the terms of or in connection with the Lease). This guaranty is
unconditional, and the liability of Guarantors shall be absolute, in the same
manner as if Guarantors, jointly and severally, were named in and had signed the
Lease as "Tenant" thereunder. Guarantors agree that bankruptcy, insolvency,
lack of corporate capacity or any other disability or impediment against
enforcement of full liability of Tenant named in the Lease shall in no way
impair or affect Guarantors' liability and obligation hereunder, and, without
limitation of the foregoing. Guarantors agree that in the event that Tenant
shall become insolvent or shall be adjudicated a bankrupt, or shall file a
petition for reorganization, arrangement or other relief under any present or
future provisions of the Bankruptcy Code, or if such a petition be filed by
creditors of Tenant, or if Tenant shall seek a judicial readjustment of the
rights of its creditors under any present or future federal or state law or if a
receiver of all or part of Tenant's property and assets is appointed by any
state or federal court, no such proceeding or action taken therein shall modify,
diminish or in any way affect the liability of Guarantors under this guaranty,
and the liability of Guarantors for the Tenant's obligations under the Lease
shall be of the same scope as if Guarantors had themselves, jointly and
severally, executed the Lease, and no "rejection" and/or "termination" of the
Lease in any of the proceedings referred to above shall be effective to limit,
release and/or terminate the continuing liability of Guarantors to Landlord
under this guaranty with respect to the Lease and such liability of Guarantors
shall be unaffected by any such "rejection" and/or "termination" in said
proceedings. It shall not be necessary or required in order to maintain and
enforce Guarantors' liability hereunder that demand be made upon Tenant or that
action be commenced or prosecuted against Tenant or that any effort be made to
enforce the liability or responsibility of Tenant for performance of its
obligations or duties under or in connection with the Lease, and it shall not be
required that Tenant or any other party liable on such lease be joined in any
action brought against Guarantors for enforcement of Guarantors' liability and
responsibility under this guaranty or that judgment have theretofore bee
obtained against Tenant or any other party liable therefor on or in connection
with any such claim. Guarantors agree that no waiver by Landlord
<PAGE>
or forbearance or delay by Landlord in asserting or enforcing any rights or
remedies of Landlord against or with respect to Tenant or any other party who
may be or becomes responsible for performance of any of such Tenant's
obligations or duties shall in any affect, impair or release Guarantors'
liability hereunder. Likewise, Guarantors agree that no assignment or subletting
of the Lease or of all or any part of the leased premises by such Tenant shall
in any way impair, affect or release Guarantors' liability hereunder. Guarantors
expressly waive and agree that no notice of default by Tenant or other notice or
demand need be given by Landlord to Guarantors as a condition of maintaining or
enforcing Guarantors' liability and obligations under this guaranty. Guarantors
expressly agree that no notice of amendment or modification of the Lease need be
given by Landlord or Tenant to Guarantors as a condition of maintaining or
enforcing Guarantors' liability and obligations under this guaranty. Guarantors
expressly agree that any amendment or modification of the Lease may be made by
Landlord and Tenant, as provided in such lease, with or without the approval of
Guarantors, and that any such amendment will be deemed part of the Lease for
purposes of this guaranty. Likewise, Guarantors agree that Landlord's release or
subordination or failure or delay to enforce or seek to realize upon any
security now or hereafter held or acquired by Landlord for performance of any of
the obligations or duties of Tenant under or in connection with the Lease shall
in no way impair, affect or release Guarantors' liability hereunder, and that
Landlord's action (at Landlord's election) in termination such lease or in
taking or retaking possession of the leased premises as therein provided
following default by Tenant shall not release or impair Guarantors' liability
hereunder and that no notice of such termination or of such entry or re-entry by
Landlord need be given to Guarantors. Without limitation of anything herein to
the contrary, Guarantors agree that any waiver by Lessor or forbearance or
failure or delay by Lessor in liability of any of the other Guarantors
hereunder.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF
GUARANTOR HEREUNDER SHALL BE LIMITED TO $75,807.00, PLUS ALL COSTS, INCLUDING
WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, INCURRED IN ENFORCING THIS
GUARANTY (THE "GUARANTEED AMOUNT"). THE GUARANTEED AMOUNT SHALL BE REDUCED BY
$1,263.46 FOR EACH FULL MONTH OF THE LEASE TERM IN WHICH TENANT PERFORMS ALL OF
ITS MONETARY OBLIGATIONS UNDER THE LEASE.
This guaranty shall be enforceable and shall be performed in Travis County,
Texas.
WITNESS the execution hereof effective as of the date of execution and
delivery of the Lease.
/s/ Richard J. Hawkins
---------------------------------------
Richard J. Hawkins
ADDRESS:
230 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
This instrument was acknowledged before me on the 1st day of April, 1993,
by Richard J. Hawkins.
[SEAL] /s/ Lauren K. Baisdon
-------------------------------------
Notary Public in and for
The State of Texas
Lauren K. Baisdon
-------------------------------------
Printed Name of Notary
My Commission Expires: January 26, 1995
----------------
<PAGE>
EXHIBIT I
AGREEMENT REGARDING LENDER'S SECURITY INTEREST
IN THE TENANT'S PERSONAL PROPERTY
THIS AGREEMENT is entered into as of the _____ day of __________, 199__, by
and between ______________________________ ("Landlord"),
______________________________ ("Tenant") and ______________________________
("Lender"), with reference to the following facts:
A. Landlord and Tenant have heretofore entered into a written lease
("Lease") dated ____________________, for certain premises (the "Leased
Premises") located in that certain office building known as ____________________
(the "Building") in ____________________.
B. Tenant desires to borrow money from Lender in the principal sum of
____________________ ($__________) (the "Loan").
C. Lender desires to obtain a security interest in the Tenant's personal
property (the "Collateral") located within the Leased Premises and/or described
in Exhibit A attached hereto until such Loan is repaid.
D. Landlord is willing to subordinate its rights in the Collateral to the
rights of Lender's security interest upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The only property affected by this agreement is that Collateral
specifically listed on Exhibit A attached hereto. Any property not described in
Exhibit A shall not be subject to the terms of this Agreement, and Landlord
shall be entitled, to the extent provided by the Lease and by law, to exercise
any lien, right or remedy against such other property.
2. Lender acknowledges that it has no security interest in any property
located in, or about the Leased Premises other than the Collateral listed on
Exhibit A.
3. Notwithstanding anything to the contrary contained in the Lease, until
such time as Tenant repays in full to Lender the Loan which is secured by the
Collateral, the Collateral shall remain the personal property of Tenant subject
to the security interest of Lender. Lender shall notify Landlord when the
obligations of the Tenant to repay the Loan have been satisfied and discharged.
4. Landlord does hereby subordinate any and all liens, claims or rights in
and to the Collateral to the security interest of Lender in the Collateral;
provided, however, that this subordination shall not prevent Landlord from
exercising any right or remedy against Tenant to which Landlord may be entitled
under the terms of the Lease or as may be provided by applicable law, nor shall
it prevent Landlord from exercising any lien on any property of Tenant,
<PAGE>
including the Collateral, or enforcing any judgment by levying upon any property
of Tenant, including the Collateral, so long as Landlord recognizes Lender's
prior right to the Collateral, the provisions of any security and other
agreements between Tenant and Lender shall at all times be subject and
subordinate to all covenants, terms and conditions of the Lease and all of
Landlord's rights thereunder.
5. Lender can enter the Leased Premises for purpose of removal of the
Collateral only if:
(a) permitted by the Loan Agreement between Lender and Tenant;
(b) Lender gives Landlord ten (10) days prior written notice;
(c) Lender enters the Leased Premises for purpose of removal of the
Collateral at such time and in such manner as Landlord reasonably may determine
so as to minimize disruption to the operation of the Building;
(d) Lender and Tenant agree, jointly and severally, promptly to repair
any damage to the Leased Premises or to the Building caused by the removal of
the Collateral or, if Landlord shall, in its sole discretion, elect to make such
repairs, to pay to Landlord upon demand the costs and expenses incurred in
connection therewith;
(e) Tenant and Lender agree, jointly and severally, to restore the
Leased Premises to the condition the Leased Premises were in prior to the
installation of the Collateral;
(f) there shall be no display nor private sale of the Collateral on
the Leased Premises or in the Building;
(g) Lender hereby indemnifies Landlord for any claim, liability or
expense (including reasonable attorneys' fees) arising out of or in connection
with Lender's removal of the collateral and Lender's entry and activities upon
the Leased Premises and the Building.
6. Lender agrees that any modification or alteration of any document
relating to the Loan or the Collateral or any other provision which may affect
the rights of Landlord in and to the Collateral, shall not be effective against
Landlord unless consented to in writing by Landlord.
7. If Landlord shall fail to demand strict compliance with any provision
hereof, such failure shall not constitute a waiver of any right or remedy to
which Landlord may be entitled.
8. If Tenant should be in default under the terms of the Lease, and such
default results in (a) the termination of the Lease or (b) claims by Landlord
for rent due, Lender shall submit to Landlord within ten (10) days after
Landlord's demand therefor, a certified statement showing:
(i) the original amount of funds supplied by Lender to Tenant;
(ii) the amount paid by Tenant to date; and
(iii) the amount due from Tenant to Lender.
<PAGE>
In the event Lender sells the Collateral to satisfy claims against Tenant,
all funds derived from the sale of the Collateral, to the extent that such funds
are in excess of the amount owed to the Lender, shall belong to Landlord to
satisfy any claim which Landlord may have.
9. Landlord shall have the right, but not the obligation, to cure any
default by Tenant under any agreement between Lender and Tenant concerning the
Collateral. Lender agrees to notify Landlord in writing of any default on the
part of Tenant under its agreement with Tenant concerning the Collateral and
further agrees that Lender shall not exercise any of its rights with respect to
the Collateral unless Landlord has received the aforesaid notice and ha snot,
within thirty (30) days after the date thereof, cured such default or if the
default cannot be cured within thirty (30) days, has not commenced curing and is
not diligently prosecuting the cure of Tenant's default; provided, however, that
nothing contained in this Agreement shall require Landlord to cure any such
default or otherwise to perform the obligations of Tenant to Lender.
10. This Agreement contains the entire understanding between the parties
hereto. Any modification shall be effective only if in writing and signed by the
parties hereto.
11. Landlord's address for notices is:
Equity Assets Management, Inc.
2 North Riverside Plaza, Suite 1601
Chicago, Illinois 60606
Attn:_____________________
With a copy to:
Rosenberg & Liebentritt, P.C.
Suite 1602
Two North Riverside Plaza
Chicago, Illinois 60606
Attn:_____________________
Tenant's address for notices is:
[FROM LEASE NOTICE PROVISION]
______________________________
______________________________
______________________________
Attention:_________________
Lender's address for notices is:
______________________________
______________________________
______________________________
Attention:_________________
<PAGE>
12. This Agreement shall be governed by and construed in accordance with
the laws of the state in which the Building is located.
13. This Agreement shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and assigns of the respective
parties hereto.
IN WITNESS WHEREOF, the parties hereto have set their hands below.
LANDLORD
EQUITY ASSETS MANAGEMENT, INC. AS AGENT
By:____________________________________
Title:
TENANT
________________________________________
By:_____________________________________
Title:
LENDER
_______________________________________
By:____________________________________
Title:
FIRST AMENDMENT TO OFFICE LEASE
WHEREAS, SAN JACINTO OFFICE TOWER LIMITED PARTNERSHIP, a Texas limited
partnership ("Landlord"), and DRUG DEVELOPMENT INVESTMENT CORP., a Texas
corporation d/b/a id2-I, L.P., a Texas limited partnership (jointly, "Tenant"),
entered into that certain office Space Lease (the "Lease") dated March 17, 1993,
concerning approximately 3,188 square feet of Net Rentable Area (the "Initial
Premises") on the 2nd floor of that certain office building commonly referred to
as San Jacinto Center (the "Building"); and
WHEREAS, the Initial Premises has been relocated to that certain area on
the 4th floor of the Building containing approximately 3,337 square feet of Net
Rentable Area (the "New Premises"), commonly referred to as Suite 430; and
WHEREAS, Landlord and Tenant wish to amend the Lease as hereinafter
provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
14. From and after the date of this Amendment, (a) the New Premises shall
be deemed to be the Premises under the Lease for all purposes and therefore all
references in the
<PAGE>
Lease to the Premises shall be deemed to be references to the New Premises and
(b) Tenant shall have no further right, title or interest in and to the Initial
Premises.
15. From and after the date of this Amendment, the following items of the
Basic Lease Information contained in the Lease are hereby amended to read in
full as follows:
Address to Tenant: 430 San Jacinto Center
98 San Jacinto Boulevard
Austin, Texas 78701
Premises Suite No. 430, which is located in the office building
commonly referred to as San Jacinto Center (the
"Building"), which has been constructed on the land (the
"Land") located on Lot 1 of San Jacinto Center, an
addition to the City of Austin, Texas, according to the
Plat thereof recorded in Volume 89, Page 21 of the Plat
Records of Travis County, Texas, which Premises are
outlined on the Plan attached hereto as Exhibit "A."
Net Rentable Area
Of the Premises: Approximately 3,337 square feet
Base Rent: Base Rent for the Lease Term shall be $2,433.23 per
month, calculated at $8.75 per annum per square foot of
Net Rentable Area of the Premises, all as adjusted
pursuant to Exhibit "C" attached hereto and incorporated
herein.
Estimate of Tenant's Occupancy Costs (as defined in the Lease) for the
first Calendar Year (as defined in the Lease):
$1,996.64 per month, calculated at $7.18 per annum per square foot of
Net Rentable Area of the Premises
16. Tenant's address for notices as set forth in Paragraph 35(c) of the
Lease is hereby amended to read in full as follows:
430 San Jacinto Center
98 San Jacinto Boulevard
Austin, Texas 78701
Attention: Richard J. Hawkins
17. The cancellation fee set forth in Paragraph 54(a)(ii) is hereby
changed from "$8,464.14" to "$8,859.74."
18. Exhibit "A" attached hereto shall replace for all purposes the Exhibit
"A" attached to the Lease.
19. Any other capitalized term not expressly defined in this Amendment
shall have the meaning set forth in the Lease.
20. The Lease as amended hereby is hereby ratified and affirmed. In the
event of any conflict between the Lease and this Amendment, this Amendment shall
control.
<PAGE>
EXECUTED as of June 1, 1993.
SAN JACINTO OFFICE TOWER LIMTIED PARTNERSHIP
By: Equity Assets Management, Inc.,
its authorized agent
By:/s/ Kim Koehn
-------------------------------------
Kim Koehn
Vice-President, Ownership
Representation
"LANDLORD"
DRUG DEVELOPMENT INVESTMENT CORP., a Texas
corporation d/b/a id2, Inc.
By: Drug Development Investment Corp.
a Texas corporation d/b/a id2, Inc.,
its sole general partner
By: /s/ Richard J. Hawkins
-------------------------------------
Richard J. Hawkins, Chairman of the
Board of Directors
"TENANT"
<PAGE>
SECOND AMENDMENT TO OFFICE SPACE LEASE
THIS SECOND AMENDMENT TO OFFICE SPACE LEASE (this "Amendment") is entered
into by and between EOP-SAN JACINTO LIMITED PARTNERSHIP, a Texas limited
partnership ("Landlord") and DRUG DEVELOPMENT INVESTMENT CORP., a Texas
corporation d/b/a id2, Inc. and id2-I, L.P., a Texas limited partnership
(jointly, "Tenant"). Unless otherwise defined herein, all capitalized terms
used herein shall have the same meaning ascribed to such terms in the Lease (as
hereinafter defined).
WHEREAS, Landlord (as successor-in-interest to SAN JACINTO OFFICE TOWER
LIMITED PARTNERSHIP, a Texas limited partnership) and Tenant are parties to that
certain Office Space Lease dated March 17, 1993, as amended by that certain
First Amendment to Office Lease dated June 1, 1993 under which First Amendment
Tenant relocated to new space in the Building (said Office Space Lease, as
amended, being hereinafter referred to as the "Lease"); and
WHEREAS, Landlord and Tenant have agreed to expand the Premises so that
Tenant shall lease from Landlord the First Additional Premises (defined below);
and
WHEREAS, Landlord and Tenant have agreed to extend the Term of the Lease;
and
WHEREAS, Landlord and Tenant wish otherwise to amend the terms of the Lease
as hereinafter provided;
NOW, THEREFORE, for and in consideration of the mutual agreements and
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant do
hereby expressly agree, covenant, and acknowledge as follows:
21. In consideration of the obligation of Tenant to pay rent with respect
to the First Additional Premises and in consideration of the terms, covenants
and conditions of the Lease, as amended hereby, Landlord hereby demises and
leases to Tenant and Tenant hereby takes from Landlord the First Additional
Premises, to have and to hold commencing on the First Additional Premises
Commencement Date (defined below) and continuing for the remainder of the Lease
Term, all upon the terms and conditions set forth in the Lease, as amended
hereby.
22. The following sections of the Basic Lease Information Sheet to the
Lease are amended to read as follows:
Contact (Landlord): Jeffrey Dash Telephone: 512/320-5678
Premises: From the Commencement Date through May 31, 1993, the
"Premises" is defined as that certain area containing
approximately 3,188 square feet of Net Rentable Area
of the Premises commonly known as Suite No. 230, (the
"Original Premises") which is located in the office
building, commonly referred to as San Jacinto Center
(the "Building") which has been constructed on the
land (the "Land") located on Lot 1 of San Jacinto
Center an addition to
<PAGE>
the city of Austin, Texas, according to the Plat
thereof recorded in Volume 89, Page 21 of the Plat
Records of Travis County, Texas, which Premises are
outlined in the plan attached hereto as Exhibit "A".
From June 1, 1993 through and including the day before
the First Additional Premises Commencement Date
(defined below), the "Premises" is defined as that
certain area containing approximately 3,337 square
feet of Net Rentable Area of the Premises commonly
known as Suite No. 430, shown as the "New Premises" in
the plan attached hereto as Exhibit "A-2" (the "New
Premises"). From and after the date (the "First
Additional Premises Commencement Date") that is the
later of (i) December 1, 1997 or (ii) the date upon
which the First Additional Premises Work (defined
below) is substantially complete, the "Premises" is
defined as that certain area containing approximately
5,811 square feet of Net Rentable Area of the Premises
on the 4th floor of the Building consisting of the New
Premises together with an adjacent additional 2,474
square feet of Net Rentable Area (the "First
Additional Premises") shown as the "First Additional
Premises" and the "New Premises" in the plan attached
hereto as Exhibit "A-2".
Lease Term: Lessee shall lease the Premises for the period
commencing on May 1, 1993 (the "Commencement Date")
and continuing for a period of one hundred twenty-four
(124) months thereafter, subject to and upon the terms
and conditions set forth in the Lease (as hereinafter
defined), or in any exhibit or addendum thereto; the
First Additional Premises Commencement Date shall be
December 1, 1997.
Net Rentable Area (i) From the Commencement Date until May 31, 1993, the
of the Premises: Net Rentable Area of the Premises is approximately
3,188 square feet; (ii) from June 1, 1993 through and
including the day before the First Additional Premises
Commencement Date, the Net Rentable Area of the
Premises is approximately 3,337 square feet; and (iii)
from and after the First Additional Premises
Commencement Date, the Net Rentable Area of the
Premises is approximately 5,811 square feet.
Base Rent: Base Rent during the Lease Term shall be: (i)
$2,324.58 per month, calculated at $8.75 per annum per
square foot of Net Rentable Area of the Original
Premises, from the Commencement Date until May 31,
1993; (ii) $2,433.23 per month, calculated at $8.75
per annum per square foot Of Net Rentable Area of the
New Premises, from June 1, 1993 through the day before
the First Additional Premises Commencement Date; (iii)
$4,237.19 per month, calculated at $8.75 per annum per
square foot of Net Rentable Area of the New Premises
and $8.75 per square foot of
<PAGE>
Net Rentable Area of the First Additional Premises,
from the First Additional Premises Commencement Date
through July 31, 1998; (iv) $5,558.09 per month,
calculated at $13.50 per annum per square foot of net
Rentable Area of the New Premises and $8.75 per square
foot of Net Rentable Area of the First Additional
Premises from August 1, 1998 through October 31, 2000;
and (v) $6,537.38 per month from and after November 1,
2000, calculated at $13.50 per annum per square foot
of Net Rentable Area of the Premises.
Security Deposit: (i) From the Commencement Date through and including
the day before the First Additional Premises
commencement Date, $4,232.07 and (ii) from and after
the First Additional Premises Commencement Date,
$8,747.12.
Parking: Subject to the terms and provisions of Rider 102
attached hereto and incorporated by reference herein,
(i) from the Commencement Date through and including
the day before the First Additional Premises
Commencement Date, two (2) reserved and three (3)
unreserved parking spaces shall be available to Tenant
and (ii) from the First Additional Premises
Commencement Data through the end of the Lease Term,
three (3) reserved and six (6) unreserved parking
spaces shall be available to Tenant. From the
Commencement Date through and including the day before
the First Additional Premises Commencement Date, the
charge for each reserved parking space shall be $80.00
per month plus tax and the charge for each unreserved
parking space shall be $60.00 per month plus tax,
payable to the garage operator no later than the first
day of each month. From and after the First Additional
Premises Commencement Date, the charge for each
reserved parking space shall be $100.00 per month plus
tax and the charge for each unreserved parking space
shall be $80.00 per month plus tax, payable to the
garage operator no later than the first day of each
month. Thereafter, the Landlord reserves the right to
increase or decrease the monthly rental for both the
reserved and unreserved parking spaces by written
notice to Tenant thirty (30) days in advance of any
change. Landlord reserves the right to terminate
Tenant's right to lease one (1) of the foregoing
reserved parking spaces upon thirty (30) days advance
written notice to Tenant. Tenant shall also pay any
taxes (other than income taxes) levied on all such
parking charges.
23. The following new section of the Basic Lease Information is hereby
added:
Estimate of Tenant's Occupancy Costs (as defined in the Lease) from and
after the First Additional Premises Commencement Date, based on estimated
Occupancy Costs for 1997:
<PAGE>
$4,067.70 per month, calculated at $8.40 per annum per square foot of
Net Rentable Area of the Premises.
24. Section 35(a) of the Lease is hereby amended to read in full as
follows:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to the order of "Equity Office Properties"
at the address set forth below, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith:
Equity office Properties
P.O. Box 844540
Dallas, Texas 75284-4540
25. Section 35(b) of the Lease is hereby amended to read in full as
follows:
(a) Any notice or document delivered by Tenant to Landlord hereunder
shall be delivered to Landlord at the address hereinbelow set forth, or at such
other address as Landlord may specify from time to time by written notice
delivered in accordance herewith:
EOP-San Jacinto Limited Partnership
c/o Equity office Properties 160 San Jacinto Center
98 San Jacinto Boulevard
Austin, Texas 78701
Attn: Property Manager
with a copy to:
EOP-San Jacinto Limited Partnership
c/o Equity Office Properties Trust
Two North Riverside Plaza, Suite 2200
Chicago, Illinois 60606
Attn: General Counsel for Property Operations
26. Sections 54, 55 and 56 of the Lease are hereby deleted.
27. Section 58 of the Lease is hereby amended to read in full as follows:
Exhibit A": Floor Plan of the Original Premises
Exhibit "A-2": Floor Plan of the New Premises
Exhibit "B": Building Rules and Regulations
Exhibit "C": Acceptance of Premises Memorandum
Exhibit "C-1": Punch List
Exhibit "D-1": First Additional Premises Work Letter
Exhibit "E-1": Secretary of State Financing Statement
Exhibit "E-2": Travis County Clerk's Financing Statement
Exhibit "F": Subordination, Non-Disturbance and Attornment Agreement
Exhibit "G": Renovation Work Letter
Exhibit "H-1": Guaranty of Lease
Exhibit "I": Agreement Regarding Lender' s Security Interest
<PAGE>
Rider No. 101 Definitions Regarding Calculation of Tenant's Occupancy
Costs and Calculation of Net Rentable Area
Rider No. 102 Parking
28. Exhibits A-I, D and H to the Lease are hereby cancelled and deleted.
29. Exhibits "A-2", "D-l" and "H-1" attached to this Amendment are hereby
added to the Lease.
30. Tenant has inspected the First Additional Premises, is familiar with
the condition of same and, subject to the completion of the First Additional
Premises Work (hereinafter defined), accepts same in its present condition.
Tenant acknowledges that Landlord previously complied with all of its
construction obligations with respect to the New Premises and that Landlord is
not obligated to do any further construction or make any additional improvements
with respect to the Premises, except that Landlord shall install or cause to be
installed in the Premises improvements (the "First Additional Premises Work")
upon the terms and conditions set forth in the Work Letter which is attached
hereto as Exhibit "D-1." Landlord shall provide to Tenant in accordance with
the terms and conditions of such Work Letter an allowance of up to $35,729.00
calculated at $5.00 per square foot of Net Rentable Area of the First Additional
Premises and $7.00 per square foot of Net Rentable Area of the New Premises, to
be applied to the cost of the First Additional Premises Work.
31. Tenant represents and warrants to Landlord that it has not had any
dealing with any realtor, broker or agent in connection with this Amendment or
the negotiation thereof other than Asset Investment Corp. Tenant agrees to
indemnify and hold Landlord harmless from and against any and all costs,
expenses or liability, including, but not limited to, reasonable attorneys'
fees, resulting from any breach of this representation or warranty.
32. Landlord and Tenant acknowledge that Tenant has no option or right to
renew or extend the Lease.
33. The Lease as amended hereby is hereby ratified and affirmed, In the
event of any conflict between the Lease and this Amendment, this Amendment shall
control.
<PAGE>
IN WITNESS WHEREOF, this Second Amendment to Office Space Lease is executed
by each party on the respective dates set forth below, but is effective as of
the date of execution by Landlord.
EOP-SAN JACINTO LIMITED PARTNERSHIP,
a Texas limited partnership
By: EOP-San Jacinto GP, L.L.C.,
a Delaware limited liability
company, its general partner
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole
member
By: Equity Office Properties Trust, a
Maryland real estate investment trust,
its managing general partner
By: /s/ Kim Koehn
-------------------------------
Name: Kim Koehn
-------------------------------
Title: Regional Vice President
-------------------------------
Date:
-------------------------------------
DRUG DEVELOPMENT CORP., a Texas corporation d/b/a
id2, Inc.
By: /s/ Richard J. Hawkins
--------------------------------------
Name: Richard J. Hawkins
-----------------------------
Title: Chairman
----------------------------
id2-I, L.P., a Texas limited partnership
By: Drug Development Investment Corp., a Texas
corporation d/b/a id2, Inc., its sole general
partner
By: /s/ Richard J. Hawkins
-----------------------------------
Name: Richard J. Hawkins
-------------------------------
Title: Chairman
-----------------------------
Date: October 8, 1997
----------------------------------
"Tenant"
<PAGE>
EXHIBIT "H-I
GUARANTY OF LEASE
WHEREAS, DRUG DEVELOPMENT INVESTMENT CORP., a Texas corporation d/b/a id2,
Inc. and id2-I, L.P., a Texas limited partnership (jointly, "Tenant") has
entered into that certain Lease Agreement dated March 17, 1993 with EOP-SAN
JACINTO LIMITED PARTNERSHIP ("Landlord"), as amended by that certain First
Amendment to office Lease dated June 1, 1993 (the "Lease") and Tenant and
Landlord are executing simultaneously with this Guaranty a Second Amendment to
the Lease; and
WHEREAS, Landlord was not willing to enter into the Second Amendment
without the receipt of this Guaranty executed and acknowledged by the
undersigned;
NOW, THEREFORE, to induce Landlord to execute the Second Amendment, as a
material consideration and inducement therefore (recognizing without the
execution and delivery of this Guaranty Landlord would not be willing to enter
into the Second Amendment), and recognizing the benefit of the Lease to the
undersigned, the undersigned hereby agree as follows:
The undersigned (herein called "Guarantors" whether one or more), hereby
unconditionally, jointly and severally guarantee performance and observance by
Tenant of all the monetary obligations, duties, covenants, agreements and
conditions provided in the Lease, as same may hereafter be amended from time to
time, to be performed or observed by Tenant during the term of the Lease
(including specifically and without limiting the generality of the foregoing,
payment by Tenant of all rental and other amounts and damages of whatsoever kind
or nature which may be or become due from Tenant under the terms of or in
connection with the Lease). This guaranty is unconditional and the liability of
Guarantors shall be absolute, in the same manner as if Guarantors, jointly and
severally, were named in and had signed the Lease as "Tenant" thereunder.
Guarantors agree that bankruptcy, insolvency, lack of corporate capacity or any
other disability or impediment against enforcement of full liability of Tenant
named in the Lease shall in no way impair or affect Guarantors' liability and
obligation hereunder, and, without limitation of the foregoing, Guarantors agree
that in the event that Tenant shall become insolvent or shall be adjudicated a
bankrupt, or shall file a petition for reorganization, arrangement or other
relief under any present or future provisions of the Bankruptcy Code, or if such
a petition be filed by creditors of Tenant, or if Tenant shall seek a judicial
readjustment of the rights of its creditors under any present or future federal
or state law or if a receiver of all or part of Tenant's property and assets is
appointed by any state or federal court, no such proceeding or action taken
therein shall modify, diminish or in any way affect the liability of Guarantors
under this guaranty, and the liability of Guarantors for the Tenant's monetary
obligations under the Lease shall be of the same scope as if Guarantors had
themselves, jointly and severally, executed the Lease, and no "rejection" and/or
"termination" of the Lease in any of the proceedings referred to above shall be
effective to limit, release and/or terminate the continuing liability of
Guarantors to Landlord under this guaranty with respect to the Lease and such
liability of Guarantors shall be unaffected by any such "rejection" and/or
"termination" in said proceedings. It shall not be necessary or required in
order to maintain and enforce Guarantors' liability hereunder that demand be
made upon Tenant or that action be commenced
<PAGE>
or prosecuted against Tenant or that any effort be made to enforce the liability
or responsibility of Tenant for performance of its obligations or duties under
or in connection with the Lease, and it shall not be required that Tenant or any
other party liable on such Lease be joined in any action brought against
Guarantors for enforcement of Guarantors' liability and responsibility under
this guaranty or that judgment have theretofore been obtained against Tenant or
any other party liable therefor on or in connection with any such claim.
Guarantors agree that no waiver by Landlord or forbearance or delay by Landlord
in asserting or enforcing any rights or remedies of Landlord against or with
respect to Tenant or any other party who may be or becomes responsible for
performance of any of such Tenant's obligations or duties shall in any way
affect, impair or release Guarantors' liability hereunder. Likewise, Guarantors
agree that no assignment or subletting of the Lease or of all or any part of the
leased premises by such Tenant shall in any way impair, affect or release
Guarantors' liability hereunder. Guarantors expressly waive and agree that no
notice of default by Tenant or other notice or demand need be given by Landlord
to Guarantors as a condition of maintaining or enforcing Guarantors' liability
and obligations under this guaranty. Guarantors expressly agree that no notice
of amendment or modification of the Lease need be given by Landlord or Tenant to
Guarantors as a condition of maintaining or enforcing Guarantors' liability and
obligations under this guaranty. Guarantors expressly agree that any amendment
or modification of the Lease may be made by Landlord and Tenant, as provided in
such Lease, with or without the approval of Guarantors, and that any such
amendment will be deemed part of the Lease for purposes of this guaranty.
Likewise, Guarantors agree that Landlord's release or subordination or failure
or delay to enforce or seek to realize upon any security now or hereafter held
or acquired by Landlord for performance of any of the obligations or duties of
Tenant under or in connection with the Lease shall in no way impair, affect or
release Guarantors' liability hereunder, and that Landlord's action (at
Landlord's election) in terminating such Lease or in taking or retaking
possession of the leased premises as therein provided following default by
Tenant shall not release or impair Guarantors' liability hereunder and that no
notice of such termination or of such entry or re-entry by Landlord need be
given to Guarantors. Without limitation of anything herein to the contrary,
Guarantors agree that any waiver by Lessor or forbearance or failure or delay by
Lessor in asserting or enforcing its rights against any of the undersigned under
this guaranty shall in no way affect, impair or release the liability of any of
the other Guarantors hereunder.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF
GUARANTORS HEREUNDER SHALL BE LIMITED TO $66,592.89, PLUS ALL COSTS, INCLUDING
WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES, INCURRED IN ENFORCING THIS
GUARANTY (THE "GUARANTEED AMOUNT"). THE GUARANTEED AMOUNT SHALL BE REDUCED BY
AN AMOUNT EQUAL TO ONE MONTH'S BASE RENT FOR EACH FULL MONTH OF THE LEASE TERM
IN WHICH TENANT PERFORMS ALL OF ITS MONETARY OBLIGATIONS UNDER THE LEASE.
LANDLORD AGREES THAT IT WILL RELEASE THIS GUARANTY OF LEASE UPON SATISFACTION OF
THE FOLLOWING CONDITIONS: (I) LANDLORD RECEIVES AUDITED FINANCIAL STATEMENTS
SHOWING THAT SENSUS DRUG DEVELOPMENT CORP. HAS A NET WORTH OF AT LEAST
$10,000,000.00 AND (II) SENSUS DRUG DEVELOPMENT CORP. SIGNS A NEW GUARANTY OF
LEASE IN SUBSTANTIALLY THE SAME FORM AS THIS GUARANTY OF LEASE.
<PAGE>
This guaranty shall be enforceable and shall be performed in Travis County,
Texas.
WITNESS the execution hereof effective as of the date of execution and
delivery of the Second Amendment.
Address: /s/ Rick Hawkins
-----------------------------------
Name: Rick Hawkins
98 San Jacinto Boulevard
Austin, Texas 78701
<PAGE>
THIRD AMENDMENT
This Third Amendment (the "Amendment") is made and entered into as of the
7th day of August, 1998, by and between EOP-SAN JACINTO LIMITED PARTNERSHIP, a
Texas limited partnership ("Landlord"), and SENSUS DRUG DEVELOPMENT CORPORATION,
a Delaware corporation ("Tenant").
W I T N E S S E T H
A. WHEREAS, Landlord (formerly know as San Jacinto Tower Limited Partnership,
a Texas limited partnership) and Tenant (as successor in interest to Drug
Development Investment Corp., a Texas corporation, d/b/a id2, Inc. and id2-
I, L.P., a Texas limited partnership) are parties to that certain lease
dated the 17th day of March, 1993, for space currently containing
approximately 5,811 square feet of Net Rentable Area (the "Original
Premises") described as Suite No. 430 on the fourth (4th) floor of the
building commonly known as San Jacinto Center and the address of which is
98 San Jacinto Blvd., Austin, Texas (the "Building"), which lease has been
previously amended by Acceptance of Premises memorandum dated August 23,
1993, First Amendment to Office Lease dated June 1, 1993, Second Amendment
to Office Space Lease dated November 5, 1997 and Commencement Letter dated
February 20, 1998 (collectively, the "Lease"); and
B. WHEREAS, Tenant has requested that additional space containing
approximately 5,298 square feet of Net Rentable Area described as Suite No.
200 on the second (2nd) floor of the Building shown on Exhibit A hereto
(the "Expansion Space") be added to the Original Premises and that the
Lease be appropriately amended and Landlord is willing to do the same on
the terms and conditions hereinafter set forth;
C. WHEREAS, Tenant desires to document that the lease has previously been
assigned from Drug Development Investment Corp., a Texas corporation, d/b/a
id2, Inc., and id2-I, L.P., a Texas limited partnership ("Assignor") and
Landlord's consent to said assignment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. ASSIGNMENT. Assignor hereby transfers and assigns to Tenant all
of Assignor's right, title and interest in the Lease. Tenant hereby accepts the
assignment granted herein and assumes and agrees to make all payments and to
perform all other obligations of tenant under the Lease. Landlord hereby
consents to such assignment, provided that nothing herein shall be construed as
to release Assignor from any obligations under the Lease.
II. EXPANSION AND EFFECTIVE DATE. Effective as of September 1, 1998
(the "Expansion Effective Date"), the Premises, as defined in the Lease, is
increased from 5,811 square feet of Net Rentable Area on the fourth (4th) floor
to 11,109 square feet of Net Rentable Area on the second (2nd) and fourth (4th)
floors by the addition of the Expansion Space, and from and after the Expansion
Effective Date, the Original Premises and the Expansion Space, collectively,
shall be deemed the Premises, as defined in the Lease. The Lease Term for the
<PAGE>
Expansion Space shall commence on the Expansion Effective Date and on August 31,
2003 (the "Termination Date"). The Expansion Space is subject to all the terms
and conditions of the Lease except as expressly modified herein and except that
Tenant shall not be entitled to receive any allowances, abatements or other
financial concessions granted with respect to the Original Premises unless such
concessions are expressly provided for herein with respect to the Expansion
Space.
III. BASE RENT
In addition to Tenant's obligation to pay Base Rent for the Original
Premises, Tenant shall pay Landlord the sum of Four Hundred Twenty-
Three Thousand Eight Hundred Forty and NO/100 Dollars ($423,840.00) as
Base Rent for the Expansion Space in sixty (60) monthly installments
as follows:
A. Sixty (60) equal installments of Seven Thousand Sixty-Four
and NO/100 Dollars ($7,064.00) each payable on or before the first day of each
month during the period beginning September 1, 1998 and ending August 31, 2003.
All such Base Rent shall be payable by Tenant in accordance with the
terms of the Lease.
IV. ADDITIONAL SECURITY DEPOSIT. Upon Tenant's execution hereof,
Tenant shall pay Landlord the sum of Eleven Thousand and NO/100 Dollars
($11,000.00) which is added to and becomes part of the Security Deposit held by
Landlord as provided under the Lease as security for payment of rent and the
performance of the other terms and conditions of the Lease by Tenant.
Accordingly, simultaneous with the execution hereof, the Security Deposit is
increased from $8,747.12 to $19,747.12. Notwithstanding anything stated herein
to the contrary, provided Tenant is not in default under the Lease as of the
effective date of any reduction of the Security Deposit or as of the date
Landlord is required to return such portion of the Security Deposit, Tenant
shall have the right to reduce the amount of the Security Deposit to $8,747.12
effective as of the last day of the twenty-fourth (24th) full calendar month
following the Expansion Effective Date. If Tenant is entitled to a reduction in
the Security Deposit, Tenant shall have the right to provide Landlord with
written notice requesting that the Security Deposit be reduced as provided above
(the "Reduction Notice"). If Tenant provides Landlord with a Reduction Notice,
Landlord shall refund the applicable portion of the Security Deposit to Tenant
within forty-five (45) days after the later to occur of (i) Landlord's receipt
of the Reduction Notice, or (ii) the date upon which Tenant is entitled to a
reduction in the Security Deposit as provided above.
V. TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS. For the period
commencing with the Expansion Effective Date and ending on the Termination Date,
Tenant's Proportionate Share of Operating Costs for the Expansion Space is one
and three thousand five hundred twenty-four ten-thousandths percent (1.3524%).
VI. OPERATING COSTS. For the period commencing with the Expansion
Effective Date and ending on the Termination Date, Tenant shall pay for its
Proportionate Share of Operating Costs applicable to the Expansion Space in
accordance with the terms of the Lease.
<PAGE>
VII. IMPROVEMENTS TO EXPANSION SPACE.
A. Condition of Expansion Space. Tenant has inspected the
Expansion Space and agrees to accept the same "as is" without any agreements,
representations, understandings or obligations on the part of Landlord to
perform any alterations, repairs or improvements, except as may be expressly
provided otherwise in this Amendment.
B. Cost of Improvements to Expansion Space. Provided Tenant is
not in default, Tenant shall be entitled to receive an improvement allowance
(the "Expansion Improvement Allowance") in an amount not to exceed Thirty-Nine
Thousand Seven Hundred Thirty-Five and NO/100 Dollars ($39,735.00) (i.e., $7.50
per square foot of Net Rentable Area of the Expansion Space) to be applied
toward the cost of performing initial construction, alteration or improvement of
the Expansion Space, including but not limited to the cost of space planning,
design and related architectural and engineering services. In the event the
total cost of the initial improvements to the Expansion space exceeds the
Expansion Improvement Allowance, Tenant shall pay for such excess upon demand.
The entire unused balance of the Expansion Improvement Allowance, if any, shall
accrue to the sole benefit of Landlord. Landlord shall pay such Expansion
Improvement Allowance directly to the contractors retained to perform the
construction, design or related improvement work to the Expansion Space.
C. Responsibility for improvements to Expansion Space. Any
construction, alterations or improvements to the Premises shall be performed by
Tenant using contractors selected by Tenant and approved by Landlord, which
approval shall not be unreasonable withheld or delayed, and shall be governed in
all respects by the provisions of Article 13, "Alterations and Additions by
Tenant," of the Lease.
VIII. EARLY ACCESS TO EXPANSION SPACE. During any period that Tenant
shall be permitted to enter the Expansion Space prior to the Expansion Effective
Date (e.g., to perform alterations or improvements, if any). Tenant shall
comply with all terms and provisions of the Lease, except those provisions
requiring payment of Base Rent or Additional Rent as to the Expansion Space. If
Tenant takes possession of the Expansion Space prior to the Expansion Effective
Date for any reason whatsoever (other than the performance of work in the
Expansion Space with Landlord's prior approval), such possession shall be
subject to all the terms and conditions of the Lease and this Amendment, and
Tenant shall pay Base Rent and Additional Rent as applicable to the Expansion
Space to Landlord on a per diem basis for each day of occupancy prior to the
Expansion Effective Date.
IX. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that,
effective as of the date hereof (unless different effective date(s) is/are
specifically referenced in this Section), the Lease shall be amended in the
following additional respects:
A. PARKING. Subject to the terms and conditions set forth in
Rider No. 102, "Parking" of the Lease, effective as of the Expansion Effective
Date, Landlord hereby agrees to make available to Tenant and Tenant hereby
agrees to pay for and take, during the balance of the Lease Term, six (6)
unreserved parking spaces (the "Additional Unreserved Space(s)") and two (2)
reserved parking spaces (the "Additional Reserved Space(s)") for automobiles in
the Building's parking garage. Tenant shall pay Landlord the sum of One
<PAGE>
Hundred and NO/100 Dollars ($100.00) per Additional Unreserved Space per month
plus applicable taxes and the sum of One Hundred Seventy-Five and NO/100 Dollars
($175.00) per Additional Reserved Space per month plus applicable taxes (the
parking charges for the Additional Unreserved Spaces and the Additional Reserved
Spaces are hereinafter collectively referred to as "Parking Rent"). Landlord
shall have the right to increases the Parking Rent from time to time to reflect
the rate then being charged by Landlord for parking spaces in the Building's
parking garage.
B. FINANCIAL STATEMENTS. Notwithstanding anything contained in
the Lease to the contrary, at any time during the Lease Term, Tenant shall
provide Landlord, upon ten (10) days' prior written notice from Landlord, with a
current financial statement showing, at a minimum, Tenant's then current net
worth. Such statement shall be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant.
X. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements. Under no circumstances
shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold
improvements, or other work to the Premises, or any similar economic incentives
that may have been provided Tenant in connection with entering into the Lease,
unless specifically set forth in this Amendment.
B. Except as herein modified or amended, the provisions,
conditions and terms of the Lease shall remain unchanged and in full force and
effect.
C. In the case of any inconsistency between the provisions of
the Lease and this Amendment, the provisions of this Amendment shall govern and
control.
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for such an offer by
Tenant. Landlord shall not be bound by this Amendment until Landlord has
executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the
same definition as set forth in the Lease to the extent that such capitalized
terms are defined therein and not redefined in this Amendment.
F. Tenant hereby represents to landlord that Tenant has dealt
with no broker other than Asset Investment Corp., in connection with this
Amendment. Tenant agrees to indemnify and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
mortgagee(s) and agents, and the respective principals and members of any such
agents (collectively, the "Landlord Related Parties") harmless from all claims
of any brokers other than Asset Investment Corp., claiming to have represented
Tenant in connection with this Amendment. Landlord hereby represents to Tenant
that Landlord has dealt with no broker in connection with this Amendment.
Landlord agrees to indemnify and hold Tenant, it members, principals,
beneficiaries, partners, officers, directors, employees, and agents, and the
respective principals and members of any such agents (collectively, the "Tenant
Related Parties") harmless
<PAGE>
from all claims of any brokers claiming to have represented Landlord in
connection with this Amendment.
G. This Amendment shall be of no force and effect unless and
until accepted by any guarantors of the Lease, who by signing below shall agree
that their guarantee, as restated, shall apply to the Lease as amended herein.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above written.
WITNESSES ATTESTATION LANDLORD: EOP-SAN JACINTO LIMITED
PARTNERSHIP, a Texas limited partnership
/s/ Deidre A. Hopkins
- --------------------------------
Name (print): Deidre A. Hopkins By: EOP-SAN JACINTO GP, L.L.C., a
------------------- Delaware limited liability
company, its general partner
By: EOP OPERATING LIMITED PARTNERSHIP,
- -------------------------------- a Delaware limited partnership, its
sole member
Name (print): By: Equity Office Properties Trust, a
------------------- Maryland real estate investment
trust, its managing general partner
By: /s/ Brad Fricks
--------------------------------
Name: Brad Fricks
Title: Vice President Leasing
TENANT: SENSUS DRUG DEVELOPMENT
CORPORATION, a Delaware corporation
By: /s/ Robert J. Davis
-------------------------------------
Name: Robert J. Davis
Title: Executive Vice President
/s/ Richard J. Hawkins
----------------------------------------
Name: Richard J. Hawkins
<PAGE>
RESTATED GUARANTY OF LEASE
WHEREAS, Landlord (formerly known as San Jacinto Tower Limited Partnership,
a Texas limited partnership) and Tenant (as successor in interest to Drug
Development Investment Corp., a Texas corporation, d/b/a Id/2/, Inc. and Id/2/-
I, L.P., a Texas limited partnership) are parties to that certain Lease dated
the 17th day of March, 1993, for space currently containing approximately 5,811
square feet of Net Rentable Area (the "Original Premises") described as Suite
No. 430 on the fourth (4/th/) floor of the building commonly known as San
Jacinto Center and the address of which is 98 San Jacinto Blvd, Austin, Texas
(the "Building"), which lease has been previously amended by Acceptance of
Premises Memorandum dated August 23, 1993, First Amendment to Office Lease dated
June 1, 1993. Second Amendment to Office Space Lease dated November 5, 1997 and
Commencement Letter dated February 20, 1998 (collectively, the "Lease") and
Tenant and Landlord are executing simultaneously with this Guaranty a Third
Amendment to the Lease; and
WHEREAS, Richard J. Hawkins (herein called "Guarantors" whether one or
more) has executed that certain unconditional guaranty of Lease dated November
5, 1997 (the "Guaranty") as an inducement to Landlord to lease the Premises to
Tenant; and
WHEREAS, Lessor and Lessee desire to restate the Guaranty (the "Restated
Guaranty");
NOW, THEREFORE, to induce Landlord to execute the Third Amendment, as a
material consideration and inducement therefore (recognizing without the
execution and delivery of this Restated Guaranty Landlord would not be willing
to enter into the Third Amendment), and recognizing the benefit of the Lessee to
the undersigned, the undersigned hereby agree as follows:
The undersigned (herein called "Guarantors" whether one or more), hereby
unconditionally, jointly and severally guarantee performance and observance by
Tenant of all the monetary obligations, duties, covenants, agreements and
conditions provided in the Lease, as same may hereafter be amended from time to
time, to be performed or observed by Tenant during the term of the Lease
(including specifically and without limiting the generality of the foregoing,
payment by Tenant of all rental and other amounts and damages of whatsoever kind
or nature which may be or become due from Tenant under the terms of or in
connection with the Lease). This guaranty is unconditional and the liability of
Guarantors shall be absolute, in the same manner as if Guarantors, jointly and
severally, were named in and had signed the Lease as "Tenant" thereunder.
Guarantors agree that bankruptcy, insolvency, lack of corporate capacity or any
other disability or impediment against enforcement of full liability of Tenant
named in the Lease shall in no way impact or affect Guarantors' liability and
obligation hereunder, and, without limitation of the foregoing. Guarantors
agree that in the event that Tenant shall become insolvent or shall be
adjudicated a bankrupt, or shall file a petition for reorganization, arrangement
or other relief under any present or future provisions of the Bankruptcy Code,
or if such a petition be filed by creditors of Tenant, or if Tenant shall seek a
judicial readjustment of the rights of its creditors under any present or future
federal or state law or if a receiver of all or part of Tenant's property and
assets is appointed by any state or federal court, no such
<PAGE>
proceeding or action taken therein shall modify, diminish or in any way affect
the liability of Guarantors under this Guaranty, and the liability of Guarantors
for the Tenant's monetary obligations under the Lease shall be of the same scope
as if Guarantors had themselves, jointly and severally, executed the Lease, and
no "rejection" and/or "termination" of the Lease in any of the proceedings
referred to above shall be effective to limit, release and/or terminate the
continuing liability of Guarantors to Landlord under this guaranty with respect
to the Lease and such liability of Guarantors shall be unaffected by any such
"rejection" and/or "termination" in said proceedings, it shall not be necessary
or required in order to maintain and enforce Guarantors' liability hereunder
that demand be made upon Tenant or that action be commenced or prosecuted
against Tenant or that any effort be made to enforce the liability or
responsibility of Tenant for performance of its obligations or duties under or
in connection with the Lease, and it shall not be required that Tenant or any
other party liable on such lease be joined in any action brought against
Guarantors for enforcement of Guarantors' liability and responsibility under
this guaranty or that judgment have theretofore been obtained against Tenant or
any other party liable therefor on or in connection with any such claim.
Guarantors agree that no waiver by Landlord or forbearance or delay by Landlord
in asserting or enforcing any rights or remedies of Landlord against or with
respect to Tenant or any other party who may be or becomes responsible for
performance of any of such Tenant's obligations or duties shall in any way
affect, impair or release Guarantors' liability hereunder. Likewise, Guarantors
agree that no assignment or subletting of the Lease or of all or any part of the
leased premises by such Tenant shall in any way impair, affect or release
Guarantors' liability hereunder. Guarantors expressly waive and agree that no
notice of default by Tenant or other notice or demand need be given by Landlord
to Guarantors as a condition of maintaining or enforcing Guarantors' liability
and obligations under this guaranty. Guarantors expressly agree that no notice
of amendment or modification of the Lease need be given by Landlord or Tenant to
Guarantors as a condition of maintaining or enforcing Guarantors' liability and
obligations under this guaranty. Guarantors expressly agree that any amendment
or modification of the Lease may be made by Landlord and Tenant, as provided in
such Lease, with or without the approval of Guarantors, and that any such
amendment will be deemed part of the Lease for purposes of this guaranty.
Likewise, Guarantors agree that Landlord's release or subordination or failure
or delay to enforce or seek to realize upon any security now or hereafter held
or acquired by Landlord for performance of any of the obligations or duties of
Tenant under or in connection with the Lease shall in no way impair, affect or
release Guarantors' liability hereunder, and that Landlord's action (at
Landlord's election) in terminating such Lease or in taking or retaking
possession of the leased premises as therein provided following default by
Tenant shall not release or impair Guarantors' liability hereunder and that no
notice of such termination or of such entry or re-entry by landlord need be
given to Guarantors. Without limitation of anything herein to the contrary,
Guarantors agree that any waiver by Lessor or forbearance or failure or delay by
Lessor in asserting or enforcing its rights against any of the undersigned under
this guaranty shall in no way affect, impair or release the liability of any of
the other Guarantors hereunder.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF
GUARANTOR HEREUNDER SHALL BE LIMITED TO $112,695.37, PLUS ALL COSTS, INCLUDING
WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES, INCURRED IN ENFORCING THIS
GUARANTY (THE "GUARANTEED AMOUNT"). THE GUARANTEED AMOUNT SHALL BE REDUCED BY
AN AMOUNT EQUAL TO ONE MONTH'S BASE RENT FOR EACH
<PAGE>
FULL MONTH OF THE LEASE TERM, OR ANY EXTENSION THEEOF, IN WHICH TENANT PERFORMS
ALL OF ITS MONETARY OBLIGATIONS UNDER THE LEASE. LANDLORD AGREES THAT IT WILL
RELEASE THIS GUARANTY OF LEASE IF AT ANY TIME DURING THE LEASE TERM LANDLORD
RECEIVES AUDITED FINANCIAL STATEMENTS SHOWING THAT SENSUS DRUG DEVELOPMENT
CORPORATION, A DELAWARE CORPORATION HAS A NET WORTH OF AT LEAST $10,000,000.00,
PROVIDED THAT THIS GUARANTY SHALL BE REINSTATED IF AT ANY TIME THEREAFTER SENSUS
DRUG DEVELOPMENT CORPORATION'S NET WORTH FALLS BELOW $10,000,000.00 AND IN SUCH
EVENT THE UNDERSIGNED GUARANTOR AGREES TO EXECUTE A NEW GUARANTY OF LEASE IN
SUBSTANTIALLY THE SAME FORM AS THIS GUARANTY OF LEASE, PROVIDED FURTHER THAT
SUCH REINSTATED GUARANTY OF LEASE SHALL BE IN AN AMOUNT REDUCED AS APPLICABLE IN
ACCORDANCE WITH THE FOREGOING PROVISION.
This guaranty shall be enforceable and shall be performed in Travis County,
Texas.
WITNESS the execution hereof effective as of the date of execution and
delivery of the Second Amendment.
ADDRESS: /s/ Richard J. Hawkins
------------------------------------
Name: Richard J. Hawkins
98 San Jacinto Blvd. #430
- -------------------------
Austin, TX 78701
- -------------------------
<PAGE>
EXHIBIT 10.19
SENSUS DRUG DEVELOPMENT CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
CHAIRMAN OF THE BOARD
This Employment Agreement ("Agreement") is entered into as of the 15th day
of September, 1998, by and between Richard J. Hawkins ("Executive") and SENSUS
DRUG DEVELOPMENT CORPORATION, a Delaware corporation ("SENSUS" or the
"Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company agrees to continue
to employ Executive in the position of Chairman of the Board and Executive
hereby accepts continued employment effective as of the closing of the Company's
initial public offering (the "Employment Date"). During his employment with the
Company, Executive will devote his best efforts and such portion of his business
time and attention (except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by the Company's
general employment policies) as may be reasonable, necessary and appropriate to
attend to the business of the Company.
1.2 Executive will continue to serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the by-laws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall continue to receive for services to be
rendered hereunder an annualized base salary of $200,000 payable on a monthly
basis. Executive will be considered for annual increases in base salary in
accordance with Company policy and subject to
1.
<PAGE>
review and approval by the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee").
2.2 BONUS. The Company does not now have a bonus plan or pay bonuses
to executives generally. The Compensation Committee of the Company's Board of
Directors may in the future adopt such plans or policies with respect to the
payment of bonuses, if any, as it determines in its discretion to be
appropriate. In such event, Executive will be considered for eligibility to
receive bonuses in such amounts and subject to such terms as may be determined
solely by the Compensation Committee in its discretion. Payments of such
bonuses, if any, may be subject to the following criteria:
(a) COMPANY FINANCIAL GOALS. Attainment by the Company of its
planned financial objectives for the bonus year; and
(b) EXECUTIVE'S PERFORMANCE. Demonstrated performance by
Executive over and above that required to meet the ordinary expectations of his
job position, as determined by the Company's Compensation Committee in its sole
discretion.
Upon Executive's termination with Cause or resignation without Good Reason
from his employment with the Company, no prorated bonus for that bonus year can
be earned. Upon termination of Executive's employment by the Company without
Cause or resignation by the Executive with Good Reason, the Executive shall be
eligible for a prorated bonus for that bonus year.
2.3 STOCK OPTIONS. Executive and the Company each acknowledge that
Executive's outstanding stock options(s) (the "Options") shall remain in effect
and continue to vest during the period of Executive's employment with the
Company pursuant to the terms of the Options; provided, however, that (except as
otherwise provided by Section 6.3) upon Executive's termination with Cause or
resignation without Good Reason from his employment with the Company, the
Options shall cease vesting as of the termination or resignation date and be
exercisable thereafter only pursuant to the terms of the Options and the
Company's applicable stock option plans. Upon involuntary termination of
Executive's employment by the Company without Cause or resignation by the
Executive with Good Reason, all Options held by Executive shall have their
vesting accelerated in full so as to become one hundred percent (100%) vested
and immediately exercisable in full as of the date of such termination. Subject
to the Compensation Committee's approval, Executive will be considered for
additional grants of options to purchase shares of the Company, pursuant to the
terms and conditions set forth in the Company's stock option plans, copies of
which are available upon Executive's request, or any such plans generally
applicable to executives of the Company and adopted in the future.
2.4 STANDARD COMPANY BENEFITS. Executive shall continue to be
entitled to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which may
be in effect from time to time and provided by the Company to its executive
employees generally.
2.
<PAGE>
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Both during and after Executive's employment,
Executive will continue to refrain from any use or disclosure of the Company's
proprietary or confidential information or materials pursuant to his Proprietary
Information and Inventions Agreement executed by him on September 15, 1998.
Executive's Proprietary Information and Inventions Agreement is hereby
incorporated into this Agreement and a copy is attached hereto as Exhibit A.
3.2 REMEDIES. Executive's duties under the Proprietary Information
and Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of
Directors, which consent shall not be unreasonably withheld, Executive will not
during his employment with the Company undertake or engage in any other
employment, occupation or business enterprise, other than: (a) ones in which
Executive is a passive investor; (b) civic and not-for-profit activities so long
as such activities do not materially interfere with the performance of his
duties hereunder; and (c) Executive's service as a member of the Board of
Directors of Covance Biotechnology Services, Inc., and as the Chairman of
Recombinant Generics, Inc. and Innovations in Drug Development (id2), as a
General Partner of id2-I, L.P. and as an outside director on the boards of other
companies, provided, however, that Executive shall not spend more than fifteen
(15) hours during business days on the activities described in this clause (c)
during any thirty (30) day period.
4.2 Except as permitted by Section 4.3, during his employment with
the Company, Executive agrees not to acquire, assume or participate in, directly
or indirectly, any position, investment or interest known by him to be adverse
or antagonistic to the Company, its business or prospects, financial or
otherwise.
4.3 During his employment with the Company, except on behalf of the
Company, Executive will not directly or indirectly, whether as an officer,
director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than 1% of the voting stock of such corporation.
3.
<PAGE>
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITH OR WITHOUT CAUSE.
(a) Executive's relationship with the Company is at-will. The
Company shall have the right to terminate Executive's employment with the
Company at any time with or without Cause and with or without notice, provided
that Executive may be removed from his position as a member of the Company's
Board of Directors only in the manner provided by the Company's by-laws and
applicable law.
(b) For purposes of this Agreement, "Cause" will exist if
Executive has committed or there has occurred one or more of the following: (i)
indictment or conviction of any felony or of any crime involving dishonesty or
moral turpitude; (ii) participation in any material fraud or act of dishonesty
against the Company; (iii) significant material breach of Executive's duties to
the Company; (iv) intentional material damage to any property of the Company; or
(v) material breach of this Agreement or of Executive's Proprietary Information
and Inventions Agreement attached hereto as Exhibit A. If the Company determines
"Cause" based upon clause (iii) or (v) above, the Company shall give Executive
reasonable notice of such significant material breach and Executive shall have a
reasonable period of time under the circumstances to cure such significant
material breach, unless cure of such significant material breach is not
possible.
(c) If the Company terminates Executive's employment at any time
for Cause, Executive's salary shall cease on and be paid through the date of
termination, and Executive will not be entitled to severance pay, pay in lieu of
notice or any other such compensation.
5.2 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the
Company at any time without notice, after which no further compensation will be
paid to Executive, unless such termination is for Good Reason.
(b) In the event Executive voluntarily terminates his employment
other than for Good Reason, he will not be entitled to severance pay, pay in
lieu of notice or any other such compensation.
(c) For purposes of this Agreement, "Good Reason" shall mean any
one of the following events which occurs on or after the Effective Date of this
Agreement: (i) reduction of Executive's then annual base salary by greater than
ten percent (10%), unless (A) such reduction occurs more than one hundred eighty
(180) days after a Change in Control and (B) the annual base salaries of all
other executive officers of the Company are concurrently reduced by greater than
ten percent (10%); (ii) material reduction in the package of welfare benefit
plans, taken as a whole, provided to the Executive (except that employee
contributions may be raised to the extent of any cost increases imposed by third
parties) or any action by the Company which would materially adversely affect
the Executive's participation or reduce the Executive's benefits under any such
plans; (iii) change in the Executive's responsibilities, authority, title,
reporting relationship or offices that results in a significant diminution of
position
4.
<PAGE>
under the circumstances, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith which is remedied by the Company
promptly after notice thereof is given by the Executive; (iv) request that the
Executive relocate to a work site that is more than 35 miles from his then
current work site, (v) any breach by the Company of any material provision of
this Agreement; or (vi) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company.
5.3 SEVERANCE PAYMENT.
(a) In the event the Company terminates Executive's employment
without Cause or if Executive terminates his employment for Good Reason, the
Company shall pay monthly an amount equivalent to Executive's base salary and
the value of Executive's then current benefits, less standard withholdings and
deductions, from the date of termination for a period of eighteen (18) months,
provided that any income received from alternative employment during the final
six (6) months of the severance period will offset and reduce any amount paid by
the Company to Executive during such final six (6) month period, excluding fees
for serving solely as an outside director.
(b) Executive's outstanding Options shall have their vesting
accelerated in full so as to become one hundred percent (100%) vested and fully
exercisable as of the date of termination.
5.4 CESSATION. If Executive violates any provision of Sections 7 or
8, below, any severance payment being made to Executive will cease immediately,
and Executive will not be entitled to any further compensation from the Company.
6. CHANGE OF CONTROL.
6.1 DEFINITION. For purpose of this Agreement, "Change of Control"
means the occurrence of any of the following:
(a) the closing of a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the effective date of a plan of liquidation or dissolution of
the Company or the closing of the sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all (more than fifty percent
(50%)) of the Company's assets;
(b) any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), is or
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of fifty percent (50%) or more of the Company's outstanding common
stock; or
5.
<PAGE>
(c) a change in the composition of the Board within a three (3)
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either:
(i) are directors of the Company as of the date hereof;
(ii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) above at the time of such
election or nomination; or
(iii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) or (ii) above at the time
of such election or nomination.
Notwithstanding the foregoing, "Incumbent Directors." shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.
6.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event the
Company terminates Executive's employment without Cause or if Executive
terminates his employment for Good Reason in connection with or following a
Change of Control, the Company shall pay monthly an amount equivalent to
Executive's base salary and the value of Executive's then current benefits, less
standard withholdings and deductions, from the date of termination for a period
of eighteen (18) months, provided that any income received from alternative
employment during the final six (6) months of the severance period will offset
and reduce any amount paid by the Company to Executive during such final six (6)
month period.
6.3 STOCK OPTIONS. In the event of a Change of Control, Executive's
outstanding Options shall have their vesting accelerated in full so as to become
one hundred percent (100%) vested and immediately exercisable immediately prior
to the Change of Control, unless the acquiring entity assumes such Options or
substitutes similar options for Executive's Options.
6.4 PARACHUTE PAYMENTS.
(a) In the event that the severance, acceleration of stock
options and other benefits provided for in this Agreement or otherwise payable
to Executive (i) constitute "parachute payments" within the meaning of Section
280G (as it may be amended or replaced) of the Internal Revenue Code of 1986, as
amended or replaced (the "Code") and (ii) but for this Section 6.4, would be
subject to the excise tax imposed by Section 4999 (as it may be amended or
replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder
shall be either
(b) delivered in full, or
(c) delivered only as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local
6.
<PAGE>
income taxes and the Excise Tax, results in the receipt by Executive on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under the Excise Tax. Unless the
Company and Executive otherwise agree in writing, any determination required
under this Section 6.4 shall be made in writing in good faith by the Company's
independent public accountants (the "Accountants"). In the event of a reduction
in benefits hereunder, Executive shall be given the choice of which benefits to
reduce. For purposes of making the calculations required by this Section 6.4,
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code. The Company and Executive shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section 6.4. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 6.4.
7. RESTRICTIVE COVENANT. In the event Executive voluntarily terminates
his employment with the Company without Good Reason or his employment is
terminated for Cause, then for eighteen (18) months immediately following the
termination date, Executive shall not, without first obtaining the prior written
approval of the Company, accept employment or establish a business relationship
with either Novartis Pharmaceuticals Corporation or Beaufort-Ipsen insofar as
such employment or business relationship relates to acromegaly, including the
development or commercialization of a drug or other therapy for the treatment of
acromegaly.
8. NONINTERFERENCE.
While employed by the Company, and for two (2) years immediately following
the Termination Date, Executive agrees not to interfere with the business of the
Company by:
(a) soliciting, attempting to solicit, inducing, or otherwise causing
any employee of the Company to terminate his or her employment in order to
become an employee, consultant or independent contractor to or for any
competitor of the Company; or
(b) directly or indirectly soliciting the business of any customer of
the Company which at the time of termination or one year immediately prior
thereto was listed on the Company's customer list.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile transmission or the third day after mailing by
first class mail, to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
9.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed,
7.
<PAGE>
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provisions had never been contained herein.
9.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.4 COMPLETE AGREEMENT. This Agreement, together with Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement and supersedes any
prior agreement written or otherwise between Executive and the Company with
regard to this subject matter. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
9.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.8 ATTORNEY FEES. If the Executive hereto brings any action or
arbitration to enforce his rights hereunder, and is the prevailing party in any
such action, he shall be entitled to recover his reasonable attorneys' fees and
costs incurred in connection with such action.
9.9 ARBITRATION. To ensure rapid and economical resolution of any
and all disputes that may arise in connection with the Agreement, the Executive
and the Company agree that, at the option of the Executive, any and all
disputes, claims, causes of action, in law or equity, arising from or relating
to this Agreement or its enforcement, performance, breach, or interpretation,
will be resolved, to the fullest extent permitted by law, by final and binding
confidential arbitration held in Austin, Texas and conducted by Judicial
Arbitration & Mediation Services/Endispute ("JAMS"), under its then-existing
Rules and Procedures. Nothing in this paragraph is intended to prevent either
the Executive or the Company from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration. The
Company shall be solely responsible for payment of any and all JAMS fees and
costs for any such arbitration proceedings. If for any reason all or part of
this arbitration provision is held to be invalid or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity or
unenforceability will not affect any other portion of this arbitration
provision, but this provision will be reformed, construed and enforced in such
jurisdiction to render such
8.
<PAGE>
invalid or unenforceable part or parts of this provision consistent with the
general intent of the parties insofar as possible.
9.10 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Texas.
9.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
SENSUS DRUG DEVELOPMENT CORPORATION
By: /s/ John A. Scarlett
----------------------
Date: September 15, 1998
Accepted and agreed this
15th day of September, 1998.
/s/ Richard J. Hawkins
--------------------------
Richard J. Hawkins
10.
<PAGE>
EXHIBIT 10.20
SENSUS DRUG DEVELOPMENT CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
This Employment Agreement ("Agreement") is entered into as of the 15th day
of September, 1998, by and between John A. Scarlett, MD ("Executive") and SENSUS
DRUG DEVELOPMENT CORPORATION, a Delaware corporation ("SENSUS" or the
"Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company agrees to continue
to employ Executive in the position of President and Chief Executive Officer and
Executive hereby accepts continued employment effective as of the closing of the
Company's initial public offering (the "Employment Date"). During his
employment with the Company, Executive will devote his best efforts and such
portion of his business time and attention (except for vacation periods as set
forth herein and reasonable periods of illness or other incapacities permitted
by the Company's general employment policies) as may be reasonable, necessary
and appropriate to attend to the business of the Company.
1.2 Executive will continue to serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the by-laws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall continue to receive for services to be
rendered hereunder an annualized base salary of $280,000 payable on a monthly
basis. Executive will be considered for annual increases in base salary in
accordance with Company policy and subject to
1.
<PAGE>
review and approval by the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee").
2.2 BONUS. The Company does not now have a bonus plan or pay bonuses
to executives generally. The Compensation Committee of the Company's Board of
Directors may in the future adopt such plans or policies with respect to the
payment of bonuses, if any, as it determines in its discretion to be
appropriate. In such event, Executive will be considered for eligibility to
receive bonuses in such amounts and subject to such terms as may be determined
solely by the Compensation Committee in its discretion. Payments of such
bonuses, if any, may be subject to the following criteria:
(a) COMPANY FINANCIAL GOALS. Attainment by the Company of its
planned financial objectives for the bonus year; and
(b) EXECUTIVE'S PERFORMANCE. Demonstrated performance by
Executive over and above that required to meet the ordinary expectations of his
job position, as determined by the Company's Compensation Committee in its sole
discretion.
Upon Executive's termination with Cause or resignation without Good Reason from
his employment with the Company, no prorated bonus for that bonus year can be
earned. Upon termination of Executive's employment by the Company without Cause
or resignation by the Executive with Good Reason, the Executive shall be
eligible for a prorated bonus for that bonus year.
2.3 STOCK OPTIONS. Executive and the Company each acknowledge that
Executive's outstanding stock options(s) (the "Options") shall remain in effect
and continue to vest during the period of Executive's employment with the
Company pursuant to the terms of the Options; provided, however, that (except as
otherwise provided by Section 6.3) upon Executive's termination with Cause or
resignation without Good Reason from his employment with the Company, the
Options shall cease vesting as of the termination or resignation date and be
exercisable thereafter only pursuant to the terms of the Options and the
Company's applicable stock option plans. Upon involuntary termination of
Executive's employment by the Company without Cause or resignation by the
Executive with Good Reason, all Options held by Executive shall have their
vesting accelerated in full so as to become one hundred percent (100%) vested
and immediately exercisable in full as of the date of such termination. Subject
to the Compensation Committee's approval, Executive will be considered for
additional grants of options to purchase shares of the Company, pursuant to the
terms and conditions set forth in the Company's stock option plans, copies of
which are available upon Executive's request, or any such plans generally
applicable to executives of the Company and adopted in the future.
2.4 STANDARD COMPANY BENEFITS. Executive shall continue to be
entitled to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which may
be in effect from time to time and provided by the Company to its executive
employees generally.
2.
<PAGE>
2.5 AUTOMOBILE. The Company shall continue to reimburse Executive
for vehicle lease or purchase payments of up to $1400/month and for the
vehicle's operating expenses (including but not limited to insurance coverage,
fuel, maintenance and repairs).
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Both during and after Executive's employment,
Executive will continue to refrain from any use or disclosure of the Company's
proprietary or confidential information or materials pursuant to his Proprietary
Information and Inventions Agreement executed by him on September 15, 1998
Executive's Proprietary Information and Inventions Agreement is hereby
incorporated into this Agreement and a copy is attached hereto as Exhibit A.
3.2 REMEDIES. Executive's duties under the Proprietary Information
and Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of
Directors, which consent shall not be unreasonably withheld, Executive will not
during his employment with the Company undertake or engage in any other
employment, occupation or business enterprise, other than: (a) ones in which
Executive is a passive investor; (b) civic and not-for-profit activities so long
as such activities do not materially interfere with the performance of his
duties hereunder; and (c) Executive's service as a member of the Board of
Directors of Covance Biotechnology Services, Inc. and CRO One, Inc. and as the
President, Chief Executive Officer and a Director of Recombinant Generics, Inc.
and Innovations in Drug Development (id2), as a General Partner of id2-I, L.P.
and as an outside director on the boards of other companies, provided, however,
that Executive shall not spend more than ten (10) hours during business days on
the activities described in this clause (c) during any thirty (30) day period.
4.2 Except as permitted by Section 4.3, during his employment with
the Company, Executive agrees not to acquire, assume or participate in, directly
or indirectly, any position, investment or interest known by him to be adverse
or antagonistic to the Company, its business or prospects, financial or
otherwise.
4.3 During his employment with the Company, except on behalf of the
Company, Executive will not directly or indirectly, whether as an officer,
director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor
3.
<PAGE>
corporation, so long as his direct holdings in any one such corporation shall
not in the aggregate constitute more than 1% of the voting stock of such
corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITH OR WITHOUT CAUSE.
(a) Executive's relationship with the Company is at-will. The
Company shall have the right to terminate Executive's employment with the
Company at any time with or without Cause and with or without notice, provided
that Executive may be removed from his position as a member of the Company's
Board of Directors only in the manner provided by the Company's by-laws and
applicable law.
(b) For purposes of this Agreement, "Cause" will exist if
Executive has committed or there has occurred one or more of the following: (i)
indictment or conviction of any felony or of any crime involving dishonesty or
moral turpitude; (ii) participation in any material fraud or act of dishonesty
against the Company; (iii) significant material breach of Executive's duties to
the Company; (iv) intentional material damage to any property of the Company; or
(v) material breach of this Agreement or of Executive's Proprietary Information
and Inventions Agreement attached hereto as Exhibit A. If the Company determines
"Cause" based upon clause (iii) or (v) above, the Company shall give Executive
reasonable notice of such significant material breach and Executive shall have a
reasonable period of time under the circumstances to cure such significant
material breach, unless cure of such significant material breach is not
possible.
(c) If the Company terminates Executive's employment at any time
for Cause, Executive's salary shall cease on and be paid through the date of
termination, and Executive will not be entitled to severance pay, pay in lieu of
notice or any other such compensation.
5.2 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the
Company at any time without notice, after which no further compensation will be
paid to Executive, unless such termination is for Good Reason.
(b) In the event Executive voluntarily terminates his employment
other than for Good Reason, he will not be entitled to severance pay, pay in
lieu of notice or any other such compensation.
(c) For purposes of this Agreement, "Good Reason" shall mean any
one of the following events which occurs on or after the Effective Date of this
Agreement: (i) reduction of Executive's then annual base salary by greater than
ten percent (10%), unless (A) such reduction occurs more than one hundred eighty
(180) days after a Change in Control and (B) the annual base salaries of all
other executive officers of the Company are concurrently reduced by greater than
ten percent (10%); (ii) material reduction in the package of welfare benefit
plans, taken as a whole, provided to the Executive (except that employee
contributions may be raised to the extent of any cost increases imposed by third
parties) or any action by the
4.
<PAGE>
Company which would materially adversely affect the Executive's participation or
reduce the Executive's benefits under any such plans; (iii) change in the
Executive's responsibilities, authority, title, reporting relationship or
offices that results in a significant diminution of position under the
circumstances, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith which is remedied by the Company
promptly after notice thereof is given by the Executive; (iv) request that the
Executive relocate to a work site that is more than 35 miles from his then
current work site; (v) any breach by the Company of any material provision of
this Agreement; or (vi) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company.
5.3 SEVERANCE PAYMENT.
(a) In the event the Company terminates Executive's employment
without Cause or if Executive terminates his employment for Good Reason, the
Company shall pay monthly an amount equivalent to Executive's base salary and
the value of Executive's then current benefits, less standard withholdings and
deductions, from the date of termination for a period of eighteen (18) months,
provided that any income received from alternative employment during the final
six (6) months of the severance period will offset and reduce any amount paid by
the Company to Executive during such final six (6) month period, excluding fees
for serving solely as an outside director.
(b) Executive's outstanding Options shall have their vesting
accelerated in full so as to become one hundred percent (100%) vested and fully
exercisable as of the date of termination.
5.4 CESSATION. If Executive violates any provision of Sections 7 or
8, below, any severance payment being made to Executive will cease immediately,
and Executive will not be entitled to any further compensation from the Company.
6. CHANGE OF CONTROL.
6.1 DEFINITION. For purpose of this Agreement, "Change of Control"
means the occurrence of any of the following:
(a) the closing of a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the effective date of a plan of liquidation or dissolution of
the Company or the closing of the sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all (more than fifty percent
(50%)) of the Company's assets;
(b) any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), is or
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of fifty percent (50%) or more of the Company's outstanding common
stock; or
5.
<PAGE>
(c) a change in the composition of the Board within a three (3)
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either:
(i) are directors of the Company as of the date hereof;
(ii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) above at the time of such
election or nomination; or
(iii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) or (ii) above at the time
of such election or nomination.
Notwithstanding the foregoing, "Incumbent Directors" shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.
6.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event the
Company terminates Executive's employment without Cause or if Executive
terminates his employment for Good Reason in connection with or following a
Change of Control, the Company shall pay monthly an amount equivalent to
Executive's base salary and the value of Executive's then current benefits, less
standard withholdings and deductions, from the date of termination for a period
of eighteen (18) months, provided that any income received from alternative
employment during the final six (6) months of the severance period will offset
and reduce any amount paid by the Company to Executive during such final six (6)
month period.
6.3 STOCK OPTIONS. In the event of a Change of Control, Executive's
outstanding Options shall have their vesting accelerated in full so as to become
one hundred percent (100%) vested and immediately exercisable immediately prior
to the Change of Control, unless the acquiring entity assumes such Options or
substitutes similar options for Executive's Options.
6.4 PARACHUTE PAYMENTS. In the event that the severance,
acceleration of stock options and other benefits provided for in this Agreement
or otherwise payable to Executive (i) constitute "parachute payments" within the
meaning of Section 280G (as it may be amended or replaced) of the Internal
Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 6.4, would be subject to the excise tax imposed by Section 4999 (as it
may be amended or replaced) of the Code (the "Excise Tax"), then Executive's
benefits hereunder shall be either:
(a) delivered in full, or
(b) delivered only as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Executive on an after-tax basis, of the
6.
<PAGE>
greatest amount of benefits, notwithstanding that all or some portion of such
benefits may be taxable under the Excise Tax. Unless the Company and Executive
otherwise agree in writing, any determination required under this Section 6.4
shall be made in writing in good faith by the Company's independent public
accountants (the "Accountants"). In the event of a reduction in benefits
hereunder, Executive shall be given the choice of which benefits to reduce. For
purposes of making the calculations required by this Section 6.4, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code. The Company and Executive shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section 6.4. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 6.4.
7. RESTRICTIVE COVENANT. In the event Executive voluntarily terminates
his employment with the Company without Good Reason or his employment is
terminated for Cause, then for eighteen (18) months immediately following the
termination date, Executive shall not, without first obtaining the prior written
approval of the Company, accept employment or establish a business relationship
with either Novartis Pharmaceuticals Corporation or Beaufort-Ipsen insofar as
such employment or business relationship relates to acromegaly, including the
development or commercialization of a drug or other therapy for the treatment of
acromegaly.
8. NONINTERFERENCE.
While employed by the Company, and for two (2) years immediately following
the Termination Date, Executive agrees not to interfere with the business of the
Company by:
(a) soliciting, attempting to solicit, inducing, or otherwise causing
any employee of the Company to terminate his or her employment in order to
become an employee, consultant or independent contractor to or for any
competitor of the Company; or
(b) directly or indirectly soliciting the business of any customer of
the Company which at the time of termination or one year immediately prior
thereto was listed on the Company's customer list.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile transmission or the third day after mailing by
first class mail) to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
9.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed,
7.
<PAGE>
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provisions had never been contained herein.
9.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.4 COMPLETE AGREEMENT. This Agreement, together with Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement and supersedes any
prior agreement written or otherwise between Executive and the Company with
regard to this subject matter. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
9.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.8 ATTORNEY FEES. If the Executive hereto brings any action or
arbitration to enforce his rights hereunder, and is the prevailing party in any
such action, he shall be entitled to recover his reasonable attorneys' fees and
costs incurred in connection with such action.
9.9 ARBITRATION. To ensure rapid and economical resolution of any
and all disputes that may arise in connection with the Agreement, the Executive
and the Company agree that, at the option of the Executive, any and all
disputes, claims, causes of action, in law or equity, arising from or relating
to this Agreement or its enforcement, performance, breach, or interpretation
will be resolved, to the fullest extent permitted by law, by final and binding
confidential arbitration held in Austin, Texas and conducted by Judicial
Arbitration & Mediation Services/Endispute ("JAMS"), under its then-existing
Rules and Procedures. Nothing in this paragraph is intended to prevent either
the Executive or the Company from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration. The
Company shall be solely responsible for payment of any and all JAMS fees and
costs for any such arbitration proceedings. If for any reason all or part of
this arbitration provision is held to be invalid or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity or
unenforceability will not affect any other portion of this arbitration
provision, but this provision will be reformed, construed and enforced in such
jurisdiction to render such
8.
<PAGE>
invalid or unenforceable part or parts of this provision consistent with the
general intent of the parties insofar as possible.
9.10 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Texas.
9.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
SENSUS DRUG DEVELOPMENT CORPORATION
By: /s/ Richard J. Hawkins
----------------------
Richard J. Hawkins
Chairman
Date: September 15, 1998
Accepted and agreed this
15th day of September, 1998.
/s/ John A. Scarlett
----------------------
John A. Scarlett, MD
10.
<PAGE>
EXHIBIT 10.21
SENSUS DRUG DEVELOPMENT CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
[EXECUTIVE VICE PRESIDENT] [SENIOR VICE PRESIDENT, SALES &
MARKETING] [SENIOR VICE PRESIDENT, OPERATIONS] [SENIOR VICE
PRESIDENT, RESEARCH AND MANUFACTURING] [SENIOR VICE
PRESIDENT, FINANCE AND ADMINISTRATION, CHIEF
FINANCIAL OFFICER AND SECRETARY]
This Employment Agreement ("Agreement") is entered into as of the 15th day
of September, 1998, by and between ___________________ ("Executive") and SENSUS
DRUG DEVELOPMENT CORPORATION, a Delaware corporation ("SENSUS" or the
"Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company agrees to continue
to employ Executive in the position of _______________ and Executive hereby
accepts continued employment effective as of the closing of the Company's
initial public offering (the "Employment Date"). During his employment with the
Company, Executive will devote his best efforts and substantially all of his
business time and attention (except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by the Company's
general employment policies) to the business of the Company.
1.2 Executive will continue to serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the by-laws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions,
1.
<PAGE>
except that when the terms of this Agreement differ from or are in conflict with
the Company's general employment policies or practices, this Agreement shall
control.
2. COMPENSATION.
2.1 SALARY. Executive shall continue to receive for services to be
rendered hereunder an annualized base salary of [EXHIBIT A], payable on a
monthly basis. Executive will be considered for annual increases in base salary
in accordance with Company policy and subject to review and approval by the
Compensation Committee of the Company's Board of Directors (the "Compensation
Committee").
2.2 BONUS. The Company does not now have a bonus plan or pay bonuses
to executives generally. The Compensation Committee of the Company's Board of
Directors may in the future adopt such plans or policies with respect to the
payment of bonuses, if any, as it determines in its discretion to be
appropriate. In such event, Executive will be considered for eligibility to
receive bonuses in such amounts and subject to such terms as may be determined
solely by the Compensation Committee in its discretion. Payments of such
bonuses, if any, may be subject to the following criteria:
(a) COMPANY FINANCIAL GOALS. Attainment by the Company of its
planned financial objectives for the bonus year; and
(b) EXECUTIVE'S PERFORMANCE. Demonstrated performance by
Executive over and above that required to meet the ordinary expectations of his
job position, as determined by the Company's Compensation Committee in its sole
discretion.
(c) Upon Executive's termination with Cause or resignation
without Good Reason from his employment with the Company, no prorated bonus for
that bonus year can be earned. Upon termination of Executive's employment by the
Company without Cause or resignation by the Executive with Good Reason, the
Executive shall be eligible for a prorated bonus for that bonus year.
2.3 STOCK OPTIONS. Executive and the Company each acknowledge that
Executive's outstanding stock options(s) (the "Options") shall remain in effect
and continue to vest during the period of Executive's employment with the
Company pursuant to the terms of the Options; provided, however, that (except as
otherwise provided by Section 6.3) upon Executive's termination with Cause or
resignation without Good Reason from his employment with the Company, the
Options shall cease vesting as of the termination or resignation date and be
exercisable thereafter only pursuant to the terms of the Options and the
Company's applicable stock option plans. Upon involuntary termination of
Executive's employment by the Company without Cause or resignation by the
Executive with Good Reason, all Options held by Executive shall have their
vesting accelerated in full so as to become one hundred percent (100%) vested
and immediately exercisable in full as of the date of such termination. Subject
to the Compensation Committee's approval, Executive will be considered for
additional grants of options to purchase shares of the Company, pursuant to the
terms and conditions set forth in the
2.
<PAGE>
Company's stock option plans, copies of which are available upon Executive's
request, or any such plans generally applicable to executives of the Company and
adopted in the future.
2.4 STANDARD COMPANY BENEFITS. Executive shall continue to be
entitled to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which may
be in effect from time to time and provided by the Company to its executive
employees generally.
2.5 RELOCATION. In the event Executive is relocated by the Company,
Executive shall be reimbursed for the cost of moving normal household goods and
vehicles, real estate commissions, and reasonable closing costs on both
Executive's old home and Executive's new home (excluding loan prepayment
penalties and new loan points). The Company also will pay for househunting
visits by Executive and Executive's immediate family, including airfare, lodging
and meal expenses for up to five (5) days. The Company also will reimburse
Executive for any state and federal income taxes incurred as a result of
accepting the outlined relocation benefits. Should Executive be eligible to
receive such relocation benefits, he will be required at that time to sign a
relocation agreement with the Company.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Both during and after Executive's employment,
Executive will continue to refrain from any use or disclosure of the Company's
proprietary or confidential information or materials pursuant to his Proprietary
Information and Inventions Agreement executed by him on September 15, 1998.
Executive's Proprietary Information and Inventions Agreement is hereby
incorporated into this Agreement and a copy is attached hereto as Exhibit A.
3.2 REMEDIES. Executive's duties under the Proprietary Information
and Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of
Directors, which consent shall not be unreasonably withheld, Executive will not
during his employment with the Company undertake or engage in any new
employment, occupation or business enterprise, other than ones in which
Executive is a passive investor. Executive may engage in civic and not-for-
profit activities so long as such activities do not materially interfere with
the performance of his duties hereunder.
3.
<PAGE>
4.2 Except as permitted by Section 4.3, during his employment with
the Company, Executive agrees not to acquire, assume or participate in, directly
or indirectly, any position, investment or interest known by him to be adverse
or antagonistic to the Company, its business or prospects, financial or
otherwise.
4.3 During his employment with the Company, except on behalf of the
Company, Executive will not directly or indirectly, whether as an officer,
director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than 1% of the voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITH OR WITHOUT CAUSE.
(a) Executive's relationship with the Company is at-will. The
Company shall have the right to terminate Executive's employment with the
Company at any time with or without Cause and with or without notice.
(b) For purposes of this Agreement, "Cause" will exist if
Executive has committed or there has occurred one or more of the following: (i)
indictment or conviction of any felony or of any crime involving dishonesty or
moral turpitude; (ii) participation in any material fraud or act of dishonesty
against the Company; (iii) significant material breach of Executive's duties to
the Company; (iv) intentional material damage to any property of the Company; or
(v) material breach of this Agreement or of Executive's Proprietary Information
and Inventions Agreement attached hereto as Exhibit B. If the Company determines
"Cause" based upon clause (iii) or (v) above, the Company shall give Executive
reasonable notice of such significant material breach and Executive shall have a
reasonable period of time under the circumstances to cure such significant
material breach, unless cure of such significant material breach is not
possible.
(c) If the Company terminates Executive's employment at any time
for Cause, Executive's salary shall cease on and be paid through the date of
termination, and Executive will not be entitled to severance pay, pay in lieu of
notice or any other such compensation.
4.
<PAGE>
5.2 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the
Company at any time without notice, after which no further compensation will be
paid to Executive, unless such termination is for Good Reason.
(b) In the event Executive voluntarily terminates his employment
other than for Good Reason, he will not be entitled to severance pay, pay in
lieu of notice or any other such compensation.
(c) For purposes of this Agreement, "Good Reason" shall mean any
one of the following events which occurs on or after the Effective Date of this
Agreement: (i) reduction of Executive's then annual base salary by greater than
ten percent (10%), unless (A) such reduction occurs more than one hundred eighty
(180) days after a Change in Control and (B) the annual base salaries of all
other executive officers of the Company are concurrently reduced by greater than
ten percent (10%); (ii) material reduction in the package of welfare benefit
plans, taken as a whole, provided to the Executive (except that employee
contributions may be raised to the extent of any cost increases imposed by third
parties) or any action by the Company which would materially adversely affect
the Executive's participation or reduce the Executive's benefits under any such
plans; (iii) change in the Executive's responsibilities, authority, title,
reporting relationship or offices that results in a significant diminution of
position under the circumstances, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is remedied by
the Company promptly after notice thereof is given by the Executive; (iv)
request that the Executive relocate to a work site that is more than 35 miles
from his then current work site; (v) any breach by the Company of any material
provision of this Agreement; or (vi) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the Company.
5.3 SEVERANCE.
(a) In the event the Company terminates Executive's employment
without Cause or if Executive terminates his employment for Good Reason, the
Company shall pay monthly an amount equivalent to Executive's base salary and
the value of Executive's then current benefits, less standard withholdings and
deductions, from the date of termination for a period of twelve (12) months,
provided, however, that should Executive obtain alternative employment from any
other person or entity such severance payments from the Company shall cease
effective as of the date of such alternative employment, excluding fees for
serving solely as an outside director.
(b) Executive's outstanding Options shall have their vesting
accelerated in full so as to become one hundred percent (100%) vested and fully
exercisable as of the date of termination.
5.
<PAGE>
5.4 CESSATION. If Executive violates any provision of Section 7
below, any severance payment being made to Executive will cease immediately, and
Executive will not be entitled to any further compensation from the Company.
6. CHANGE OF CONTROL.
6.1 DEFINITION. For purpose of this Agreement, Change of Control
means the occurrence of any of the following:
(a) closing of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the effective date of a plan of liquidation or dissolution of
the Company or the closing of the sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all (more than fifty percent
(50%)) of the Company's assets;
(b) any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), is or
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of fifty percent (50%) or more of the Company's outstanding common
stock; or
(c) a change in the composition of the Board within a three (3)
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either:
(i) are directors of the Company as of the date hereof;
(ii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) above at the time of such
election or nomination; or
(iii) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors of the
Company who are Incumbent Directors described in (i) or (ii) above at the time
of such election or nomination.
Notwithstanding the foregoing, "Incumbent Directors." shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.
6.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event the
Company terminates Executive's employment without Cause or if Executive
terminates his
6.
<PAGE>
employment for Good Reason in connection with or following a Change of Control,
the Company shall pay monthly an amount equivalent to Executive's base salary
and the value of Executive's then current benefits, less standard withholdings
and deductions, from the date of termination for a period of twelve (12) months;
provided, however, that any income received by Executive from any other
employment during this period shall be used to offset and reduce the amount of
severance payments from the Company. For the purposes of this Section 6.2 and in
connection with a Change of Control, Good Reason in addition to the definitions
contained in Section 5.3(c) of this Agreement shall also include a request that
Executive relocate to a work location other than a location that is a work site
of the Company immediately prior to such Change of Control, unless Executive
accepts such relocation opportunity.
6.3 STOCK OPTIONS. In the event of a Change of Control, Executive's
outstanding Options shall have their vesting accelerated in full so as to become
one hundred percent (100%) vested and immediately exercisable immediately prior
to the Change of Control, unless the acquiring entity assumes such Options or
substitutes similar options for Executive's Options.
6.4 PARACHUTE PAYMENTS. In the event that the severance,
acceleration of stock options and other benefits provided for in this Agreement
or otherwise payable to Executive (i) constitute "parachute payments" within the
meaning of Section 280G (as it may be amended or replaced) of the Internal
Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 6.4, would be subject to the excise tax imposed by Section 4999 (as it
may be amended or replaced) of the Code (the "Excise Tax"), then Executive's
benefits hereunder shall be delivered only as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax.
Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6.4 shall be made in writing in good
faith by the Company's independent public accountants (the "Accountants"). In
the event of a reduction in benefits hereunder, Executive shall be given the
choice of which benefits to reduce. For purposes of making the calculations
required by this Section 6.4, the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section 6.4. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 6.4.
7. RESTRICTIVE COVENANT. In the event Executive voluntarily terminates
his employment with the Company without Good Reason or his employment is
terminated for Cause, then for eighteen (18) months immediately following the
termination date, Executive shall not, without first obtaining the prior written
approval of the Company, accept employment or establish a business relationship
with either Novartis Pharmaceuticals Corporation or Beaufort-Ipsen insofar as
such employment or business
7.
<PAGE>
relationship relates to acromegaly, including the development or
commercialization of a drug or other therapy for the treatment of acromegaly.
8. NONINTERFERENCE. While employed by the Company, and for two (2) years
immediately following the Termination Date, Executive agrees not to interfere
with the business of the Company by:
(a) soliciting, attempting to solicit, inducing, or otherwise
causing any employee of the Company to terminate his or her employment in order
to become an employee, consultant or independent contractor to or for any
competitor of the Company; or
(b) directly or indirectly soliciting the business of any
customer of the Company which at the time of termination or one year immediately
prior thereto was listed on the Company's customer list.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile transmission or the third day after mailing by
first class mail, to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
9.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.4 COMPLETE AGREEMENT. This Agreement, together with Exhibit A,
constitutes the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement and supersedes any
prior agreement written or otherwise between Executive and the Company with
regard to this subject matter. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
8.
<PAGE>
9.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.8 ATTORNEY FEES. If the Executive hereto brings any action or
arbitration to enforce his rights hereunder, and is the prevailing party in any
such action, he shall be entitled to recover his reasonable attorneys' fees and
costs incurred in connection with such action.
9.9 ARBITRATION. To ensure rapid and economical resolution of any and
all disputes that may arise in connection with the Agreement, the Executive and
the Company agree that, at the option of the Executive, any and all disputes,
claims, causes of action, in law or equity, arising from or relating to this
Agreement or its enforcement, performance, breach, or interpretation, will be
resolved, to the fullest extent permitted by law, by final and binding
confidential arbitration held in Austin, Texas and conducted by Judicial
Arbitration & Mediation Services/Endispute ("JAMS"), under its then-existing
Rules and Procedures. Nothing in this paragraph is intended to prevent either
the Executive or the Company from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration. The
Company shall be solely responsible for payment of any and all JAMS fees and
costs for any such arbitration proceedings. If for any reason all or part of
this arbitration provision is held to be invalid or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity or
unenforceability will not affect any other portion of this arbitration
provision, but this provision will be reformed, construed and enforced in such
jurisdiction to render such invalid or unenforceable part or parts of this
provision consistent with the general intent of the parties insofar as possible.
9.10 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Texas.
9.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
SENSUS DRUG DEVELOPMENT CORPORATION
By:___________________________________
Name
Title
Date: September 15, 1998
Accepted and agreed this
15th day of September, 1998.
____________________________
____________________________
____________________________
____________________________
10.
<PAGE>
EXHIBIT A
EXECUTIVES' SALARIES
<TABLE>
<S> <C>
Robert J. Davis, Pharm.D. $240,750.00
William F. Bennett, Ph.D. $211,050.00
Edward G. Calamai, Ph.D. $230,000.00
Magnus Precht $233,000.00
J. Donald Payne $180,000.00
</TABLE>
<PAGE>
EXHIBIT 10.22
REVOLVING PROMISSORY NOTE
(FLOATING RATE)
(this "Note")
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF BORROWER(S)
SENSUS DRUG DEVELOPMENT CORPORATION
98 SAN JACINTO BLVD s#430
AUSTIN TX 78701
- -------------------------------------------------------------------------------------------------
U.S. $5,000,000.00 September 4, 1998 (The "Date")
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCOUNT NUMBER/NOTE NUMBER TRANSACTION CODE PREPARED BY: OFFICER
4008-0120378984-710001 N Brenda Frazier 127844
- -------------------------------------------------------------------------------------------------
</TABLE>
FOR VALUE RECEIVED, the "Borrower," (jointly and severally if more than
one), promises to pay to the order of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
("Bank") on or before September 4, 1999, at its office at 712 Main, Houston,
Texas 77252-2558 or at such other location as Bank may designate, in immediately
available funds, FIVE MILLION AND NO/100 UNITED STATES DOLLARS (U.S.
$5,000,000.00) (the "Maximum Amount of Note") or the aggregate unpaid amount of
all advances hereunder, whichever is less. Borrower will also pay interest on
the unpaid principal balance outstanding from time to time at a rate per annum
equal to the lesser of (i) the sum of the Prime Rate (as hereinafter defined)
from time to time in effect plus ZERO AND 0/1000 PERCENT (0.000%), (the "STATED
RATE"); or (ii) the maximum nonusurious rate of interest from time to time
permitted by applicable law, (the "HIGHEST LAWFUL RATE"). If the Stated Rate at
any time exceeds the Highest Lawful Rate, the actual rate of interest to accrue
on the unpaid principal amount of this Note will be limited to the Highest
Lawful Rate, but any subsequent reductions in the Stated Rate due to reductions
in the Prime Rate will not reduce the interest rate payable upon the unpaid
principal amount of this Note below the Highest Lawful Rate until the total
amount of interest accrued on this Note equals the amount of interest which
would have accrued if the Stated Rate had at all times been in effect.
"PRIME RATE" means the rate determined from time to time by Bank as its
prime rate. The Prime Rate will change automatically from time to time without
notice to Borrower or any other person. THE PRIME RATE IS A REFERENCE RATE AND
MAY NOT BE BANK'S LOWEST RATE.
If Texas law determines the Highest Lawful Rate, Bank has elected the
"indicated" (weekly) ceiling as defined in the Texas Credit Code or any
successor statute. Bank may from time to time, as to current and future
balances, elect and implement any other ceiling under such Code and/or revise
the index, formula or provisions of law used to compute the rate on this open-
end account by notice to Borrower, if and to the extent permitted by, and in the
manner provided in such Code.
Each advance must be at least (N/A) UNITED STATES DOLLARS (U.S. $ n/a)
unless the amount available for borrowing under this Note is less.
Accrued and unpaid interest is due and payable Quarterly, beginning on
December 04, 1998, and continuing on the 4th day of each Quarter thereafter and
at maturity when all unpaid principal and accrued and unpaid interest is finally
due and payable.
Interest will be computed on the basis of the actual number of days elapsed
and a year comprised of: [ ] 365 (or 366 as the case may be) days [x] 360 days,
unless such calculation would result in a usurious interest rate, in which case
such interest will be calculated on the basis of a 365 or 366 day year, as the
case may be.
All past-due principal and interest on this Note will, at Bank's option,
bear interest at the Highest Lawful Rate, or if applicable law does not provide
for a maximum nonusurious rate of interest, at a rate per annum equal to 18%.
1.
<PAGE>
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by Bank and all
owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has been
received, Bank will either refund the excess to Borrower or credit the excess on
the unpaid principal amount of this Note. All amounts constituting interest
will be spread throughout the full term of this Note in determining whether
interest exceeds lawful amounts.
The unpaid principal balance of this Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments of
principal. Absent manifest error, the records of Bank will be conclusive as to
amounts owed. Subject to the terms and conditions of this Note and the Loan
Documents, Borrower may use all or any part of the credit provided for herein at
any time before the maturity of this Note and may borrow, repay and reborrow.
There is no limitation on the number of advances made so long as the total
unpaid principal amount at any time outstanding does not exceed the Maximum
Amount of Note.
Borrower may at any time pay the full amount or any part of this Note
without the payment of any premium or fee. Any partial prepayment will be in
the amount of U.S. $ (n/a) (U.S. $ (n/a)), or an integral multiple thereof. All
payments may, at Bank's sole option, be applied to accrued interest, to
principal, or to both.
"LOAN DOCUMENT" means this Note and any document or instrument evidencing,
securing, guaranteeing or given in connection with this Note. "OBLIGATIONS"
means all principal, interest and other amounts which are or become owing under
this Note or any other Loan Document. "OBLIGOR" means Borrower and any
guarantor, surety, co-signer, general partner or other person who may now or
hereafter be obligated to pay all or any part of the Obligations. Where
appropriate the neuter gender includes the feminine and the masculine and the
singular number includes the plural number.
Each of the following events or conditions is an "EVENT OF DEFAULT:" (1)
any Obligor fails to pay any of the Obligations when due; (2) any warranty,
representation or statement now or hereafter contained in or made in connection
with any Loan Document was false or misleading in any respect when made; (3) any
Obligor violates any covenant, condition or agreement contained in any Loan
Document; (4) any Obligor fails or refuses to submit financial information
requested by Bank or to permit Bank to inspect its books and records on request;
(5) any event of default occurs under any other Loan Document; (6) any
individual Obligor dies, or any Obligor that is an entity dissolves; (7) a
receiver, conservator or similar official is appointed for any Obligor or any
Obligor's assets; (8) any petition is filed by or against any Obligor under any
bankruptcy, insolvency or similar law; (9) any Obligor makes an assignment for
the benefit of creditors; (10) a final judgment is entered against any Obligor
and remains unsatisfied for 30 days after entry, or any property of any Obligor
is attached, garnished or otherwise made subject to legal process; (11) any
material adverse change occurs in the business, assets, affairs or financial
condition of any Obligor; and (12) Borrower is in default of any other
obligation to or any other agreement with Bank.
If any Event of Default occurs, then Bank may do any or all of the
following: (i) cease making advances hereunder; (ii) declare the Obligations to
be immediately due and payable, without notice of acceleration or of intention
to accelerate, presentment and demand or protest or notice of any kind, all of
which are hereby expressly waived; (iii) set off, in any order, against the
Obligations any debt owing by Bank to any Obligor, including, but not limited
to, any deposit account, which right is hereby granted by
2.
<PAGE>
each Obligor to Bank; and (iv) exercise any and all other rights under any Loan
Document, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay in
exercising any right or power under any Loan Document is not a waiver of such
right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral or any obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral. Each
Obligor agrees that acceptance of any partial payment will not constitute a
waiver and that waiver of any default will not constitute waiver of any prior or
subsequent default.
Borrower represents and agrees that: all advances evidenced by this Note
are and will be for business, commercial, investment or other similar purpose
and not primarily for personal, family or household use as such terms are used
in Chapter One of the Texas Credit Code.
Borrower represents and agrees that each of the following statements is
true unless the box preceding that statement is checked and initialed by
Borrower and Bank: (i) [_] _____________ _____________ No advances will be used
primarily for agricultural purposes as such term is used in the Texas Credit
Code. (ii) [_] _____________ _____________ No advances will be used for the
purpose of purchasing or carrying any margin stock as that term is defined in
Regulation U of the Board of Governors of the Federal Reserve System (the
"Board"). Notwithstanding anything contained herein or in any other Loan
Document, if this is a consumer credit obligation (as defined or described in 12
C.F.R. 227, Regulation AA, promulgated by the Board), the security for this
credit obligation will not extend to any non-possessory security interest in
household goods (as defined in Regulation AA) other than a purchase money
security interest, and no waiver of any notice contained herein or therein will
extend to any waiver of notice prohibited by Regulation AA.
Chapter 15 of the Texas Credit Code shall not apply to this Note or to any
advance evidenced by this Note.
This Note is governed by Texas law. If any provision of this Note is
illegal or unenforceable, that illegality or unenforceability will not affect
the remaining provisions of this Note. BORROWER(S) AND BANK AGREE THAT THIS
NOTE WILL BE PERFORMED IN THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED
IN TEXAS, AND THAT SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT BY BORROWER(S) OR BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY
ACTION OR PROCEEDING AGAINST BORROWER(S) MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO THE
EXTENT PERMITTED BY APPLICABLE LAW BORROWER(S) HEREBY IRREVOCABLY (A) SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT
MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.
BORROWER(S) AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED ABOVE. BANK
MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY ACTION
OR PROCEEDING AGAINST BORROWER(S) OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER PROPER JURISDICTIONS OR VENUES.
3.
<PAGE>
For purposes of this Note, any assignee or subsequent holder of this Note
will be considered the "Bank," and each successor to Borrower will be considered
the "Borrower."
Each Borrower and cosigner represents that it is not a natural person, it
is duly organized and validly existing and in good standing under the laws of
the state of its incorporation or organization; has full power to own its
properties and to carry on its business as now conducted; is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification desirable; and has not
commenced any dissolution proceedings. Each Borrower and cosigner that is
subject to the Texas Revised Partnership Act ("TRPA") agrees that Bank is not
required to comply with Section 3.05(d) of the TRPA and agrees that Bank may
proceed directly against one or more partners of their property without first
seeking satisfaction from partnership property. Each Borrower and cosigner
represents that if it conducts business under an assumed business or
professional name it has properly filed Assumed Name Certificate(s) in the
office(s) required by Chapter 36 of the Texas Business and Commerce Code. Each
of the persons signing below as Borrower or cosigner represents that he/she has
full requisite power and authority to execute and deliver this Note to Bank on
behalf of the party for whom he/she signs and to bind such party to the terms
and conditions of this Note and that this Note is enforceable against such
party.
NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF PERFORMANCE,
NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO
CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE AND THE OTHER WRITTEN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
4.
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note effective as of
September 04, 1998.
SIGNATURE(S) OF BORROWER(S):
SENSUS DRUG DEVELOPMENT CORPORATION
By: /s/ John A. Scarlett
---------------------
Title: President/CEO
-------------
(Bank's signature is provided as its acknowledgement of the above as the final
written agreement between the parties and as its agreement with each Borrower
subject to TRPA that Bank is not required to comply with Section 3.05(d) of
TRPA.)
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Stanley D. Finks
--------------------
Title: Vice President
--------------
5.
<PAGE>
CONTINUING LIMITED GUARANTY
(this "Guaranty")
1. GUARANTY. The undersigned Guarantor (jointly and severally if more than
one) agrees to pay Lender at 712 Main Street, P.O. Box 2558, Houston,
Harris County, Texas 77252-2558, or such other address as Lender
designates, when due or declared due, the Guaranteed Indebtedness. This
Guaranty is an unconditional, absolute and continuing guaranty of payment
and performance and not of collection. "Guaranteed Indebtedness" means all
indebtedness, whether now existing or hereafter arising of SENSUS DRUG
DEVELOPMENT CORPORATION (together with its successors, "Borrower") to
Lender as evidenced by that one certain promissory note in the original
principal amount of $5,000,000.00 dated September 4, 1998 and having a
stated maturity date of September 4, 1999 executed by Borrower and
delivered to Lender including each and all subsequent renewals, extensions,
modifications, rearrangements thereof and substitutions and replacements
therefor (the "Note") and all indebtedness under the Loan Documents.
Guarantor and Lender specifically contemplate that Borrower may hereafter
become further indebted to Lender. Guaranteed Indebtedness includes any
post-petition interest and expenses (including, but not limited to
attorneys' fees) whether or not allowed as a claim against Borrower under
any bankruptcy, insolvency, or other similar law. All Guaranteed
Indebtedness is conclusively presumed to have been made or acquired in
reliance on this Guaranty. This Guaranty does not in any way cancel,
amend, discharge or limit any other guaranty executed by Guarantor in favor
of Lender. "Loan Documents" means any document or instrument evidencing,
securing or executed in connection with the Note.
2. TERMINATION OF GUARANTY. This Guaranty will continue to be in effect until
final payment in full of the Guaranteed Indebtedness.
3. CONTINUATION AND REINSTATEMENT OF GUARANTY. If any petition or other
action is filed by or against Borrower under the Bankruptcy Code or any
other law relating to liquidation, insolvency or reorganization of debtors,
or any other proceeding involving the estate or assets of the Guarantor,
this Guaranty will remain effective or be reinstated, as the case may be
(even if the Guaranteed Indebtedness has been paid in full), with respect
to any payments or transfer of assets with respect to Guaranteed
Indebtedness, to the extent such payment or transfers are or may be
voidable or otherwise subject to rescission or return as a preferential
transfer, fraudulent conveyance or otherwise.
4. CHARGES TO GUARANTEED INDEBTEDNESS. Guarantor authorizes Lender, without
notice, consent or demand, before and after termination of this Guaranty,
without affecting Guarantor's liability hereunder: to take and hold
security for the payment of this Guaranty and/or the Guaranteed
Indebtedness, and exchange, enforce, foreclose, waive and release any
security and to apply the proceeds of such security as Lender in its
discretion determines; to obtain a guaranty of the indebtedness from any
one or more persons or entities whomsoever and at any time or times to
enforce, waive, rearrange, modify, limit or release such other persons or
entities from their obligations under such guaranties; and to extend,
rearrange, supplement, modify, settle, compromise, discharge or subordinate
any of the Guaranteed Indebtedness.
5. UNENFORCEABILITY OR UNCOLLECTIBILITY OF THE GUARANTEED INDEBTEDNESS.
Guarantor will remain liable for the Guaranteed Indebtedness even though
the Guaranteed Indebtedness may be unenforceable against or uncollectible
from the Borrower or any other person due to incapacity, lack of power or
authority, discharge, or for any reason whatsoever.
6.
<PAGE>
6. GUARANTOR REPORTING. Guarantor will furnish to Lender such financial
statements and other information relating to the financial condition,
properties and affairs of Guarantor as Lender requests from time to time.
7. RIGHT OF OFFSET. Guarantor grants to Lender a right of setoff against
every deposit account and all personal property in Lender's possession,
whether tangible or intangible, and any claim of Guarantor (whether
individual, joint, several or otherwise) against Lender, now or hereafter
existing. The right of setoff is not exclusive. In addition to Lender's
right of setoff and as further security for this Guaranty and the
Guaranteed Indebtedness, Guarantor hereby grants Lender a security interest
in all deposits and all other accounts and property of Guarantor now or
hereafter on deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Guarantor. These rights and remedies
of Lender are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.
8. AUTOMATIC ACCELERATION. Guarantor agrees that if the maturity of any
Guaranteed Indebtedness is accelerated by bankruptcy or otherwise, such
maturity shall also be deemed accelerated for the purpose of this Guaranty
without demand on or notice to Guarantor.
9. WAIVERS OF GUARANTOR. Guarantor waives (i) diligence and promptness in
preserving liability of any person on Guaranteed Indebtedness, and in
collecting or bringing suit to collect Guaranteed Indebtedness; (ii) all
rights of Guarantor under Rule 31, Texas Rules of Civil Procedure, or
Chapter 34 of the Texas Business and Commerce Code, or Section 17.001 of
the Texas Civil Practice and Remedies Code; (iii) to the extent Guarantor
is subject to the Texas Revised Partnership Act ("TRPA"), compliance by
Lender with Section 3.05(d) of TRPA; (iv) protest; (v) notice of
extensions, renewals, modifications, rearrangements and substitutions of
Guaranteed Indebtedness; (vi) notice of acceptance of this agreement,
creation of Guaranteed Indebtedness, failure to pay Guaranteed Indebtedness
as it matures, any other default, adverse change in Borrower's financial
condition, release or substitution of collateral, subordination of Lender's
rights in any collateral, and every other notice of every kind. If any
part of the Guaranteed Indebtedness is secured by an interest in real
property ("Real Property"), and such interest is foreclosed upon pursuant
to a judicial or nonjudicial foreclosure sale, Guarantor agrees that
notwithstanding the provisions of Section 51.003, 51.004, and 51.005 of the
Texas Property Code (as amended from time to time), and to the extent
permitted by law, Lender may seek a deficiency judgment from Guarantor and
any other party obligated on the Guaranteed Indebtedness equal to the
difference between the amount owing on the Guaranteed Indebtedness and the
amount for which the Real Property was sold at judicial or nonjudicial
foreclosure sale. Guarantor irrevocably waives and shall not seek to
enforce or collect upon any rights which it now has or may acquire against
the Borrower, either by way of subrogation, indemnity, reimbursement or
contribution, for any amount paid under this Guaranty or by way of any
other obligations of the borrower to Guarantor until 91 days after the
Guaranteed Indebtedness is paid in full.
10. REPRESENTATIONS AND AGREEMENTS. This Guaranty constitutes a legal, valid,
binding obligation of and is enforceable against Guarantor. Guarantor has
filed all federal and state tax returns which are required to be filed, and
has paid all due and payable taxes and assessments against the property and
income of Guarantor. Guarantor has determined that this Guaranty will
benefit Guarantor directly or indirectly. The value of the consideration
received by Guarantor is reasonably worth at least as much as his liability
7.
<PAGE>
hereunder and is fair and reasonably equivalent value for this Guaranty.
No material adverse change has occurred in Guarantor's financial condition
or business operations reflected in the last financial statement and
application for credit provided to Lender. Guarantor has not relied and is
not relying on Lender to provide to Guarantor information regarding
Borrower's assets or financial condition and Lender has no duty to provide
such information.
11. APPLICABLE LAW AND VENUE. This Guaranty is governed by Texas law. If any
provision of this Guaranty is illegal or unenforceable, that illegality or
unenforceability will not affect the remaining provisions of the Guaranty.
GUARANTOR AND LENDER AGREE THAT THIS GUARANTY WILL BE PERFORMED IN THE
COUNTY IN WHICH LENDER'S PRINCIPAL OFFICE IS IN TEXAS IS LOCATED, AND THAT
SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE
GUARANTOR OR LENDER, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION
OR PROCEEDING AGAINST GUARANTOR MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO
THE EXTENT PERMITTED BY APPLICABLE LAW GUARANTOR HEREBY IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION HE MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM. GUARANTOR AGREES THAT SERVICE OF PROCESS UPON HIM MAY
BE MADE BY CERTFIIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT HIS
ADDRESS SPECIFIED BELOW. LENDER MAY SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR
OR WITH RESPECT TO ANY OF HIS PROPERTY IN COURTS IN OTHER PROPER
JURISDICTIONS OR VENUES.
12. NOTICE. Any notice required or permitted under this Guaranty must be given
in writing by United States mail, by hand delivery or delivery service, or
by telegraphic, telex, telecopy or cable communication, sent to the
intended addressee at the address shown in this Guaranty, or to such
different address as the addressee designates by 10 days notice. Notice by
United States mail will be effective when mailed. All other notices will
be effective when received. Written confirmation of receipt will be
conclusive.
13. COSTS AND EXPENSES. To the extent permitted by applicable law, Guarantor
will pay on demand all attorneys' fees and all other costs and expenses
incurred by Lender in connection with the preparation, administration,
enforcement or collection of this Guaranty including but not limited to
Lender's standard Documentation Preparation and Processing fees.
14. MISCELLANEOUS. This Guaranty binds each Guarantor and his heirs, devisees,
executors, administrators, personal representatives, trustees, and
receivers and assigns and benefits Lender. The term "Lender" also includes
successors and assigns of Lender. Guarantor may not assign his obligations
under this Guaranty without the prior written consent of Lender. This
Guaranty may be executed in multiple counterparts, and each counterpart
will be deemed an original, without the need to produce any counterpart
other than the one to be enforced. Any gender designation used herein
includes all genders and the singular number includes the plural. Lender's
delay or failure to exercise its rights is not
8.
<PAGE>
a waiver of those rights. This Guaranty may not be amended except in a
writing signed by an authorized officer of Lender and no waiver will be
effective unless it is in writing. Any waiver is applicable only for the
specific situation for which it is given.
This Guaranty is executed as of September 4, 1998.
THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO GUARANTOR'S GUARANTY OF GUARANTEED INDEBTEDNESS AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER,
NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY
NATURE MAY BE USED TO CONTRADICT OR MODIFY ANY TERM OF THIS GUARANTY.
THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.
GUARANTOR: R. STEVEN HICKS
/s/ R. Steven Hicks Date: September 4, 1998
- ------------------- --------------------
Signature of Guarantor
ADDRESS OF GUARANTOR: 98 San Jacinto Blvd. S#430
Austin, Texas 78701
LENDER: (Lender's signature is provided as its acknowledgement of the above as
the final written agreement between the parties.)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Stanley D. Tucker
----------------------
Stanley D. Tucker
Title: Vice President
9.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 23, 1998, except for Note 7 as to which
the date is September 4, 1998, in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-60055) and the related Prospectus of Sensus Drug
Development Corporation for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
September 29, 1998
