AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 2002
REGISTRATION NO. 333-72872
AMENDMENT NO. 2
INDIANA 2834 35-2089858
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employment
of Incorporation Organization) Classification Identification "SIC" Number) or "EIN" Number)
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COPIES TO:
DOUGLAS S. ELLENOFF, ESQ. BRIAN DAUGHNEY, ESQ
DAVID SELENGUT, ESQ. GOLDSTEIN & DIGIOIA, LLP
ELLENOFF, GROSSMAN, SCHOLE & CYRULI, LLP 369 LEXINGTON AVENUE
370 LEXINGTON AVENUE NEW YORK, NY 10017
NEW YORK, NY 10017 (212) 599-3322
(212) 370-1300
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1)($) OFFERING PRICE(1)($) FEE($)
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Units, each consisting of:.......... 2,300,000(2)(3) $6.00 $13,800,000 $3,450
(i) one share of Common Stock,
$.001 par value.............. 2,300,000 -- -- --
(ii) one Class A Warrant to
purchase one share of common
stock....................... 2,300,000 -- -- --
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Representative's Unit Purchase
Option(4)......................... 200,000 -- -- --
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Units issuable upon exercise of the
representative's unit purchase
option, each consisting of:....... 200,000 $7.20 $1,440,000 $360
(i) one share of Common Stock,
$.001 par value, and......... 200,000
(ii) one Class A Warrant to
purchase one share of common
stock....................... 200,000
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Shares of common stock issuable upon
exercise of Class A warrants,
including warrants underlying
representative's unit purchase
option and the Underwriter's
overallotment option(5)........... 2,500,000 $7.20 $18,000,000 $4,500
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Total............................... -- -- $33,240,000 $8,310(6)
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 Units subject to the Underwriter's over-allotment option
(3) Assumes the Underwriter's overallotment option is exercised in full.
(4) In connection with the sale of the Units, as additional compensation, registrant is granting to the representative unit purchase options to purchase up to 200,000 Units.
(5) Issuable upon exercise of the unit purchase option and/or the warrants issuable thereunder.
(6) $20,902.50 Fee previously paid.
(continued on next page)
(continued from Front Cover)
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are also being registered such additional shares of Common Stock as may become issuable pursuant to anti-dilution provisions upon exercise of the Class A Warrants and the warrants issuable in the Unit Purchase Option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 1, 2002
[BIODELIVERY LOGO]
PROSPECTUS
This is a public offering of our securities. Our securities are being offered in Units, with each Unit consisting of: (i) one share of our common stock and (ii) one redeemable Class A common stock purchase warrant. The common stock and warrants will not trade as separate securities until 30 days after this offering unless the representative of the underwriters determines that separate trading should occur earlier.
Each Class A warrant entitles the holder to purchase one share of our common stock at a price of $ . The exercise price of the Class A warrant is subject to adjustment, including anti-dilution provisions for corporate events, such as stock splits and for issuance of securities at less than the then current exercise price.
There is presently no public market for our Units, common stock or warrants. We expect that the initial public offering price of the Units will be between $5.25 and $6.00 per Unit. The actual initial public offering price of the Units will be determined by negotiations between the representative and us.
We have applied for listing of our Units, the common stock and the Class A Warrants on the Nasdaq Small Cap Market under the proposed symbols "BDSIU", "BDSI", and "BDSIA", respectively and also on the Boston Stock Exchange.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER UNIT TOTAL
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Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses,.................................. $ $
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We expect total cost expenses of this offering to be approximately $1,951,100, which will include a non-accountable expense allowance of 2% of the gross proceeds of this offering payable to the representative of the underwriter. We have granted the underwriter a 45-day option to acquire up to an additional 15% of the Units (300,000) to cover overallotments.
The underwriters are severally underwriting the Units being offered. Roan/Meyers Associates, L.P., as representative, on behalf of the underwriters, expects to deliver our securities to purchasers on or about , 2002.
ROAN/MEYERS ASSOCIATES, L.P.
, 2002
Appearing above is a picture of our cochleate structure as magnified under an electron microscope.
Appearing below is a diagram showing the process of "nano-encapsulation" of a drug in our cochleate structure.
Our drug delivery technology is based upon encapsulating drugs and neutraceuticals to potentially deliver the drug safely and effectively. Over the years, biochemists and biophysicists have studied artificial membrane systems to understand their properties and potential applications, as well as to gain insight into the workings of more complex biological membrane systems. In the late 1960's, scientists began investigating the interactions of divalent cations with negatively charged lipid bilayers. They reported that the addition of calcium ions to small phosphatidylserine vesicles induced their collapse into discs which fused into large sheets of lipid. In order to minimize their interaction with water, these lipid sheets rolled up into jellyroll-like structures, termed "cochleate" cylinders, after the Greek name for a snail with a spiral shell.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
The Offering................................................ 4
Risk Factors................................................ 6
Special Note Regarding Forward Looking Statements........... 19
Use of Proceeds............................................. 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Financial and Operating Data....................... 24
Management's Discussion and Analysis of Financial Condition
and Plan of Operation..................................... 25
Description of Business..................................... 31
Management.................................................. 46
Certain Transactions........................................ 55
Principal Stockholders...................................... 57
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 67
Experts..................................................... 67
Where You Can Find More Information......................... 67
Index to Financial Statements............................... F-1
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We voluntarily file reports and other information with the Securities and Exchange Commission, but our common stock is not publicly traded. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, Units, consisting of shares of common stock and Class A warrants. We are offering these securities only in jurisdictions where offers and sales are permitted. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus is correct after the date of this prospectus, except that we will update this prospectus when required by law.
Until , 2002 (25 days after the date of this prospectus) all dealers that buy, sell or trade our securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their allotments or subscriptions.
For investors outside the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about such local rules and regulations and to observe any restrictions relating to this offering and the distribution of this prospectus.
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in this offering. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including, the Risk Factors (See "Risk Factors") and the Financial Statements.
We are a development-stage biotechnology company that is developing and seeking to commercialize a drug delivery technology designed for a potentially broad base of pharmaceuticals, vaccines and over-the-counter drugs. In general, a drug delivery technology refers to any process, substance, or combination thereof, that delivers drugs into the body. Our proposed drug delivery technology varies from competitors by encapsulating or wrapping the selected drug in a jellyroll-like structure termed a "cochleate" cylinder. All of the components of the cochleate cylinder are naturally occurring substances. We believe that the cochleate cylinder provides an effective delivery mechanism without forming a chemical bond, or otherwise chemically altering, the drug. Our drug delivery technology is being developed in collaboration with the University of Medicine and Dentistry of New Jersey and the Albany Medical College, which have granted us the exclusive worldwide licenses under applicable patents. When wrapped in our cochleate cylinders, we anticipate that these drugs may be marketed under our brand name, "Bioral".
Drug delivery technologies generally seek to achieve a broad range of objectives in improving the way drugs are delivered into and within the body, including oral availability, minimizing side-effects, stability, delivery of the drug into the cell, resistance to environmental attack, patient compliance, and release characteristics. We believe that available drug delivery technologies generally enhance some combination of these objectives, but in most applications, not all. In developing our drug delivery technology, our goal is to seek to enhance some or all of these objectives to potentially provide an improved delivery mechanism for a broad base of drugs identified by us. We believe that our technology may potentially enable oral delivery of certain drugs otherwise requiring injection, such as Amphotericin B. Drugs most likely to benefit from this aspect of our technology will usually have certain characteristics which make their oral delivery form unfavorable such as poor water solubility and drugs which consist of proteins. We believe our technology may also benefit drugs which are currently administered orally or which currently require delivery through injection. These benefits include potentially reduced toxicity and side effects which may be associated with certain drugs and potentially improved therapeutic drug performance. We believe that our drug delivery technology holds promise in addressing certain of the limitations confronted lipid based drug delivery technologies which in the past may not have achieved their desired results. We could conceivably devote significant operational and financial resources to this research effort only to discover that our methodology and approach is no better or maybe not as good as existing delivery technologies. Additionally, the development of our own drug delivery technology is ongoing and accordingly is subject to numerous scientific and procedural hurdles, such as receiving FDA approvals, raising capital to fund development and the possibility that pre-clinical and clinical trials may reveal presently unknown disadvantages or problems associated with our technology or application of our drugs.
If we establish our technology, we intend to seek commercialization through a combination of marketing approaches which we anticipate may include marketing off-patent drugs under our brand name, Bioral, licensing our drug delivery technology to other pharmaceutical companies with regard to certain patented, proprietary, or branded drugs and entering into various types of agreements with other bio-technology or pharmaceutical companies. As we seek commercialization, we face numerous scientific and procedural hurdles which may adversely affect, delay or even frustrate our selected marketing approaches. Such hurdles may include, difficulty in obtaining FDA approval of our proposed products or difficultly in identifying, establishing, or maintaining research and commercial relationships. To achieve our objectives, our strategy includes the following key elements:
- Identify drugs which we believe may benefit from our drug delivery technology;
- Reduce development risk, regulatory approval process time and uncertainty of commercial acceptance by utilizing our technology with drugs which currently have both regulatory approval and commercial acceptance, including those which are not currently patent protected;
- Obtain relationships with pharmaceutical and biotechnology companies that have the rights to drugs, which may include access to their proprietary drugs, and licensing arrangements which may result in sharing some or all of the risks, time and expense generally associated with development and commercialization;
- Obtain regulatory approval, including FDA approval, for each drug encapsulated with our drug delivery technology; and
- Prepare for commercialization of our intended Bioral products.
We are presently engaged in research and development activities with regard to the following drugs and/or category of drugs , which are not currently patent protected:
- Bioral Amphotericin B: Amphotericin B, an accepted intravenous drug, has been identified by us for oral treatment of systemic fungal infections and as an oral prophylactic agent for immunosuppressed patients. We are collaborating with the National Institutes of Health, the Public Health Research Institute of New York and the University of Texas to develop this intended product. We have been awarded a grant totaling approximately $0.9 million from the National Institutes of Health which, along with additional awards of $1.8 million expected under the same grant, will support our planned Investigational New Drug Application (IND) submission for Phase I clinical trials.
- Bioral Clofazimine: Clofazimine, an antibiotic, currently an accepted drug used to treat cells infected with the microbacteria causing tuberculosis has also been identified for "encapsulation". Clofazimine is currently administered orally and our goal is to improve oral availability, reduce side effects, and improve the therapeutic effect. We are also pursuing applications of our drug delivery technology with generic injectable antibiotics used to treat other infections. We are currently in pre-clinical development of clofazimine using our drug delivery technology in collaboration with the Institute for Tuberculosis Research, University of Illinois.
- Bioral Anti-Inflammatories: We have identified several, commercially accepted over-the-counter, non-steroidal, anti-inflammatories such as generic aspirin or ibuprofen to be potentially "encapsulated" in our delivery technology. Our objective is to increase the availability of currently accepted anti-inflammatories for arthritis and other inflammations with potentially reduced risk of side effects. We are in the process of preparing formulations in anticipation of potential pre-clinical trials.
We are also preparing an application seeking to begin Phase I clinical trials with the FDA with regard to the research and development of our autologous HIV immunotherapeutic. This technology is being developed as a patient specific (autologous) therapeutic for treatment following HIV infection. We believe that the ongoing research and development of this technology will require significant time and resources and we intend to primarily rely upon the availability of grants and corporate support to finance further development of this technology.
HISTORICAL AND RECENT EVENTS
MAS Acquisition XXIII Corp., our original corporate name, was formed in Indiana on January 6, 1997. In January 2000, an investment group, led by Dr. Francis E. O'Donnell, our current President and CEO, acquired a controlling interest in MAS Acquisition XXIII Corp. for the purpose of identifying and facilitating an investment by us in BioDelivery Sciences, Inc., a Delaware corporation. The business opportunity described in this prospectus is primarily the science developed by BioDelivery Sciences, Inc., which we acquired all of the rights to effective January 7, 2002 through a merger with BioDelivery Sciences, Inc. In September 2000, prior to completing the investment and gaining control of BioDelivery Sciences, Inc., we changed our name from MAS Acquisition XXIII Corp. to BioDelivery Sciences International, Inc.
BioDelivery Sciences, Inc., the Delaware entity, was formed in 1995 by Drs. Raphael Mannino, Susan Gould-Fogerite, who are currently members of our management, and others, in order to conduct research and development on various vaccines. On October 10, 2000, we purchased shares of the Series A convertible preferred stock of BioDelivery Sciences, Inc. which resulted in our owning securities representing 84.8% of its
voting stock. We subsequently acquired common stock of BioDelivery Sciences, Inc. representing 9% (representing 1.4% of the total voting rights of BioDelivery Sciences, Inc.) of the outstanding common stock.
In January 2002, we concluded the merger with our subsidiary, BioDelivery Sciences, Inc. which resulted in our owning all of the assets, subject to all the liabilities, of BioDelivery Sciences, Inc. As a result of the merger, we were the surviving company and BioDelivery Sciences, Inc. ceased operations as a separate entity. Consequently, except where specifically noted to the contrary, all discussions in this prospectus reflect our completion of the merger of BioDelivery Sciences, Inc. and thus refers to such business operations as those of ours. Immediately prior to the date of this prospectus we intend to cease being an Indiana corporation and become a Delaware corporation.
Immediately prior to the date of this prospectus, we will also effect a reverse stock split of 4.37 shares for 1 share. All references to our outstanding common stock reflects the reverse split.
Our offices and scientific facilities are located at the University of Medicine and Dentistry of New Jersey, 185 South Orange Avenue, Administrative Building 4, Newark, New Jersey 07103 and our telephone number is (973) 972-0015.
THE OFFERING
Securities offered.................... 2,000,000 Units, each Unit consisting
of:
(i) one share of common stock; and
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(ii) one Class A warrant;
Common Stock:
Number outstanding prior to the
Offering............................ 5,000,862 shares(1,2)
Number outstanding after this
Offering............................ 7,000,862 shares(2)
Class A Warrant:
Number outstanding after this
Offering............................ 2,000,000 warrants
Securities underlying Class A
warrants.............................. Each Class A warrant is exercisable
to purchase one share of Common
Stock.
Exercise price...................... The initial exercise price of each
Class A warrant is 120% of the
purchase price of the Units. The
exercise price is subject to
adjustment, including anti-dilution
provisions for corporate events such
as stock splits and for issuance of
securities at less than the then
current exercise price.
Exercise period..................... The Class A warrants are exercisable
from 2002 until
2006.
Redemption.......................... We may redeem the outstanding Class A
warrants for $.10 per warrant upon 30
days written notice to the warrant
holder; provided:
(i) the underlying shares of
Common Stock are eligible for
resale under the Securities
Act pursuant to an effective
registration statement; and
(ii) the average closing sale
price of the Common Stock
equals or exceeds 150% of the
offering price of the Units
for the 10 trading days prior
to the date of the notice of
redemption; and
(iii) that 12 months has elapsed
since the date of this
prospectus.
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(1)As of December, 2001, the number of shares of common stock includes the issuance of 462,243 shares of common stock which were issued as part of our rescission of all our issued and outstanding Series A preferred stock, and which was effected prior to the date of this Prospectus. In connection with our merger with BioDelivery Sciences, Inc. effective January, 2002, we issued 520,313 shares of common stock, which are also included in the number of shares outstanding.
(2)Excludes an aggregate of 3,949,126 shares of common stock issuable under (i) the 2001 incentive stock option plan, (ii) the Representative's unit purchase option, (iii) the over-allotment option, (iv) Class A warrants, and other outstanding options and warrants. For a full discussion of the terms of these securities, see the sections entitled "Management's Discussion and Analysis of Financial Condition and Plan of Operation" and "Capitalization".
Proposed Symbols:
Units BDSIU
Common Stock BDSI
Class A Warrants BDSIA
Type of offering...................... This is a firm commitment offering by
the underwriter.
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RISK FACTORS
An investment in this offering is extremely risky. You should carefully consider the following risks, in addition to the other information presented in this prospectus, before deciding to buy our securities. If any of the following risks actually materialize, our business and prospects could be seriously harmed, the price and value of our securities could decline and you could lose all or part of your investment. The risks and uncertainties described below are intended to be the material risks that are specific to us, to our industry or to companies going public.
RISKS RELATED TO OUR TECHNOLOGIES
THE FAILURE TO COMPLETE DEVELOPMENT OF OUR DRUG DELIVERY TECHNOLOGY, OBTAIN GOVERNMENT APPROVALS, INCLUDING REQUIRED FDA APPROVALS, OR TO COMPLY WITH ONGOING GOVERNMENTAL REGULATIONS COULD DELAY OR LIMIT INTRODUCTION OF OUR PROPOSED PRODUCTS AND RESULT IN FAILURE TO ACHIEVE REVENUES OR MAINTAIN OUR ONGOING BUSINESS.
Our research and development activities, the manufacture and marketing of our intended products are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad. Before receiving FDA clearance to market our proposed products, we will have to demonstrate that our products are safe and effective on the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, clinical trials and regulatory approval can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources.
In order to be commercially viable, we must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market and distribute our technologies. For each drug encapsulated with our drug delivery technology and for the HIV therapy, as the case may be, we must successfully meet a number of critical developmental milestones, including:
- demonstrate benefit from delivery of each specific drug through our drug delivery technology,
- demonstrate through pre-clinical and clinical trials that our drug delivery technology and our patient specific HIV therapy is safe and effective,
- establish a viable Good Manufacturing Process capable of potential scale-up.
The time-frame necessary to achieve these developmental milestones may be long and uncertain, and we may not successfully complete these milestones for any of our intended products in development.
In addition to the risks previously discussed, our HIV immunotherapeutic is subject to additional developmental risks which includes the following:
- the uncertainties arising from the rapidly growing scientific aspects of HIV and potential treatments
- uncertainties arising as a result of the broad array of potential treatments related to HIV
- anticipated expense and time believed to be associated with the development and regulatory approval of treatments for HIV
In order to conduct clinical trials that are necessary to obtain approval by FDA to market a product, it is necessary to receive clearance from the FDA to conduct such clinical trials. The FDA can halt clinical trials at any time for safety reasons or because we or our clinical investigators do not follow the FDA's requirements for conducting clinical trials. If we are unable to receive clearance to conduct clinical trials or the trials are halted by the FDA, we would not be able to achieve any revenue from such product as it is illegal to sell any drug or medical device for human consumption without FDA approval.
DATA OBTAINED FROM CLINICAL TRIALS ARE SUSCEPTIBLE TO VARYING INTERPRETATIONS,
WHICH COULD DELAY, LIMIT OR PREVENT REGULATORY CLEARANCES.
Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical data is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of an intended product under development could delay or prevent regulatory clearance of the potential drug, resulting in delays to commercialization, and could materially harm our business. Our clinical trials may not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.
We may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of development, clinical trials and FDA regulatory review. We may encounter similar delays in foreign countries. Sales of our products outside the U.S. would be subject to foreign regulatory approvals that vary from country to country. The time required to obtain approvals from foreign countries may be shorter or longer than that required for FDA approval, and requirements for foreign licensing may differ from FDA requirements. We may be unable to obtain requisite approvals from the FDA and foreign regulatory authorities, and even if obtained, such approvals may not be on a timely basis, or they may not cover the uses that we request.
In the future, we may select drugs for "nano-encapsulation" using our drug delivery technology which may contain controlled substances which are subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation and distribution. For such drugs containing controlled substances, we and any suppliers, manufacturers, contractors, customers and distributors may be required to obtain and maintain applicable registrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation and distribution of controlled substances. These regulations are extensive and include regulations governing manufacturing, labeling, packaging, testing, dispensing, drugion and procurement quotas, record keeping, reporting, handling, shipment and disposal. Failure to obtain and maintain required registrations or comply with any applicable regulations could delay or preclude us from developing and commercializing our drugs containing controlled substances and subject us to enforcement action. In addition, because of their restrictive nature, these regulations could limit our commercialization of our drugs containing controlled substances.
OUR PATIENT-SPECIFIC HIV THERAPY MAY NOT GAIN FDA APPROVAL IN CLINICAL TRIALS OR BE EFFECTIVE AS A THERAPEUTIC AGAINST THE HIV VIRUS WHICH COULD AFFECT OUR FUTURE PROFITABILITY.
In order to obtain regulatory approvals of our patient-specific HIV therapy, we must demonstrate that the procedure is safe and effective for use in humans and functions as a therapeutic against the HIV virus. To date, we have only conducted a pilot study pursuant to Institutional Review Board oversight in anticipation of our initial FDA submission for our patient-specific HIV therapy.
We may not be able to demonstrate that this potential HIV therapy, although appearing promising in preclinical and pilot testing, is safe or effective in advanced clinical trials that involve human patients. We are also not able to assure that the results of the clinical trials already conducted and which we intend to conduct will support our applications for regulatory approval. As a result, our HIV therapy may be curtailed, redirected or eliminated at any time.
The HIV virus is very complex and may be prone to genetic mutations. These mutations have produced strains of HIV that are resistant to currently approved therapeutics. Even if we gain regulatory approval for our patient-specific HIV therapy, the virus may develop similar resistance to our treatment. This could have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATING TO OUR BUSINESS
BECAUSE WE HAVE ACCUMULATED DEFICITS IN THE RESEARCH AND DEVELOPMENT OF OUR DRUG DELIVERY TECHNOLOGY SINCE OUR INCEPTION, THERE IS NO GUARANTEE THAT WE WILL EVEN GENERATE REVENUE OR BECOME PROFITABLE EVEN IF ONE OR MORE OF OUR DRUGS ARE APPROVED FOR COMMERCIALIZATION.
Since our inception in January 1997 and through September 30, 2001, we have recorded operating losses totaling approximately $2,642,610. As of September 30, 2001, we had a working capital deficit of ($505,417) and a stockholder's deficit of ($327,915). In addition, we expect to incur increasing operating losses over the next several years as we continue to incur increasing costs for research and development and clinical trials. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to complete the development of our proposed products, obtain the required regulatory approvals and manufacture, market and sell our proposed products. Development is costly and requires significant investment. In addition, we may choose to license rights to particular drugs. The license fees for such drugs may increase our costs.
We have not generated any revenue from the commercial sale of our proposed products or any encapsulated drugs and do not expect to receive such revenue in the near future. Our primary activity to date has been research and development. All revenues to date are from grants, both public and private and collaborative agreements. We cannot be certain as to when or whether to anticipate commercializing and marketing our proposed products in development, and do not expect to generate sufficient revenues from proposed product sales to cover our expenses or achieve profitability in the near future.
WE RELY SOLELY ON THE FACILITIES OF THE UNIVERSITY OF MEDICINE AND DENTISTRY OF NEW JERSEY FOR ALL OF OUR RESEARCH AND DEVELOPMENT, WHICH COULD BE MATERIALLY DELAYED SHOULD WE LOSE ACCESS TO THOSE FACILITIES.
We have no research and development facilities of our own. As of the date of this prospectus we are entirely dependent on third parties to use their facilities to conduct research and development. To date, we have relied on the University of Medicine and Dentistry of New Jersey and Albany Medical College for this purpose. Additionally, these universities own certain of the patents to our drug delivery technology. Our inability to conduct research and development may delay or impair our ability to gain FDA approval and commercialization of our drug delivery technology and products.
We do not currently have plans nor are we planning in the near future, to relocate out of our offices and research facilities at the University of Medicine and Dentistry of New Jersey. We currently maintain a good working relationship with the University of Medicine and Dentistry. Should the situation change and we are required to relocate on short notice, we do not currently have an alternate facility where we could relocate. The cost and time to establish or locate an alternative research and development facility to develop our technology, other than through the universities, would be substantial and would delay gaining FDA approval and commercializing our products.
WE ARE DEPENDENT ON OUR COLLABORATIVE AGREEMENTS FOR THE DEVELOPMENT OF OUR DRUG DELIVERY TECHNOLOGY AND BUSINESS DEVELOPMENT WHICH EXPOSES US TO THE RISK OF RELIANCE ON THE VIABILITY OF THIRD PARTIES.
In conducting our research and development activities, we rely upon numerous collaborative agreements with universities, governmental agencies, manufacturers, contract research organizations and corporate partners. The loss of or failure to perform under any of these arrangements, by any of these entities, may substantially disrupt or delay our research and development activities including our anticipated clinical trials.
We have a license agreement with the University of Medicine and Dentistry of New Jersey and Albany Medical College in which they grant us exclusive license to conduct research and development of the drug delivery technology. Our research facilities are also located on the premises of the University of Medicine and Dentistry of New Jersey pursuant to a research agreement.
To date, almost all of our funding for research and operations have come from grants and other types of funding from corporate sponsors and the National Institutes of Health (NIH). We will continue to be dependent upon the NIH, in particular, to develop our Bioral Amphotericin B. Furthermore, we anticipate
that research and development of our HIV therapy will primarily depend on funding from the federal government.
REQUIREMENTS IMPOSED BY OUR NATIONAL INSTITUTES OF HEALTH GRANT COULD DELAY OR HINDER OUR ABILITY TO DEVELOP OUR AMPHOTERICIN B PRODUCT OR RECEIVE ADDITIONAL FUNDING.
In 2001, the National Institutes of Health awarded us a Small Business Innovation Research Grant (SBIR), which will be utilized in our research and development efforts. NIH has formally awarded us a grant of $883,972 of which we have received approximately $479,000 in 2001 and expect to receive the remainder through June 2002. Additionally, this award refers to future funding levels of $814,398 and $989,352 that we expect to be awarded in 2002 and 2003, respectively, subject to availability and satisfactory progress of the project in NIH's opinion. The grant is subject to provisions for monitoring set forth in NIH Guide for Grants and Contracts dated February 24, 2000, specifically, the NIAID Policy on Monitoring Grants Supporting Clinical Trials and Studies. If NIH believes that satisfactory progress in not achieved, the 2002 and 2003 amounts noted above may be reduced or eliminated in their entirety at NIH's sole discretion.
WE ARE EXPOSED TO PRODUCT LIABILITY, CLINICAL AND PRECLINICAL LIABILITY RISKS WHICH COULD PLACE A SUBSTANTIAL FINANCIAL BURDEN UPON US, SHOULD WE BE SUED, BECAUSE WE DO NOT CURRENTLY HAVE PRODUCT LIABILITY INSURANCE ABOVE AND BEYOND OUR GENERAL INSURANCE COVERAGE.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. We cannot assure that such potential claims will not be asserted against us. In addition, the use in our clinical trials of pharmaceutical products that our potential collaborators may develop and the subsequent sale of these products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We do not currently have any product liability insurance or other liability insurance relating to clinical trials or any products or compounds. We cannot assure you that we will be able to obtain or maintain adequate product liability insurance on acceptable terms, if at all, or that such insurance will provide adequate coverage against our potential liabilities. Furthermore, our current and potential partners with whom we have collaborative agreements with or our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have a net worth sufficient to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us could have a material adverse effect on our business, financial condition and results of operations.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR STOCK MORE DIFFICULT, AND
THEREFORE, INVESTORS HAVE LIMITED INFORMATION UPON WHICH TO RELY.
You can only evaluate our business based on a limited operating history. Since our inception, we have engaged primarily in research and development, licensing technology, seeking grants, raising capital and recruiting scientific and management personnel. We have not generated any revenue to date, other than research grants, and have no licensing or royalty revenue or products ready for use or licensing in the marketplace. This limited history may not be adequate to enable you to fully assess our ability to develop our technologies and proposed products, obtain FDA approval and achieve market acceptance of our proposed products and respond to competition.
WE DO NOT CURRENTLY HAVE SPECIFIC PLANS FOR UNALLOCATED OFFERING PROCEEDS AND
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN DETERMINING FUTURE ALLOCATION.
The principal purposes of the funding from this offering are to conduct research and development of our drug delivery technology, obtain regulatory approval for our technology and products, and expand our research facilities. We currently do not have specific plans for all of the net proceeds from this offering. We expect to use a percentage of the proceeds for general corporate purposes, including working capital, development of our
technology, obtain regulatory approvals for our products and capital expenditures. The amounts expended for each purpose and the timing of such expenditures may vary depending upon numerous factors. Consequently, we will have broad discretion in determining the amount and timing of expenditures and in using the unallocated proceeds of this offering, and there can be no assurance that we will use such discretion effectively or in a manner that will not result in a material adverse effect on our business, financial condition and results of operation. Proceeds received by us as a result of the exercise of any of the Class A warrants may be used in any manner generally consistent with the use of proceeds of this offering.
EXECUTIVE OFFICERS, DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THE OFFERING, WHICH COULD DELAY OR PREVENT A CHANGE IN OUR CORPORATE CONTROL FAVORED BY OUR OTHER STOCKHOLDERS
Our directors, executive officers and principal stockholders, together with their affiliates, will beneficially own, in the aggregate, approximately 57.41% of our outstanding common stock following the completion of this offering and 55.05% if the overallotment option is exercised in full. In particular, our directors and executive officers will control approximately 53.45% of our common stock after this offering, 51.26% if the over-allotment option is exercised in full. These figures do not reflect the exercise of the Class A warrants into shares of common stock. Additionally, these figures do not reflect the increased percentages that the officers and directors may have in the event that they exercise any of the options granted to them in the 2001 Stock Option Plan or if they otherwise acquire additional shares of common stock. The interests of our current office, director stockholders may differ from the interests of other stockholders, including purchasers of shares in this offering. As a result, these current officer director stockholders would have the ability to exercise control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders including purchasers in this offering may vote, including the following actions:
- the election of directors;
- adoption of stock option plans;
- the amendment of charter documents;
- issue blank check preferred stock; or
- the approval of certain mergers and other significant corporate transactions, including a sale of substantially all of our assets.
CERTAIN OF OUR MANAGEMENT TEAM HAVE RELATIONSHIPS WHICH MAY POTENTIALLY RESULT IN CONFLICTS OF INTERESTS AND ALSO CAUSES OUR BOARD OF DIRECTORS TO LACK A MAJORITY OF INDEPENDENT DIRECTORS.
Dr. O'Donnell, who is an executive officer, on our board of directors and also is a substantial beneficial owner of our securities, has a financial interest in a number of other companies which have business relationships with us. These companies include RetinaPharma International, Inc., Tatton Technologies, LLC, BioKeys, Inc., Biotechnology Specialty Partners, Inc, and American Prescription Partners, Inc. We have entered into license agreements with RetinaPharma International, Inc. and Tatton Technologies, LLC with regard to our proposed Bioral neutraceutical product. We have entered into a non-exclusive distribution with Biotechnology Specialty Partners, Inc. We have entered into a license agreement with BioKeys, Inc. with regard to their vaccine in development. Each of these business arrangements was approved by the Board of Directors of BioDelivery Sciences, Inc., the Delaware entity, prior to our acquiring a controlling interest in their business and science prior to acquiring all of its assets in the recent merger. These agreements or any future agreements may involve conflicting interests between our interests, the interests of the other entities and Dr. O'Donnell.
Dr. L.M. Stephenson is on our board of directors and is also associated with the University of Medicine and Dentistry of New Jersey for the last five years. He is currently Vice President for Research at the university. Dr. Stephenson's association with the university may currently or in the future involve conflicting interests. In future matters involving the university, Dr. Stephenson will refrain from voting and a majority of the disinterested directors has been and will be required to approve all such transactions. Dr. Stephenson
currently owns stock options which have been issued to him as a result of his agreeing to serve on the board of directors.
ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN AND FAILURE TO ACHIEVE MARKET ACCEPTANCE WILL PREVENT OR DELAY OUR ABILITY TO GENERATE REVENUES
Our future financial performance will depend, at least in part, upon the introduction and customer acceptance of our proposed products. Even if approved for marketing by the necessary regulatory authorities, our products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:
- the receipt of regulatory clearance of marketing claims for the uses that we are developing;
- the establishment and demonstration of the advantages, safety and efficacy of our technologies;
- pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other health plan administrators;
- our ability to attract corporate partners, including pharmaceutical companies, to assist in commercializing our intended products; and
- our ability to market our products.
Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products. If we are unable to obtain regulatory approval, commercialize and market our proposed products when planned, we may not achieve any market acceptance or generate revenue.
WE MAY BE SUED BY THIRD PARTIES WHICH CLAIM THAT OUR PRODUCTS INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, PARTICULARLY BECAUSE THERE IS SUBSTANTIAL UNCERTAINTY ABOUT THE VALIDITY AND BREADTH OF MEDICAL PATENTS
We may be exposed to future litigation by third parties based on claims that our technologies, products or activities infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in medical technology patents and the breadth and scope of trade secret protection involve complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial resources and could harm our reputation. Most of our license agreements require that we pay the costs associated with defending this type of litigation. In addition, intellectual property litigation or claims could force us to do one or more of the following:
- cease selling, incorporating or using any of our technologies and/or products that incorporate the challenged intellectual property, which would adversely affect our revenue;
- obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or
- redesign our products, which would be costly and time-consuming.
As of the date of this prospectus, we have not engaged in discussions, received any communications, nor do we have any reason to believe that any third party is challenging or has the right proper legal authority to challenge our intellectual property rights or those of the actual patent holders.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR RIGHTS TO INTELLECTUAL
PROPERTY OR SECURE RIGHTS TO THIRD-PARTY PATENTS, WE MAY LOSE VALUABLE RIGHTS, EXPERIENCE REDUCED MARKET SHARE, ASSUMING ANY, OR INCUR COSTLY LITIGATION TO PROTECT SUCH RIGHTS
Our ability to obtain license to patents, maintain trade secret protection and operate without infringing the proprietary rights of others will be important to our commercializing any products under development. For
a list of our licenses to various patents, see the section entitled "Description of Business". The current and future development of our drug delivery technology is contingent upon whether we are able to maintain a license to access the patents. Without this license, the technology would be protected from our use and we would not be able to even conduct research without prior permission from the patent holder. Therefore, any disruption in access to the technology could substantially delay the development of our technology.
The patent positions of biotechnology and pharmaceutical companies, including ours which involves licensing agreements, are frequently uncertain and involve complex legal and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, our patent applications and any issued and licensed patents may not provide protection against competitive technologies or may be held invalid if challenged or circumvented. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to us or licensed by us. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as U.S. law.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We generally require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances, and that all inventions arising out of the individual's relationship with us shall be our exclusive property. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology. We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patented technology.
Although our trade secrets and technical know-how are important, our continued access to the patents is a significant factor in the development and commercialization of our drug delivery technology. Aside from the general body of scientific knowledge from other drug delivery processes and lipid technology, these patents, to the best of our knowledge and based upon our current scientific data, are the only intellectual property necessary to develop our current drug delivery system using our proposed drugs. We do not believe that any other company is developing a drug delivery technology similar to ours or that we violating any other patents in developing our technology.
We may have to resort to litigation to protect our rights for certain intellectual property, or to determine their scope, validity or enforceability. Enforcing or defending our rights is expensive, could cause diversion of our resources and may not prove successful. Any failure to enforce or protect our rights could cause us to lose the ability to exclude others from using our technology to develop or sell competing products.
We currently and will continue to depend heavily on third parties for support in research and development and clinical and pre-clinical testing. We have a five year agreement with University of Medicine and Dentistry of New Jersey in which we utilize certain identified facilities for research and development and for certain activities in connection with anticipated clinical trials. Research and development and clinical trials involve a complex process, and University of Medicine and Dentistry of New Jersey's facilities may not be sufficient. Inadequate facilities could delay clinical trials of our drugs and result in delays in regulatory approval and commercialization of our drugs, either of which would materially harm our business. We intend to utilize a portion of the proceeds of this offering to establish an independent facility to replace our facility at the university. To date, we have not identified the location, negotiated leases or equipment purchases, and accordingly, we are subject to various uncertainty and risks which may be associated with the potential establishment of a new facility.
We may rely on third party contract research organizations, service
providers and suppliers to support development and clinical testing of our
products. Failure of any of these contractors to provide the required services
in a timely manner or on reasonable commercial terms could materially delay the
development and
approval of our products, increase our expenses and materially harm our business, financial condition and results of operations.
KEY COMPONENTS OF OUR DRUG DELIVERY AND AUTOLOGOUS HIV THERAPY TECHNOLOGIES MAY BE PROVIDED BY SOLE OR LIMITED NUMBERS OF SUPPLIERS, AND SUPPLY SHORTAGES OR LOSS OF THESE SUPPLIERS COULD RESULT IN INTERRUPTIONS IN SUPPLY OR INCREASED COSTS.
Certain components used in our research and development activities such as lipids are currently purchased from a single or a limited number of outside sources. For example, we currently purchase our lipid supplies from Avanti Polar Lipids. The reliance on a sole or limited number of suppliers could result in:
- potential delays associated with research and development and clinical and pre-clinical trials due to an inability to timely obtain a single or limited source component;
- potential inability to timely obtain an adequate supply of required components; and
- potential of reduced control over pricing, quality and timely delivery.
We do not have long-term agreements with any of our suppliers, and therefore the supply of a particular component could be terminated without penalty to the supplier. Any interruption in the supply of components could cause us to seek alternative sources of supply or manufacture these components internally. If the supply of any components is interrupted, components from alternative suppliers may not be available in sufficient volumes within required timeframes, if at all, to meet our needs. This could delay our ability to complete clinical trials, obtain approval for commercialization or commence marketing; or cause us to lose sales, incur additional costs, delay new product introductions or harm our reputation.
Further, components from a new supplier may not be identical to those provided by the original supplier. Such differences if they exist could affect product formulations or the safety and effect of our products that are being developed.
As of the date of this prospectus and based upon our discussions with these suppliers, we do not foresee nor have any current reason to believe that there will be any meaningful interruption, delay, or termination of supplies.
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND ONCE OUR PRODUCTS ARE APPROVED WE
MAY NOT BE ABLE TO MANUFACTURE SUFFICIENT QUANTITIES AT AN ACCEPTABLE COST
We remain in the research and development and clinical and pre-clinical trial phase of product commercialization. Accordingly, once our products are approved for commercial sale we will need to establish the capability to commercially manufacture our product(s) in accordance with FDA and other regulatory requirements. We have limited experience in establishing, supervising and conducting commercial manufacturing. If we fail to adequately establish, supervise and conduct all aspects of the manufacturing processes, we may not be able to commercialize our products. We do not presently own manufacturing facilities necessary to provide clinical or commercial quantities of our intended products.
We presently plan to rely on third party contractors to manufacture part or all of our products. This may expose us to the risk of not being able to directly oversee the production and quality of the manufacturing process. Furthermore, these contractors, whether foreign or domestic, may experience regulatory compliance difficulty, mechanic shut downs, employee strikes, or any other unforeseeable acts that may delay production.
DUE TO OUR LIMITED MARKETING, SALES AND DISTRIBUTION EXPERIENCE, WE MAY BE UNSUCCESSFUL IN OUR EFFORTS TO SELL OUR PRODUCTS, ENTER INTO RELATIONSHIPS WITH THIRD PARTIES OR DEVELOP A DIRECT SALES ORGANIZATION
Except for our non-exclusive distribution agreement with BioTech Specialty Partners, Inc., a development-stage company affiliated with Dr. Francis E. O'Donnell, a member of our management and significant beneficial owner of our securities, we have yet to establish marketing, sales or distribution capabilities for our proposed products. Until such time as our products are further along in the regulatory process, we will not
devote any meaningful time and resources in this regard. At the appropriate time, we intend to enter into agreements with third parties to sell our products or we may develop our own sales and marketing force. We may be unable to establish or maintain third-party relationships on a commercially reasonable basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors.
If we do not enter into relationships with third parties for the sales and marketing of our products, we will need to develop our own sales and marketing capabilities. We have limited experience in developing, training or managing a sales force. If we choose to establish a direct sales force, we may incur substantial additional expenses in developing, training and managing such an organization. We may be unable to build a sales force on a cost effective basis or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete against these other companies. We may be unable to establish a sufficient sales and marketing organization on a timely basis, if at all.
We may be unable to engage qualified distributors. Even if engaged, these distributors may:
- fail to satisfy financial or contractual obligations to us;
- fail to adequately market our products;
- cease operations with little or no notice to us; or
- offer, design, manufacture or promote competing products.
If we fail to develop sales, marketing and distribution channels, we would experience delays in product sales and incur increased costs, which would harm our financial results.
IF WE ARE UNABLE TO CONVINCE PHYSICIANS AS TO THE BENEFITS OF OUR INTENDED PRODUCTS, WE MAY INCUR DELAYS OR ADDITIONAL EXPENSE IN OUR ATTEMPT TO ESTABLISH MARKET ACCEPTANCE.
Broad use of our drug delivery technology may require physicians to be informed regarding our intended products and the intended benefits. The time and cost of such an educational process may be substantial. Inability to successfully carry out this physician education process may adversely affect market acceptance of our products. We may be unable to timely educate physicians regarding our intended products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds towards physician education before any acceptance or demand for our products is created if at all.
WE MAY HAVE DIFFICULTY RAISING NEEDED CAPITAL IN THE FUTURE BECAUSE OF OUR
LIMITED OPERATING HISTORY AND BUSINESS RISKS ASSOCIATED WITH OUR COMPANY.
Our business currently does not generate any sales from our proposed products and revenue from grants and collaborative agreements may not be sufficient to meet our future capital requirements. We do not know when this will change. We have expended and will continue to expend substantial funds in the research, development and clinical and pre-clinical testing of our drug delivery technology and autologous HIV immunotherapeutic. We will require additional funds to conduct research and development, establish and conduct clinical and pre-clinical trials, commercial-scale manufacturing arrangements and to provide for the marketing and distribution of our products. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable from any available source, we may have to delay, reduce the scope of or eliminate one or more of our research or development programs or product launches or marketing efforts which may materially harm our business, financial condition and results of operations.
Our long term capital requirements which will exceed the anticipated net proceeds of this offering, are expected to depend on many factors, including:
- the number of potential products and technologies in development;
- continued progress and cost of our research and development programs;
- progress with pre-clinical studies and clinical trials;
- the time and costs involved in obtaining regulatory clearance;
- costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
- costs of developing sales, marketing and distribution channels and our ability to sell our drugs;
- costs involved in establishing manufacturing capabilities for commercial quantities of our drugs;
- competing technological and market developments;
- market acceptance or our products;
- costs for recruiting and retaining employees and consultants; and
- costs for training physicians
We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We may seek to raise any necessary additional funds through the exercising of warrants, equity or debt financings, collaborative arrangements with corporate partners or other sources, which may be dilutive to existing stockholders or otherwise have a material effect on our current or future business prospects. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, we may have to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek to develop or commercialize ourselves. If adequate funds are not available, we may be required to significantly reduce or refocus our development efforts with regards to our drug delivery technology and the proposed encapsulation of certain drugs. Although this problem has not been a significant problem to us in the past, it is an ongoing threat which our management closely monitors and spends a substantial amount of their time evaluating.
RISKS RELATED TO OUR INDUSTRY
THE MARKET FOR OUR PRODUCTS IS RAPIDLY CHANGING AND COMPETITIVE, AND NEW DRUG DELIVERY MECHANISMS, DRUG DELIVERY TECHNOLOGIES, NEW HIV THERAPEUTICS, NEW DRUGS AND NEW TREATMENTS WHICH MAY BE DEVELOPED BY OTHERS COULD IMPAIR OUR ABILITY TO MAINTAIN AND GROW OUR BUSINESS AND REMAIN COMPETITIVE
The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Developments by others may render our technologies and intended products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors' financial, marketing, manufacturing and other resources.
We are a development-stage enterprise and are engaged in the development of novel drug delivery and therapeutic technologies. As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our technology. Our competitors may develop drug delivery technologies and drugs that are safer, more effective or less costly than our intended products and, therefore, present a serious competitive threat to us.
The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized. Many of our targeted diseases and conditions can also be treated by other medication or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for our technologies and products to receive widespread acceptance if commercialized.
IF USERS OF OUR PRODUCTS ARE UNABLE TO OBTAIN ADEQUATE REIMBURSEMENT FROM THIRD-PARTY PAYORS, OR IF NEW RESTRICTIVE LEGISLATION IS ADOPTED, MARKET ACCEPTANCE OF OUR PRODUCTS MAY BE LIMITED AND WE MAY NOT ACHIEVE ANTICIPATED REVENUES
The continuing efforts of government and insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially harm our business, financial condition and results of operations.
Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payors are increasingly challenging the prices charged for medical drugs and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and drugs, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our drugs. The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could materially harm our ability to operate profitably.
WE COULD BE EXPOSED TO SIGNIFICANT DRUG LIABILITY CLAIMS WHICH COULD BE TIME CONSUMING AND COSTLY TO DEFEND, DIVERT MANAGEMENT ATTENTION AND ADVERSELY IMPACT OUR ABILITY TO OBTAIN AND MAINTAIN INSURANCE COVERAGE.
The testing, manufacture, marketing and sale of our intended products involve an inherent risk that product liability claims will be asserted against us. We currently have a general liability policy with an annual aggregate limit of $2 million with a $1 million limit per occurrence which does not provide coverage for product liability. All of our pre-clinical trials have been and all of our proposed clinical and pre-clinical trials are anticipated to be conducted by collaborators and third party contractors. We currently do not have insurance which relate to product liability or insurance related to clinical or pre-clinical trials. We intend to seek insurance against such risks before our product sales are commenced. Even if we obtain insurance, it may prove inadequate to cover claims and/or litigation costs. The cost and availability of such insurance are unknown. Product liability claims or other claims related to our intended products, regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost. 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 our drug delivery technology. A product liability claim could also significantly harm our reputation and delay market acceptance of our intended products.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS RELATED TO HANDLING REGULATED SUBSTANCES WHICH COULD SEVERELY AFFECT OUR ABILITY TO CONDUCT RESEARCH AND DEVELOPMENT OF OUR DRUG DELIVERY TECHNOLOGY
In connection with our research and development activities and our
manufacture of materials and drugs, we are subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens and wastes. Although we believe that we
have complied with the applicable laws, regulations and policies in all material
respects and have not been required to correct any material noncompliance, we
may be required to incur significant costs to comply with environmental and
health and safety regulations in the
future. Our research and development may in the future involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and narcotics. The current hazardous chemicals that we currently use, which may change as our research progresses, are chloroform and methanol. We are licensed to use these and other hazardous chemicals in our facilities through our affiliation with the University Medicine and Dentistry of New Jersey. The university also disposes these chemicals from our premises as part of our agreement to use the facilities and carries general liability insurance in this regard.
Although we believe that our safety procedures for storing, handling and disposing of such materials will comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE AFTER THIS OFFERING WILL BE SUBJECT TO MARKET FACTORS, AND
YOUR INVESTMENT IN OUR SECURITIES COULD DECLINE IN VALUE
After this offering, an active trading market in our securities might not develop or continue. If you purchase shares of our securities in the offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters based upon an assessment of the valuation of our business, market factors and associated securities. The public market may not agree with or accept this valuation, in which case you may not be able to sell your securities at or above the initial offering price. See "Underwriting." The market price of our securities may fluctuate significantly in response to factors which are beyond our control.
In addition, the market prices of securities of biotechnology and pharmaceutical companies have been extremely volatile, and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could result in extreme fluctuations in the price of our securities, which could cause a decline in the value of your securities.
FUTURE SALES OF OUR SECURITIES MAY DEPRESS OUR STOCK PRICE AND CAUSE A
SUBSTANTIAL LOSS TO PURCHASERS OF OUR SECURITIES
Within 45 days of the completion of this offering, as many as an additional 15% of the Units in this Offering may be purchased and subsequently resold by the underwriters. If substantial amounts of our securities were to be sold in the public market by the underwriters following this offering, the market price of our securities could fall. In addition, these sales could create the perception to the public of difficulties or problems in our business. As a result, these sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. For a more detailed discussion of shares eligible for sale after this offering, see "Shares Eligible for Future Sale."
The Units offered by this prospectus include Class A warrants to purchase up to an additional 2,000,000 shares (2,300,000 shares if the overallotment option is exercised in full) of our common stock at an exercise price of 120% of the purchase price of the Units per share.
Under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted shares of common stock for at least one year, including the holding period of any prior owner who is not an affiliate, would be entitled to sell a number of the shares within any three-month period equal to the greater of 1% of the then outstanding shares of the common stock or the average weekly reported volume of trading of the common stock on the NASDAQ Small Cap Market during the four calendar weeks preceding such sale. Immediately after the offering, 1% of our outstanding shares of common stock would equal approximately 70,009 shares commencing 90 days after the date of our prospectus and approximately shares would be eligible for resale under Rule 144. Under Rule 144, restricted shares are subject to manner of sale and notice requirements and requirements as to the availability of current public information concerning us.
THE REDEMPTION OF OUR WARRANTS IN THIS OFFERING MAY ADVERSELY AFFECT POTENTIAL
INVESTORS.
The warrants in this offering are redeemable, in whole or in part, pursuant to the following terms:
Our Class A warrants will be redeemable for $.10 per warrant upon 30 days written notice to the warrant holder; provided that (i) the underlying shares of common stock are eligible for resale under the Securities Act pursuant to an effective Registration Statement; (ii) the average closing sale price of our common stock equals or exceeds 150% for the 10 trading days prior to the date of the notice of redemption; and (iii) that 12 months has elapsed since the date of this prospectus.
Notice of redemption of the warrants could force holders to exercise the warrants and pay the exercise price therefor at the time when it may be disadvantageous for them to do so, sell the warrants at the current market price when they might otherwise wish to hold the warrants or accept the redemption price which is likely to be substantially less than the market value of the warrants at the time of redemption.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS.
Holders of our warrants will be able to sell their shares of common stock issuable upon exercise of the warrants only if a current registration statement relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the applicable state or states. We have undertaken and intend to file and keep current a registration statement covering the shares of common stock issuable upon exercise of the warrants, but there can be no assurance that we will be able to do so. Although we intend to seek to qualify such shares of common stock for sale in those states where the Units are to be offered, there is no assurance that such qualification will occur. The warrants may be deprived of any value if the current registration statement covering the shares underlying the warrants is not effective and available or such underlying shares are not or cannot be registered in the applicable states.
OUR CERTIFICATE OF INCORPORATION, OUR BYLAWS AND DELAWARE LAW CONTAIN
PROVISIONS THAT PRESERVE OUR CURRENT MANAGEMENT.
We intend to become a Delaware corporation immediately prior to the date of this prospectus. Provisions of Delaware law, our certificate of incorporation and by-laws may discourage, delay or prevent a change in our management team that stockholders may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock without any need for action by stockholders;
- eliminating the ability of stockholders to call special meetings of stockholders;
- permitting stockholder action by written consent; and
- establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
These provisions could allow our board of directors to affect your rights as a stockholder since our board of directors can make it more difficult for common stockholders to replace members of the board. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace our current management team.
THE INVESTMENT RISK IN THIS OFFERING WILL BE SUBSTANTIALLY BORNE BY PUBLIC
INVESTORS.
Our current stockholders paid a relatively small amount of consideration for their shares or paid nothing and received such shares as compensation, while public investors in this offering will pay a substantially higher price. This creates a situation in which a larger portion of the investment risk will shift to the public investors participating in this offering.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
OF THEIR INVESTMENT
We expect that the initial public offering price of the Units will significantly exceed the net tangible book value per share of the outstanding common stock after this offering. Based upon an offering price per Units at
$5.50 per unit, you will incur immediate dilution of approximately $4.27 (78% dilution of value) in net tangible book value for each share of our common stock included in the Units you purchase. If currently outstanding options or warrants to purchase our common stock are exercised, your investment may be further diluted. Accordingly, purchasers of our securities will suffer immediate and substantial dilution of their investment. Although the amount of dilution may vary, holders of the Class A warrants will also suffer immediate and substantial dilution upon exercise of such securities. In the past, we have issued options to acquire common stock at prices below the initial public offering price.
LIMITED EXPERIENCE OF THE REPRESENTATIVE COULD AFFECT THIS OFFERING AS WELL AS
THE PRICE OF OUR SHARES IN THE SECONDARY MARKET.
Our underwriter has not acted as lead underwriter in any firm commitment public offering in the last 3 years. No assurance can be given that Roan/Meyers Associates, LLP's limited public offering experience will not affect the subsequent development of a trading market. Investors should consider this lack of public offering experience in making an investment decision. See "Underwriting".
RISKS RELATED TO OUR MANAGEMENT AND KEY EMPLOYEES
WE DEPEND UPON KEY PERSONNEL WHO MAY TERMINATE THEIR EMPLOYMENT WITH US AT ANY
TIME, AND WE WILL NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
Our success will depend to a significant degree upon the continued services of key management, technical, and scientific personnel, including Drs. Francis O'Donnell, Raphael Mannino, Leila Zarif and Susan Gould-Fogerite. With the exception of Dr. Gould-Fogerite, our key scientific personnel devote full time to the company. Dr. Gould-Fogerite has on-going obligations as a professor at the University of Medicine and Dentistry of New Jersey. Our executives, including Dr. O'Donnell and Mr. McNulty, have been intentionally employed on a "part-time as required" basis to reduce overhead costs. At such time as our board of directors deems it is necessary, we anticipate that a number of our executives will become full-time or recruit/hire as necessary. We have identified and are in discussions with potential replacement candidates for Dr. O'Donnell, as Chief Executive Officer, although we do not believe that any such candidate will accept a position with us until we receive funding and are sufficiently capitalized. Dr. O'Donnell is prepared to resign as an officer after this offering is consummated, an acceptable replacement has been identified and accepts such a position on terms acceptable to us. Most of the key scientific personnel have been involved with this research for at least 3 years and we do not believe that attracting additional employees will be difficult, assuming the completion of this offering. We have identified many qualified people in our geographic area who we believe would be receptive to an offer for employment.
We have applied for "key man" life insurance policies for Drs. Raphael Mannino and Leila Zarif in the amount of $2,000,000 each. This insurance, if issued, may not adequately compensate us for the loss of their services. In addition, our success will depend on our ability to attract and retain other highly skilled personnel. Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable to recruit such personnel on a timely basis, if at all. Our management and other employees may voluntarily terminate their employment with us at any time. The loss of the services of key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to development or approval, loss of sales and diversion of management resources.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Plan of Operation," "Description of Business," and elsewhere in this prospectus are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in these risk factors and elsewhere in this prospectus could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results.
USE OF PROCEEDS
The net proceeds (excluding any proceeds from the exercise of any warrants) from the sale of the 2,000,000 Units in this offering are estimated to be approximately $9,055,500, based upon an assumed initial public offering price of $5.50 per unit and after deducting estimated underwriting discounts and commissions ($880,000) and our estimated offering expenses ($1,071,100) consisting primarily of non-accountable expenses, SEC registration fees, legal, accounting and transfer agent and registrar expenses. If the underwriters' over-allotment option is exercised in full, the additional net proceeds would be approximately $1,485,000. We currently intend to use the net proceeds of this offering as follows:
AMOUNT PERCENTAGE OF
CATEGORY ALLOCATED TOTAL PROCEEDS
-------- ---------- --------------
Product Development(1)................................... $6,000,000 66.3%
Licensing and Other Marketing Activities................. $ 800,000 8.8%
Payment of Debt(2)....................................... $ 617,000 6.8%
Payment of stockholder tax liability(3).................. $ 200,000 2.2%
General and Administrative Support and Working
Capital(4)............................................. $1,438,500 15.9%
---------- ----
Total Net Proceeds....................................... $9,055,500 100%
========== ====
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(1) approximately $6,000,000 to the further research and development of our drug delivery technology as well as our proposed drugs and our patient-specific HIV therapy, including research and development expenses, clinical and pre-clinical trial expenses, expenses associated with seeking regulatory approvals and expenses associated with the product manufacturing and marketing upon approval; and
(2) approximately $617,000 for repayment of debt. Approximately $337,275 of the debt was primarily incurred in 2001 in connection with our purchase of approximately 9% of the outstanding capital stock of BioDelivery Sciences, Inc. and settlement of certain litigation matters with a prior officer and stockholders of BioDelivery Sciences, Inc. The remaining $280,000 of the debt was incurred under a line of credit which was guaranteed and collateralized by Dr. O'Donnell and Mr. Ferguson, members of our management. The line of credit permits us to borrow up to $450,000. See "Legal Proceedings".
(3)reflects estimated taxes to be paid by us to certain stockholders in conjunction with the January 2002 merger with BioDelivery Science, Inc.
(4) approximately $1,638,500 for working capital and corporate purposes.
The amount of cash that we actually expend for any of the described purposes and the timing of any such expenditures may vary based on a number of factors, including the progress of our research and development programs and clinical trials, the establishment of collaborative relationships, the cost and pace of establishing and expanding our manufacturing capabilities, the development of sales and marketing activities if undertaken by us and competing technological and market developments.
Proceeds received by us as a result of the exercise of the Class A warrants will be used for working capital purposes.
We expect the proceeds to last approximately 12 months. Our management will have significant discretion in applying the net proceeds of this offering. Pending the uses described above, we will invest the net proceeds in investment-grade, interest-bearing securities. We intend to invest the net proceeds of this offering so as to avoid being subject to the registration requirements of the Investment Company Act of 1940, as amended, unless an exemption from such registration is available, because such registration would subject us to substantial regulations that could have a material adverse effect on our business.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or other securities and we do not intend to pay any cash dividends with respect to our common stock in the foreseeable future. For the foreseeable we intend to retain any earnings for use in the operation of our business and to fund future growth.
CAPITALIZATION
The following table sets forth our total capitalization as of September 30, 2001, on an actual basis, on a pro forma basis to reflect the December 2001 rescission of our outstanding preferred stock in December 2001 and issuance of common stock in lieu thereof and the completion of the January 2002 merger with BioDelivery Sciences, Inc., and on an as adjusted basis to reflect the sale of the 2,000,000 Units in this offering at an assumed initial public offering price of $5.50 per Unit after deducting estimated underwriting discounts and commissions and our estimated offering expenses. This calculation excludes the proceeds from the exercise of the Class A warrants or other outstanding options.
You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Plan of Operations" and the consolidated financial statements and related notes to the financial statements.
ACTUAL PRO FORMA(3)(4) AS ADJUSTED
----------- --------------- -----------
Capital Lease Payable................ $ 33,173 $ 33,173 $ 33,173
Notes Payable........................ 337,275(1) 337,275 --
Line of credit....................... 75,000(2) 75,000 --
Redeemable Common Stock.............. 2,346 -- --
Stockholders' Equity (Deficit):
Preferred Stock, $.001 par value;
20,000,000 shares authorized;
462,243 shares of Preferred
Stock issued and outstanding (no
shares outstanding pro forma or
as adjusted).................... 462 -- --
Common Stock, $.001 par value;
80,000,000 shares authorized;
4,018,307, 5,000,862 and
7,000,862 shares of Common Stock
issued and outstanding.......... 4,018 5,001 7,001
Additional paid-in capital........... 2,310,215 5,173,762 14,227,262
Deficit accumulated during
development stage.................. (2,642,610) (5,103,262) (5,103,262)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (327,915) 75,501 9,131,001
----------- ----------- -----------
Total capitalization....... $ 119,879 $ 520,949 $ 9,164,174
=========== =========== ===========
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(1)The Notes Payable will be paid out of the proceeds of this offering. Represents debt incurred as part of a litigation settlement with a former officer and stockholder. See "Legal Matters".
(2)The line of credit is guaranteed and collateralized by Dr. O'Donnell and Mr. Ferguson, members of our management.
(3)Subsequent to September 30, 2001, all outstanding shares of preferred stock were rescinded and 462,243 shares of common stock were issued (on a one share for one share basis).
(4)As part of the January 2002 merger with BioDelivery Sciences, Inc. we issued 520,313 shares of common stock. Of these, 72,922 shares were considered acquisition of a minority interest at a value of $5.50 per share or $401,070. The remaining 447,391 shares, representing permanent discount common stock, are variable compensatory awards until all restrictions are removed and the underlying debt forgiven -- which is expected to occur upon the completion of this offering resulting in compensation expense of approximately $2,460,652.
DILUTION
Our net tangible book value as of September 30, 2001 was a deficit of approximately $467,000 or $(0.12) per share of common stock. Net tangible book value per share represents our stockholders' equity less intangible assets divided by the number of shares of common stock outstanding. After giving effect to the rescission of the preferred stock and issuance of 462,243 shares of common stock and the January 2002 merger between us and BioDelivery Sciences Inc., the pro forma net tangible book value as of September 30, 2001 would be a deficit of $(0.09) per share of common stock. Dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering.
After giving effect to the sale of 2,000,000 Units offered by us, at an assumed initial public offering price of $5.50 per Unit and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us as part of the Units, and the application of the estimated net proceeds, our net tangible book value at September 30, 2001 would have been $8.6 million, or $1.23 per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $1.32 per share and an immediate dilution to new investors of $4.27 per share, or 78% of the purchase price value. These calculations exclude the shares of common stock underlying the 2001 Incentive Option Plan and any warrants or options, including the Class A warrants.
The following table illustrates the pro forma information with respect to dilution to new investors on a per share basis:
Public offering price per share............................. $ 5.50 Net tangible book value per share before this offering...... $(0.12) Effect of merger with subsidiary and the rescission of preferred stock and issuance of common stock.............. $ 0.03 Pro forma net tangible book value per share before this offering.................................................. ($0.09) Increase per share attributable to new investors............ $ 1.32 Net tangible book value per share after this offering....... $ 1.23 Dilution to new investors(1)................................ $ 4.27 |
(1) If the over-allotment option were exercised in full, the net tangible book value after this offering would be approximately $1.38 per share, resulting in dilution to new investors in this offering of $4.12 per share or 75% of the purchase price value.
The following table sets forth on a pro forma basis as of September 30, 2001, giving effect to the pro forma events described above, the Units purchased from us, the total consideration paid to us (after offering expenses) and the average price per share (i) paid by the existing stockholders and (ii) paid by the purchasers of the Units in this offering, assuming the sale of 2,000,000 units at an assumed public offering price of $5.50 per Unit, ascribing no portion of the value of a unit to the Class A warrants, and the receipt of the net proceeds therefrom. The calculation in this table with respect to shares of common stock to be purchased by new investors in this offering excludes shares of common stock issuable upon exercise of the Class A warrants.
SHARES PURCHASE TOTAL CONSIDERATION
--------------------- ---------------------
NUMBER PERCENT AMOUNT PERCENT
----------- ------- ----------- -------
Existing stockholders..................... 5,000,862 71.4% $ 2,317,040 17.4%
New Investors............................. 2,000,000 28.6% $11,000,000 82.6%
----------- ----- ----------- -----
Total........................... 7,000,862 100% $13,317,040 100%
=========== ===== =========== =====
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This table assumes no exercise of the underwriters' over-allotment option nor the representative's unit purchase option, nor any option under the 2001 Incentive Stock Option Plan, the Class A warrants or any other outstanding options or warrants of which there will be 3,949,126 outstanding.
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial and operating data should be read in conjunction with and are qualified by reference to "Management's Discussion and Analysis of Financial Condition and Plan of Operation" and our financial statements and related notes, which are included elsewhere in this prospectus. The selected financial data for the period from inception through December 31, 1998 (unaudited) and the years ended December 31, 1999 and 2000 have been derived from our audited financial statements included elsewhere in this prospectus. The selected financial data for the nine months ended September 30, 2000 and 2001 have been derived from our unaudited financial statements, which include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. The selected financial data for the year ended December 31, 1999 and the nine-month period ended September 30, 2000 have been derived from the audited financial statements of BioDelivery Sciences, Inc. included elsewhere in this prospectus. The selected financial data for the period from inception through December 31, 1998 have been derived from the unaudited financial statements of BioDelivery Sciences, Inc. which include all adjustments, consisting of normal recurring accruals, which BioDelivery Sciences, Inc. considers necessary for a fair presentation of the results of operations for this period. Historical operating results are not necessarily indicative of results in the future, and the results for interim periods are not necessarily indicative of the results that may be expected for the entire year.
BIODELIVERY SCIENCES, INC.(1)
-------------------------------------------
PERIOD FROM NINE
INCEPTION MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED) (AUDITED) (AUDITED)
STATEMENT OF OPERATIONS DATA:
Sponsored research
revenues................... $5,159,500 $1,565,000 $ 614,001
Research and development
expenses................... 4,662,606 1,333,287 820,551
General and administrative
expenses................. 201,700 159,053 62,480
---------- ---------- ---------
Income (loss) from
operations............... 295,194 72,660 (269,030)
Interest income, net......... 127,454 34,430 25,290
---------- ---------- ---------
Income (loss) before income
taxes and minority
interest................... 422,648 107,090 (243,740)
Income tax expense
(benefit).................. 207,082 14,579 (37,736)
---------- ---------- ---------
Income (loss) before minority
interest................... 215,566 92,511 (206,004)
Minority Interest............ -- -- --
---------- ---------- ---------
Net income (loss).......... $ 215,566 $ 92,511 $(206,004)
========== ========== =========
Net loss per common share --
basic and diluted............
Weighted average common shares
outstanding -- basic and
diluted......................
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 212,357 $ 580,465
Total assets................. 588,076 974,956
Total indebtedness........... 2,346 392,025
Stockholders' equity
(deficit).................. 308,477 102,473
BIODELIVERY SCIENCES INTERNATIONAL, INC.(1)
--------------------------------------------------------------------------
PERIOD FROM
INCEPTION NINE MONTHS ENDED
THROUGH YEAR ENDED YEAR ENDED -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 2000 2000 2001
------------ ------------ ------------ ------------- -------------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Sponsored research
revenues................... $ -- $ -- $ 56,000 $ -- $ 36,385
Research and development
expenses................... -- -- 312,736 -- 1,143,736
General and administrative
expenses................. 57 18 540,239 14 869,980
---- ----------- ----------- ----------- -----------
Income (loss) from
operations............... (57) (18) (796,975) (14) (1,977,331)
Interest income, net......... 21,772 7,527
---- ----------- ----------- ----------- -----------
Income (loss) before income
taxes and minority
interest................... (57) (18) (775,203) (14) (1,969,804)
Income tax expense
(benefit).................. -- -- -- -- --
---- ----------- ----------- ----------- -----------
Income (loss) before minority
interest................... (57) (18) (775,203) (14) (1,969,804)
Minority Interest............ -- -- 102,472 -- --
---- ----------- ----------- ----------- -----------
Net income (loss).......... $(57) $ (18) $ (672,731) $ (14) $(1,969,804)
==== =========== =========== =========== ===========
Net loss per common share --
basic and diluted............ $ -- $ (0.19) $ -- $ (0.53)
=========== =========== =========== ===========
Weighted average common shares
outstanding -- basic and
diluted...................... 3,512,586 3,512,586 3,512,586 3,744,394
=========== =========== =========== ===========
BALANCE SHEET DATA:
Cash and cash equivalents.... $ -- $ 950,939 $ -- $ 126,924
Total assets................. 36 1,288,934 22 601,326
Total indebtedness........... -- 42,025 -- 447,794
Stockholders' equity
(deficit).................. 36 337,305 22 (327,915)
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(1) The table covers periods before and after the Company acquired its controlling interest (approximately 84.8% voting interest) from BioDelivery Sciences, Inc. on October 10, 2000. The operations of BioDelivery Sciences, Inc. for the period October 1, 2000 through October 10, 2000 were not material.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus.
LIMITED OPERATING HISTORY; BACKGROUND OF OUR COMPANY
We are a development-stage company and we expect to continue research and development of our drug delivery technology. As such, we do not anticipate any revenues from the sale or commercialization of our products under development within the next 12 months. The funding will come primarily from the sale of securities, exercise of warrants, collaborative research agreements, including pharmaceutical companies, grants from public service entities and government entities.
In 2001, the National Institutes of Health awarded us a Small Business Innovation Research Grant, which will be utilized in our research and development efforts. NIH has formally awarded us a 2001 grant of $883,972, of which we have received approximately $479,000 in 2001 and expect to receive the remainder through June 2002. This grant is more fully discussed below under Liquidity and Capital Resources. Although there can be no assurance that the full grant will be realized, we expect to receive a total of approximately $2.7 million related to our initial application for the grant through June 2004, assuming that we continue to achieve positive results from the research. The grant is subject to provisions for monitoring set forth in NIH Guide for Grants and Contracts dated February 24, 2000, specifically, the NIAID Policy on Monitoring Grants Supporting Clinical Trials and Studies. If NIH believes that satisfactory progress is not achieved by us, the total expected funding amounts noted above may be reduced or eliminated.
We have a limited history of operations and anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future. Prior to our acquisition of a majority interest in BioDelivery Sciences, Inc., we had no operations. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies in new and rapidly evolving markets such as pharmaceuticals, drug delivery, and biotechnology. For the foreseeable future, we must, among other things, seek regulatory approval for and commercialize our drugs, which may not occur. We may not address these risks and difficulties. We may require additional funds to complete the development of our drugs and to fund operating losses to be incurred in the next several years.
On a combined basis (our company and BioDelivery Sciences, Inc.) since inception through September 30, 2001, we received approximately $7.4 million of sponsored research revenue. $6.7 million of the funding was from a single commercial entity, American Cyanamid Company. The contract was completed, as amended, in 2000. Of the remaining $0.7 million, approximately $0.2 million was received from the National Institutes of Health.
Our operations include the results of operations of BioDelivery Sciences, Inc. which we refer to as BioDelivery Sciences Inc. BioDelivery Sciences Inc. was incorporated in Delaware in March 1995. Effective October 10, 2000, we acquired Series A Preferred Stock of BioDelivery Sciences Inc. for an aggregate purchase price of $15,000,000, consisting of $1,000,000 in cash and a note of $14,000,000. Through the purchase of the Series A Preferred Stock, we acquired 84.8% of the voting rights of BioDelivery Sciences Inc. Prior to our acquisition of our interest in BioDelivery Sciences Inc., we had no operations. All of the science related to our drug delivery technology has been developed through BioDelivery Sciences Inc. and its relationship with the University of Medicine and Dentistry of New Jersey and Albany Medical College.
In 2001, we acquired common stock of BioDelivery Sciences Inc. from a group of its stockholders which resulted in our owning an additional 9% (representing 1.4% of the voting rights of BioDelivery Sciences, Inc.) of the common stock of BioDelivery Sciences Inc. This purchase settled outstanding litigation with a former officer and stockholder group.
Further, in January, 2002, we finalized an agreement with BioDelivery Sciences Inc. whereby we would merge with BioDelivery Sciences Inc. and the remaining stockholders of BioDelivery Sciences Inc. would acquire 520,313 shares of our common stock. The merger was approved by the remaining stockholders holders of BioDelivery Sciences Inc. in January, 2002 and the merger was effected on January 7, 2002. As a result of the merger, the Series A preferred stock of BioDelivery Sciences Inc. which was owned by us is being canceled, as well as the outstanding $14,000,000 note issued in payment thereof.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Sponsored Research Revenue. During the nine-month period ended September 30, 2001, we reported approximately $36,000 of sponsored research revenues. With the exception of grants by the National Institutes of Health and funding provided to us through various collaborative agreements, we have not derived any revenues from our operations, technologies or products.
Research and Development. Research and development expenses of approximately $1.1 million were incurred during the nine-month period ended September 30, 2001. No research and development expenses were incurred in the comparable period in the prior year, since our acquisition of a controlling interest of BioDelivery Sciences, Inc. did not occur until October 10, 2000. Research and development expenses generally include: salaries for key scientific personnel, research supplies, facility rent, lab equipment depreciation, a portion of overhead operating expenses and other costs directly related to the development and application of the Bioral cochleate drug delivery technology. The estimated time to complete various research and development projects is contingent on many factors, including the process of obtaining FDA approval at different phases of completion. The risk and uncertainty associated with the completion date and costs of our research and development efforts is addressed under the caption Risk Factors.
General and Administrative Expense. General and administrative expenses of approximately $870,000 were incurred in the nine-month period ended September 30, 2001 including $380,000 of legal and related settlement costs as well as other legal and professional fees and other costs, including office supplies, conferences, travel costs, executive personnel costs, consulting fees related to the business plan formulation, website update and development, and other business development expenses. No significant general and administrative expenses were incurred in the comparable prior year period.
Interest Income. Interest income of $7,500 for the period ended September 30, 2001 was earned principally from invested cash and from notes receivable from employees. No interest income was earned in the comparable prior year period since our acquisition of a controlling interest in BioDelivery Sciences, Inc. had not yet occurred.
Income Taxes. While net operating losses were generated during the nine-month period ended September 30, 2001, we did not recognize any benefit associated with these losses, as all related deferred tax assets have been fully reserved for. Financial Accounting Standards Board Statement No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon available data, which includes our historical operating performance and our reported cumulative net losses in prior years, we have provided a full valuation allowance against our net deferred tax assets as the future realization of the tax benefit is not sufficiently assured.
FOR THE YEAR ENDED DECEMBER 31, 2000 (WHICH INCLUDES OUR OPERATIONS AFTER THE ACQUISITION OF OUR CONTROLLING INTEREST IN BIODELIVERY SCIENCES, INC.) COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Sponsored Research Revenue. During 2000, we reported $56,000 of sponsored research revenues. This revenue was generated from our research agreements with The American Cyanamid Company and Small Business Innovative Research grants and reflects the recognition of deferred revenue existing at October 10,
2000, the completion date of our acquisition of the controlling interest in BioDelivery Sciences, Inc. With the exception of certain grants and various collaborative agreements, we have not derived any other revenues from our operations. On a combined basis (our company and BioDelivery Sciences, Inc.) since inception through September 30, 2001, we received approximately $7.4 million of sponsored research revenue, $6.7 million of the funding was from a single commercial entity, American Cyanamid Company. That contract was completed, as amended, in 2000. Of the remaining $0.7 million, approximately $0.2 million was received from the National Institutes of Health.
Research and Development Expenses. Research and development expenses of approximately $313,000 in 2000 were incurred during the three-month period following our acquisition of a controlling interest in BioDelivery Sciences, Inc. No research and development expenses were incurred in the comparable period in the prior year, since our acquisition of a controlling interest in BioDelivery Sciences, Inc. had not yet occurred. Research and development expenses generally include: salaries for key scientific personnel, research supplies, facility rent, lab equipment depreciation, a portion of overhead operating expenses and other costs directly related to our development and application of the Bioral cochleate technology and other drug-related areas. The estimated time to complete various research and development projects is contingent on many factors, including the process of obtaining FDA approval at different phases of completion. The risk and uncertainty associated with the completion date and costs of our research and development efforts is addressed under the caption Risk Factors.
General and Administrative Expense. General and administrative expenses of approximately $540,000 in 2000 were incurred during the three-month period following our acquisition of BioDelivery Sciences, Inc. No significant general and administrative expenses were incurred in the comparable prior year period. These expenses are principally comprised of legal and settlement costs associated with a claim settled in 2001 of approximately $400,000, as well as other legal and professional fees and other costs, including office supplies, conferences, travel costs, executive personnel costs, consulting fees related to the business plan formulation, website update and development, and other business development expenses.
Income Taxes. While net operating losses were generated during the year ended December 31, 2000, we did not recognize any benefit associated with these losses. We had federal and state net operating loss carryforwards of approximately $600,000 and $900,000, respectively, at December 31, 2000. The federal net operating loss carryforwards will expire in 2020, if not utilized. The state net operating loss carryforwards will expire beginning in 2007, if not utilized. Financial Accounting Standards Board Statement No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon available data, which includes our historical operating performance and our reported cumulative net losses in prior years, we have provided a full valuation allowance against our net deferred tax assets as the future realization of the tax benefit is not sufficiently assured.
Minority Interest. Minority interest represents the amount of loss attributable to the common stockholders of BioDelivery Sciences, Inc. and is limited to the minority interest in equity of BioDelivery Sciences, Inc.
PRO FORMA ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1999
The following pro forma discussion was derived from our historical financial statements combined with those of BioDelivery Sciences, Inc. included elsewhere in this prospectus. With regard to the year ended December 31, 2000, the amounts include the historical results of operations of BioDelivery Sciences, Inc. for the nine month period ended September 30, 2000 and our results of operations for the year ended December 31, 2000, and exclude the effect of our January 2002 merger with BioDelivery Sciences Inc. With regard to the year ended December 31, 1999, the amounts are the historical results of operations of BioDelivery Sciences, Inc. and our company.
Sponsored Research Revenue. Revenue decreased to $670,001 for the period ending December 31, 2000 from $1.6 million for the year ending December 31, 1999. Revenue during both periods was principally
generated from a collaborative research agreement and certain grants, and was recognized as the related costs were incurred. We received the final payment under the principal collaborative agreement during the first quarter of 2000, resulting in the decreased revenue in 2000 compared to 1999.
Research and Development. Research and development expenses decreased to $1.1 million for the year ending December 31, 2000 from $1.3 million for the year ending December 31, 1999. The decrease in research and development efforts resulted from the decreased capital resources available during the second and third quarters of 2000 resulting from the reduction of funding from the principal collaborative research agreement noted above. As a result, BioDelivery Sciences, Inc. reduced its staffing and revised the timing of its business plan. Research and development expenses generally include salaries for key scientific personnel, research supplies, facility rent, lab equipment depreciation, a portion of overhead operating expenses and other costs directly related to the development and application of the Bioral cochleate technology. In 2000, research and development activities were also initiated in other drug-related areas.
General and Administrative Expense. General and administrative expenses increased to approximately $603,000 for the year ending December 31, 2000 from $159,000 for the year ending December 31, 1999. The increase in these expenses is principally comprised of legal cost, including approximately $380,000 attributed to the defense and ultimate settlement of a legal dispute.
Interest Income and Other Income. Interest and other income remained relatively constant between 2000 and 1999. Interest income was earned principally from invested cash and from notes receivable from employees.
Income Taxes. The income tax benefit recognized in 2000 of $38,000 is attributable to net operating losses that were carried back to periods in which taxes were paid. We fully utilized the amount available for loss carryback purposes and recognized a valuation allowance, as discussed above, for the deferred tax asset primarily resulting from net operating losses. The income tax expense recognized in 1999 of $15,000 was attributable to taxable income during the period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the sale of our convertible preferred stock and common stock. From inception through September 30, 2001, we raised approximately $1.8 million, net of issuance costs, through private placements or convertible preferred stock and common stock financings. At December 31, 2000, we had cash and cash equivalents totaling approximately $1.0 million. At September 30, 2001, we had cash and cash equivalents totaling approximately $127,000. The operations of BioDelivery Sciences, Inc., prior to our acquisition of a controlling interest on October 10, 2000, were financed primarily through funded research agreements.
In 2001, the National Institutes of Health awarded us a Small Business Innovation Research Grant, which will be utilized in our research and development efforts. NIH has formally awarded us a 2001 grant of $883,972, of which we have received approximately $479,000 in 2001 and expect to receive the remainder through June 2002. Additionally, this award refers to funding levels of $814,398 and $989,352 that we expect to be awarded in 2002 and 2003, respectively, subject to availability and satisfactory progress of the project in NIH's opinion. Therefore, we expect to receive a total of approximately $2.7 million related to our initial application for the grant through June 2004 assuming that we continue to achieve positive results from the research. Our initial application was for approximately $3.0 million. However, due to our proposed purchase of certain materials from sources outside the United States, the funding was accordingly reduced because NIH grants require materials to be purchased from U.S. based entities. The grant is subject to provisions for monitoring set forth in NIH Guide for Grants and Contracts dated February 24, 2000. If NIH believes that satisfactory progress is not achieved, the 2002 and 2003 amounts noted above may be reduced or eliminated in its sole discretion.
Working capital at December 31, 2000 was $84,000, which reflects our legal claim settlement liability as well as our liability incurred under our research agreement with the University of Medicine and Dentistry of New Jersey, for which payments were deferred. On April 1, 2001, we issued 137,300 shares of common stock
in consideration for payment in full of the approximate $500,000 payable to University of Medicine and Dentistry of New Jersey.
On a pro forma basis (our results combined with BDS) we used $253,000 of cash for operations in 2000 compared to cash provided by operations of $157,000 in 1999. The increase of cash used in operations was primarily attributable to decreased funded research revenue, partially offset by deferred payments on our research agreement with University of Medicine and Dentistry of New Jersey. We used $1.5 million of cash for operations in the nine months ended September 30, 2001, which reflects the partial payment of the legal settlement referred to above as well as increased research and development and administrative costs. On a pro forma basis (BioDelivery Sciences, Inc. combined with us) we have used $1.0 million of cash for operations since inception through September 30, 2001, net of sponsored research proceeds received since inception of $7.4 million.
Since our inception through September 30, 2001, we have incurred approximately $1.5 million of research and development expenses. Additionally, during the period March 28, 1995 (date of BioDelivery Sciences, Inc.'s incorporation) through the acquisition of a controlling interest in BioDelivery Sciences, Inc., we incurred approximately $6.8 million of research and development expenses.
We have also obtained a $450,000 unsecured line of credit personally guaranteed by Dr. Francis O'Donnell, our President and CEO and Donald Ferguson, our Senior Executive Vice President, for a period of one year as of December 2001 at a rate of 2% plus prime.
We have incurred significant net losses and negative cash flows from operations since our inception. As of September 30, 2001, we had an accumulated deficit of approximately $2.6 million.
We anticipate that cash used in operations and our investment in facilities will increase significantly in the future as we research, develop, and, potentially, manufacture our drugs. While we believe further application of our Bioral cochleate technology to other drugs will result in license agreements with manufacturers of generic and over-the-counter drugs, our plan of operations in the next 18 months is focused on our further development of the Bioral cochleate technology itself and its use in a limited number of applications, and not on the marketing, production or sale of FDA approved products.
We believe that our existing cash and cash equivalents, together with available equipment financing and the net proceeds of this offering will be sufficient to finance our planned operations and capital expenditures through at least the next 12 months. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. Accordingly, we may be required to raise additional capital through a variety of sources, including:
- the public equity market;
- private equity financing;
- collaborative arrangements;
- grants;
- public or private debt; and
- redemption and exercise of warrants.
There can be no assurance that additional capital will be available on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain of our drugs, technologies or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.
NEW ACCOUNTING PRONOUNCEMENTS.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets.
SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning January 1, 2002; however, certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. We do not believe that these standards will have any material effect on our financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement address financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The provisions of the statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
DESCRIPTION OF BUSINESS
OVERVIEW
We are a development-stage biotechnology company that is developing and seeking to commercialize a drug delivery technology designed for a potentially broad base of prescription drugs, vaccines, and over-the-counter drugs. Our proposed drug delivery technology encapsulates the selected drug in a jellyroll-like structure termed a "cochleate" cylinder. All of the components of the cochleate cylinder are naturally occurring substances. We believe that the cochleate cylinder provides an effective delivery mechanism without forming a chemical bond, or otherwise chemically altering, the drug. Our drug delivery technology is being developed in collaboration with the University of Medicine and Dentistry of New Jersey and the Albany Medical College which have granted us the exclusive worldwide licenses under applicable patents. When wrapped in our cochleate cylinders, we anticipate that these drugs may be marketed under our brand name, "Bioral".
We believe that our drug delivery technology is potentially applicable with a broad base of existing and new drugs, vaccine, and over-the-counter drugs. Once we have established our technology, we intend to seek commercialization through a combination of marketing approaches which, we anticipate may include marketing drugs no longer under patent protection under our brand name Bioral, licensing our drug delivery technology to other pharmaceutical companies with regard to certain patented, proprietary, or branded drugs and entering into various types of agreements with other bio-technology or pharmaceutical companies.
In addition to completing development of our drug delivery technology and initial Bioral products, we are also preparing an application seeking to begin Phase I clinical trials with the FDA with regard to our HIV therapy. This technology is being developed as a patient specific (autologous) therapy for treatment following HIV infection. Our autologous HIV therapy is based upon a patented proteoliposome technology which we believe facilitates uptake by cells responsible for stimulating immune responses. We believe that the ongoing research and development of this technology will require significant time and resources and we intend to primarily rely upon the availability of grants and corporate support to largely finance further development of this technology.
OVERVIEW OF THE DRUG DELIVERY INDUSTRY
The drug delivery industry develops technologies for the improved administration of certain drugs. These technologies have focused primarily on safety, efficacy, ease of patient use and patient compliance. Pharmaceutical and biotechnology companies view new and improved delivery technology as a way to gain competitive advantage through enhanced safety, efficacy, convenience and patient compliance of their drugs.
Drug delivery technologies can provide pharmaceutical and biotechnology companies with an avenue for developing new drugs, as well as extending existing drug patent protections. Drug delivery companies can also apply their technologies to drugs no longer patent protected.
We believe that focusing our drug delivery technology for use with existing FDA approved drugs to be less risky than attempting to discover new drugs. When management believes that the market opportunity exists and given the right circumstances however, we may consider devoting resources to discovering new drugs.
We intend primarily target drugs that have large established markets for which there is an established medical need and therefore doctors are familiar with the drug compounds and are accustomed to prescribing them. We anticipate that many of the drug candidates we target will have been through the regulatory process and therefore the safety and efficacy of the drug has been previously established. Consequently, we believe that our clinical trials would primarily need to show that our encapsulation technology delivers the drug without harming the patient or changing the clinical attributes of the drug. Focusing on drug delivery compared to drug discovery should allow us to potentially form a number of collaborations to deliver a wide variety of medicines without limiting rights to utilize our proprietary technology with additional drug opportunities.
DESCRIPTION OF OUR DRUG DELIVERY TECHNOLOGY
Overview
Our drug delivery technology is based upon encapsulating drugs to potentially deliver the drug safely and effectively. Over the years, biochemists and biophysicists have studied artificial membrane systems to understand their properties and potential applications, as well as to gain insight into the workings of more complex biological membrane systems. In the late 1960's, scientists began investigating the interactions of divalent cations with negatively charged lipid bilayers. They reported that the addition of calcium ions to small phosphatidylserine vesicles induced their collapse into discs which fused into large sheets of lipid. In order to minimize their interaction with water, these lipid sheets rolled up into jellyroll-like structures, termed "cochleate" cylinders, after the Greek name for a snail with a spiral shell.
Bioral cochleate technology is based upon components which are believed to be non-toxic. The primary chemical components of our Bioral cochleate technology are phosphatidylserine (PS) and calcium. Phosphatidylserine is a natural component of essentially all biological membranes, and is most concentrated in the brain. Clinical studies by other investigators (more than 30 have been published that we are aware of), to evaluate the potential of phosphatidylserine as a nutrient supplement indicate that PS is safe and may play a role in the support of mental functions in the aging brain. As an indication of its nontoxic nature, today phosphatidylserine isolated from soybeans is sold in health food stores as a nutritional supplement.
Research and development of cochleates has been conducted at the University of Medicine and Dentistry of New Jersey and Albany Medical College ("the Universities") for a number of years. Our scientists, some of whom were former researchers and others who still hold teaching positions with these Universities, supervised their cochleate research programs. As a result of the relationship between our scientists and the Universities, we became the exclusive worldwide licensee to develop this cochleate technology and in some cases co-own the patents with them. See "Description of Business -- Relationship with the University of Medicine and Dentistry of New Jersey and Albany Medical College."
Potential Advantages
We believe that our drug delivery technology represents a potentially important new delivery mechanism. While the characteristics and benefits of our drug delivery technology will ultimately be established through FDA clinical trials, our research, based upon pre-clinical studies indicates that our drug delivery technology may have the following characteristics:
- Oral Availability. Our drug delivery technology is being developed to enable oral availability of a broad spectrum of compounds, such as those with poor water solubility, and protein and peptide biopharmaceuticals, which have been difficult to administer.
- Encapsulation. Our drug delivery encapsulates, rather than chemically bond, with the drug.
- Minimizing Side Effects. Our drug delivery technology may reduce toxicity, stomach irritation and other side effects of the encapsulated drug.
- Stability. Our drug delivery technology employs cochleate cylinders which consists of unique multi-layered structures of large, continuous, solid, lipid bilayer sheets rolled up in a spiral, with no internal aqueous space. We believe that our cochleate preparations can be stored in cation-containing buffer, or lyophilized to a powder, stored at room temperature, and reconstituted with liquid prior to administration. Our cochleate preparations have been shown to be stable for more than two years at 4(LOGO) C in a cation-containing buffer, and at least one year as a lyophilized powder at room temperature.
- Cellular Delivery. Our drug delivery technology is being developed as membrane fusion intermediates. We believe that, when drugs encapsulated in our drug delivery technology come into close approximation to a target membrane, a fusion event between the outer layer of the cochleate cylinder and the cell membrane may occur. This fusion may result in the delivery of a small amount of the encochleated material into the cytoplasm of the target cell. Further, we believe that drugs encapsulated in our drug delivery
technology may slowly fuse or break free of the cell and be available for another fusion event, either with this or another cell.
- Resistance to Environmental Attack. Our drug delivery technology is being developed to provide protection from degradation of the encochleated drug. Traditionally, many drugs can be damaged from exposure to adverse environmental conditions such as sunlight, oxygen, water and temperature. Since the cylinder structure consists of a series of solid layers, we believe that components within the interior of the cochleate structure remain intact, even though the outer layers of the cochleate may be exposed to these conditions.
- Patient Compliance. We believe that a potential benefit of our cochleate cylinders may include reducing unpleasant taste, unpleasant intestinal irritation, and in some cases providing oral availability.
- Release Characteristics. Our cochleate technology may offer the potential to be tailored to control the release of the drug depending on desired application.
Initial Bioral Products in Development
We plan a diverse pipeline of products to be developed by applying our drug delivery technology to a potentially broad array of established and promising pharmaceuticals. Each intended Bioral product (i.e. drug and neutraceutical encapsulated with our drug delivery technology) will, upon completion of development, require separate FDA regulatory approval, and accordingly, will be subject to the uncertainty, time and expense generally associated with the FDA regulatory process. Even though we are targeting FDA approved, market-accepted drugs for encapsulation, each of the products currently in development face, development hurdles, regulatory requirements and uncertainty before market introduction. As summarized below, we have initially targeted three potential Bioral products for development.
PRE-CLINICAL
INDICATION DRUGS CATEGORY DEVELOPMENT FDA STATUS
---------- ----- -------- ------------ ----------
Systemic fungal Antifungal Bioral Antimicrobial Formulation Submission
infection Amphotericin B development for Phase I
completed. In IND being
vitro and in prepared, GMP
vitro manufacturing
efficacy data initiated.
completed
Tuberculosis and Antibacterial Bioral Antimicrobial Formulation Pre-clinical
bacterial infections Clofazimine development development
in process.
In vitro and
animal
studies in
process
Inflammatory disease Bioral Anti- OTC Anti- Formulation Pre-clinical
Inflammatory (such as inflammatory and in vitro development
generic aspirin or studies in
ibuprofen) process
|
Bioral Amphotericin B. We are currently developing a Bioral product for treatment of fungal infection which we plan to submit to the FDA for a Phase I Investigational New Drug Application (IND). Systemic fungal infections continue to be a major domestic and international health care problem. In the mid-1990s, Amphotericin B was the most commonly used drug to treat these infections in the U.S.
The major types of systemic fungal infections are normally controlled and disposed of by the body's immune system. However, patients whose immune systems have been suppressed by therapies for cancer, bone marrow transplants or diseases such as AIDS can lose the ability to combat these infections. Systemic Candidiasis, the most common type of invasive fungal infection, represents the majority of all such infections, with fatality rates between 30 and 40 percent. Aspergillosis, while occurring less frequently, is a significant
threat as fatality rates for this infection range as high as 90 percent. Cryptococcal meningitis is a disease that frequently strikes patients with AIDS. The use of conventional Amphotericin B to treat these infections is often limited by its propensity to cause kidney damage which we believe our Bioral products may minimize.
Amphotericin B is an established drug which is delivered intravenously. The primary advantage which we are seeking for our proposed Bioral Amphotericin B product is an oral form of the drug. Additional potential advantages include improved safety, extended shelf life, improved cellular uptake and reduced dosage. Assuming that we complete development of our proposed Bioral Amphotericin B and that we obtain FDA approval, we believe that Bioral Amphotericin B (a Bioral encapsulation of Amphotericin B) may provide an effective orally administered version of Amphotericin B which may be more effective and less toxic.
In the development of this drug, we are collaborating with the National Institutes of Health, the Public Health Research Institute of New York and the University of Texas. Further, we have been awarded a grant totaling approximately $0.9 million, with an additional $1.8 million expected to be awarded from the National Institutes of Health to support the further development of this drug.
Bioral Clofazimine. We are currently developing a Bioral product to target tuberculosis. The bacillus is suspected to reside latently in a large population of people, and remains viable for infection in those for many years past the initial infection stage.
We are targeting clofazimine, an off-patent oral drug, and may target other drugs no longer under patent protection which treat tuberculosis, for potential encapsulation in our drug delivery technology. The primary advantages which we are seeking for our proposed Bioral Clofazimine product include increased oral bio-availability, reduce required dosage and decrease side effects. Assuming that we complete development of this Bioral drug and that we obtain FDA approval, we believe that it may provide an effective, orally administered version of a tuberculosis agent such as clofazimine. This Bioral product in development may be administered orally, be more effective and have fewer side effects. We are currently in pre-clinical development of a Bioral encapsulated clofazimine in collaboration with the University of Chicago.
Bioral Anti-Inflammatory -- We have targeted inflammation disorders, such as arthritis, for development of Bioral products, based upon accepted, unpatented, over-the-counter, anti-inflammatory drugs such as generic aspirin or ibuprofen. Various types of over-the-counter ("OTC") anti-inflammatory compounds are currently available. Nonsteroidal anti-inflammatory drugs ("NSAIDs") significantly decrease inflammation at higher dosages.
We believe that our drug delivery technology can be used to effectively deliver anti-inflammatory drugs with reduced side effects. The primary advantages which we are seeking for our proposed Bioral anti-inflammatory products include reduced gastrointestinal side effects, reduce required dosage and improve cellular uptake. Anti-inflammatories formulated within cochleates are inside a multi-layered solid particle which we believe may enhance the safety and efficacy profiles and could potentially transform the compounds into an entirely new class of improved anti-inflammatory drugs. As part of our pre-clinical development, initial formulations have been tested in vitro. We are in the process of preparing formulations as part of our preparation to commence pre-clinical development.
OUR AUTOLOGOUS HIV THERAPY
As part of our research and development activities, we have developed and are investigating our patented autologous (patient-specific) HIV therapy for AIDS which uses a cochleate related (proteoliposone) delivery vehicle. This immunotherapeutic is autologous meaning that it contains the specific patient's virus or membrane protein. Our autologous HIV therapy is intended to boost or alter the immune response in patients already infected with HIV.
We are preparing a submission to the FDA seeking to begin Phase I clinical trials as a follow-up to our initial clinical trials which were conducted pursuant to an Institutional Review Board process. We believe that the time, expense and risk to market is substantial and uncertain particularly when compared to that which we anticipate for the potentially broad-base of pharmaceuticals, vaccines which may ultimately be encapsulated
in our drug delivery technology. Accordingly, we intend to primarily rely upon the availability of grants and corporate partners to largely finance the further research and development of this technology.
RELATIONSHIP WITH THE UNIVERSITY OF MEDICINE AND DENTISTRY OF NEW JERSEY AND
ALBANY MEDICAL COLLEGE
We have had and continue to have critical relationships with the University of Medicine and Dentistry of New Jersey and Albany Medical College. Some of our scientists were former researchers and educators at these Universities researching cochleate technology. All of our current research and development is done using facilities provided to us on the campus of the University of Medicine and Dentistry of New Jersey, pursuant to a lease, or at the facilities of our contractors or collaborators. Both of these Universities are stockholders in our company and have a substantial financial interest in our business.
In September 1995, we entered into a license agreement with the universities to be the exclusive worldwide developer of the cochleate technology. Under the license agreement, we and the Universities have also jointly patented certain aspects of the cochleate technology and co-own such patents with them.
Pursuant to the license agreement, we agreed that each university would be issued an equity interest in our capital stock, originally equal to 2% of our outstanding capital stock. As of the date of this prospectus, the University of Medicine and Dentistry of New Jersey owns 139,522 shares (including shares issued under a research agreement) and warrants to purchase 9,952 shares of our common stock and the Albany Medical College owns 2,222 shares and warrants to purchase 9,952 shares of our common stock. There are no further requirements to provide either university any additional equity interest.
The license agreement grants us an exclusive license to the technology owned by these universities and obligates us to pay a royalty fee structure as follows:
(a) For commercial sales made by us or our affiliates, we shall pay to the universities a royalty equal to 3% of our net sales;
(b) For commercial sales made by any of our sublicensee, we shall pay to the universities royalties up to 25% of our revenues received from the sublicensee from the sale of the product;
In April 2001, we entered into a research agreement with the University of Medicine and Dentistry of New Jersey whereby we and the university agree to share the rights to new research and development that jointly takes place at the university's facilities until December 31, 2005. We also agreed to provide the university with progress and data updates and allow its researchers to publish certain projects. We lease our research facilities located on their campus pursuant a lease agreement ending December 31, 2005. We occupy a total of approximately 8,000 square feet. The monthly rent is $3,340 for the first year; $3,840 for the second year; $4,340 for the third year; $4,840 for the fourth year and $5,340 for the fifth year. Additionally, we owe payments for graduate student assistants, personnel provided by the university and supplies used by us on an ongoing basis. Research assistants and personnel provided to us are university employees and they belong to various unions on campus.
In addition to our rent payments, we have also agreed to pay for certain other services provided by the university totaling approximately $99,187 annually. These include employing three graduate students from the university for a total of $51,840, a budget to purchase chemicals totaling approximately $40,000 (adjusted to exact cost), and an indirect cost factor constituting 8% for 2001 (12% in 2002, 16% in 2003 and 20% for 2004) of the direct costs of the graduate students and chemicals totaling $7,347.
COLLABORATIVE AND SUPPLY RELATIONSHIPS
We are a party to collaborative agreements with universities, government agencies, corporate partners, and contractors. Research collaboration may result in new inventions which are generally considered joint intellectual property. Our collaboration arrangements are intended to provide us with access to greater
resources and scientific expertise in addition to our in-house capabilities. We also have supply arrangements with a few of the key component producers of our delivery technology. Our relationships include:
- National Institutes of Health. To investigate the properties of new antifungal and anti-staphylococcal cochleate formulations. Grants totaling approximately $2.7 million have been or are expected to be awarded, to us by NIH for the development of our proposed Amphotericin B product of which we have been awarded $0.9 million. This grants is contingent and subject to our achieving certain milestones. Additionally, we are conducting anti-fungal studies using our drug delivery technology through NIH selected and paid contractors.
- Public Health Research Institute of New York. To investigate our proposed Amphotericin B product and other anti-fungal and anti-staphylococcal applications of our drug delivery technology. This relationship may involve shared expense reimbursement and shared intellectual property with regard to joint inventions.
- Institute for Tuberculosis Research, University of Illinois at Chicago. To support our development of Bioral Clafozimine product and other anti-tuberculosis cochleate formulations. This relationship may involve shared intellectual property with regard to joint inventions.
- University of Utrecht. To study and quantify pursuant to a Material Transfer Agreement, the various aspects of drug delivery using our technology. This relationship may involve expense reimbursement and shared intellectual property with regard to joint inventions.
- Erasmus University of Rotterdam. To develop the cochleate as a delivery system for glycopeptides
- Avanti Polar Lipids, Inc. To supply lipids which is a required material for the manufacture of our drug delivery technology.
- Octo Plus Pharmaceutical Development, B.V. To supply Amphoterican cochleates under Good Manufacturing Practice for our anticipated Phase I clinical trials
We also have agreements with entities that are affiliated with and partially-owned by key members of our management to conduct research and develop certain technologies. See "Certain Transactions" for affiliations with our management. They include:
- RetinaPharma International, Inc. We have entered into a license agreement with this development-stage biotechnology company to use our delivery technology in connection with their proposed neutraceutical product with potential application for macular degeneration and retinitus pigmentosa, a disease affecting the retina. This exclusive worldwide right to use our drug delivery technology in conjunction with their effort to develop, commercialize and manufacture their product, or to sublicense to a third party, is only for the purpose of treating antiapoptotic pharmaceutical and nutriceutical treatment of retinal disease and glaucoma. This license shall remain in effect as long as RetinaPharma International, Inc. remains in compliance with the terms of the agreement.
- Tatton Technologies, LLC. We have entered into a license agreement with this development-stage biotechnology company to use our delivery technology in connection with their proposed neutraceuticals product with potential application to various neuro-degenerative diseases. Tatton Technologies, LLC is developing and plans to commercialize technology regarding certain apoptotic drugs and apoptotic naturally occurring substances to treat certain neuro-degenerative diseases. We have entered into exclusive worldwide licenses allowing Tatton Technologies, LLC to incorporate our drug delivery technology into their effort to develop and potentially commercialize their technology. Tatton Technologies, LLC may sublicense our drug delivery technology to third parties to incorporate into their product and this license shall remain in effect as long as both parties remain in compliance with the terms of the agreement.
- BioKeys Pharmaceuticals, Inc. We have entered into a license agreement with this development-stage biotechnology company to use our delivery technology in connection with the development of its proposed vaccine technology. BioKeys Pharmaceuticals, Inc. in conjunction with a third party will
conduct research to develop their EradicAids Vaccine Project. This license shall remain in effect as long as BioKey remains in compliance with the terms of the agreement.
- Biotech Specialty Partners, LLC. We have entered into a non-exclusive distribution agreement with this development-stage distribution company to market and distribute our products once we have completed the commercialization of our products. Our financial arrangement with Biotech Specialty Partners, LLC requires us to sell to Biotech Specialty Partners, LLC all of our products, as and when purchased by with Biotech Specialty Partners, LLC at a cost which is the lesser of: (i) ten percent (10%) below the lowest wholesale acquisition cost, inclusive of rebates, quantity discounts, etc.; and (ii) the lowest cost at which we are then selling the product(s) to any other purchaser. The term of the agreement shall be for a term of five years once a product becomes available for distribution. Biotech Specialty Partners, LLC is a start-up enterprise, which to date has not distributed any pharmaceutical products.
These agreements generally provide that, except for on-going development costs related to our drug delivery technology, we are not required to share in the costs of the development of the pharmaceutical product or technologies of these companies. We are entitled to receive the following royalty payments:
- RetinaPharma International, Inc. We are entitled to the greater of the "base royalty" (as defined in the agreement) or 30% of all pre-tax profits plus 30% of all net proceeds, if any, from the sale, assignment or sub-license for the authorized use of our technology incorporated into the product. The planned RetinaPharma product is in its early stage of development and no sales of such product or royalty revenue therefrom is anticipated in the foreseeable future.
- Tatton Technologies, LLC. We are entitled to 30% of all net profits from the sale, assignment or sub-license for the authorized use of our technology incorporated into their proposed neutraceuticals product with potential application to various neuro-degenerative diseases. The planned Tatton Technologies product is in its early stage of development and no sales of such product or royalty revenue therefrom is anticipated in the foreseeable future.
- BioKeys Pharmaceuticals, Inc. We are entitled to a 10% royalty on its net adjusted royalty received from BioKeys Pharmaceuticals, Inc.'s marketing partner, if any, for the injectable form of the vaccine and 20% royalty for the injectable form of the vaccine. If BioKeys Pharmaceuticals, Inc. directly markets the product incorporating our technology, we will share a profit of 15% for the injectable form, 20% for a "non-proprietary (liposomal) oral form", and 30% for a cochleate oral form of the product. The agreement provides for license payments in the amount of $341,000. We have also received a $35,000 loan from BioKeys Pharmaceuticals, Inc. to begin research on BioKeys Pharmaceuticals, Inc. products incorporating our technology. The loan is in the form of a demand note with an interest rate of 1% plus prime. The planned BioKeys Pharmaceuticals, Inc. product is in its early stage of development and no sales of such product or royalty revenue therefrom is anticipated in the foreseeable future.
In pursuing potential commercial opportunities, we intend to seek and rely upon additional collaborative relationships with corporate partners. Such relationships may include initial funding, milestone payments, licensing payments, royalties, access to proprietary drugs or potential "nano-encapsulation" with our drug delivery technology or other relationships. While we have not, to date, entered into any such arrangements, we are currently in discussion with a number of pharmaceutical companies.
LICENSES, PATENTS AND PROPRIETARY INFORMATION
We are the exclusive licensee of eight issued United States patents and two foreign issued patents owned by the parties listed in the chart below. We believe that our licenses to this intellectual property will enable us to develop this new drug delivery technology based upon cochleate and cochleate related technology. Our intellectual property strategy is intended to maximize our potential patent portfolio, license agreements, proprietary rights and any future licensing opportunities we might pursue. With regard to our Bioral cochleate technology, we intend to seek patent protection for not only our delivery technology, but also potentially for
the combination of our delivery technology with various drugs no longer under patent protection. Below is a table summarizing patents we believe are currently important to our business and technology position.
PATENT NUMBER ISSUED EXPIRES TITLE PATENT OWNER
------------- ------ ------- ----- ------------
US06,165,502 12/26/2000 9/11/2016 Protein-lipid vesicles The University of
and autogenous Medicine and Dentistry of
immunotherapeutic New Jersey and Albany
comprising the same Medical College
US06,153,217 11/28/2000 1/22/2019 Nanocochleate BioDelivery Sciences
formulations, process of International, Inc., The
preparation and method of University of Medicine
delivery of and Dentistry of New
pharmaceutical agents Jersey
AUS722647 11/23/2000 9/02/2017 Protein-lipid vesicles The University of
and autogenous Medicine and Dentistry of
immunotherapeutic New Jersey and Albany
comprising the same Medical College
US05,994,318 11/30/1999 11/24/2015 Cochleate delivery The University of
vehicles Medicine and Dentistry of
New Jersey and Albany
Medical College
US05,840,707 11/24/1998 11/24/2015 Stabilizing and delivery The University of
means of biological Medicine and Dentistry of
molecules New Jersey and Albany
Medical College
US05,834,015 11/10/1998 9/11/2016 Protein-lipid vesicles The University of
and autogenous Medicine and Dentistry of
immunotherapeutic New Jersey and Albany
comprising the same Medical College
AUS689505 7/16/1998 9/30/2014 Protein- or peptide- The University of
cochleate Medicine and Dentistry of
immunotherapeutics and New Jersey and Albany
methods of immunizing Medical College
using the same
US05,643,574 07/01/1997 7/01/2014 Protein- or peptide- The University of
cochleate Medicine and Dentistry of
immunotherapeutics and New Jersey and Albany
methods of immunizing Medical College
using the same
US04,871,488 10/03/1989 10/03/2006 Reconstituting viral Albany Medical College
glycoproteins into large
phospholipid vesicles
US04,663,161 05/05/1987 4/22/2005 Liposome methods and Albany Medical College
compositions
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Our interest in the intellectual property is subject to and burdened by various royalty payment obligations and by other material contractual or license obligations.
In general, the patent position of biotechnology and pharmaceutical firms is frequently considered to be uncertain and involve complex legal and technical issues. There is considerable uncertainty regarding the breadth of claims allowed in such cases and the degree of protection afforded under such patents. While we believe that our intellectual property position is sound and that we can develop our new drug delivery technology and our HIV therapy, we cannot assure that our patent applications will be successful or that our current or future intellectual property will afford us the desired protection against competitors. It is possible that our intellectual property will be successfully challenged or that patents issued to others may preclude us
from commercializing our drugs. Litigation to establish the validity of patents, to defend against infringement claims or to assert infringement claims against others can be lengthy and expensive, even if a favorable result is obtained. Moreover, much of our expertise and technology cannot be patented.
We also rely on trade secrets and confidentiality agreements with collaborators, advisors, employees, consultants, vendors and other service providers. We cannot assure you that these agreements will not be breached or that our trade secrets will not otherwise become known or be independently discovered by competitors. Our business would be adversely affected if our competitors were able to learn our secrets or if we were unable to protect our intellectual property.
We filed a trademark registration for our proposed brand name, Bioral, which we plan to establish as our brand to use in conjunction with all of our potential oral delivery drugs. There can be no assurance it will be issued.
HISTORY OF OUR TECHNOLOGY
Below is a table summarizing technology development milestones:
April 1995 BioDelivery Sciences, Inc. obtained the worldwide exclusive
rights to the Bioral cochleate technology owned by the
Universities.
September 1995 BioDelivery Sciences, Inc. was awarded a vaccine research
grant from Wyeth Lederle Vaccines, an affiliate of American
Home Products and American Cyanamid Company.
September 1995 BioDelivery Sciences, Inc. established a Research Agreement
with the University of Medicine and Dentistry of New Jersey.
June 1996 BioDelivery Sciences, Inc. established research and
development, and License Agreement for Vaccines with Wyeth
Lederle Vaccines which expired in December 1999.
August 1996 BioDelivery Sciences, Inc. signed a Material Transfer
Agreement ("MTA") and started collaboration with the
University of Maryland, Gene Therapy.
July 1997 U.S Patent No. 5,643,574 issued to the Universities.
PROTEIN -- OR PEPTIDE-COCHLEATE VACCINES.
September 1997 BioDelivery Sciences, Inc. expanded its scientific and
administrative staff and moved to new laboratories.
November 1997 Initiated on-going collaboration with Public Health Research
Institute of New York ("PHRI").
February 1998 Initiated on-going National Institute of Health funded
amphotericin cochleate studies with University of Texas.
July 1998 AUS Patent No 689505 issued to the Universities. VACCINE &
METHODS OF IMMUNIZING.
November 1998 U.S Patent No. 5,834,015, issued to the Universities.
AUTOGENOUS VACCINE (HIV).
November 1998 U.S Patent No. 5,840,707 issued to the Universities.
STABILIZING AND DELIVERY MEANS OF BIOLOGICAL MOLECULES.
March 1999 Moved into current 8,000 square foot facility on the campus
of the University of Medicine and Dentistry of New Jersey.
July 1999 Awarded Phase I SBIR for Amphotericin Cochleates.
September 1999 Awarded Phase I SBIR for Cochleate Gene Therapy.
November 1999 U.S Patent No. 5,994,318 issued to the Universities.
COCHLEATE DELIVERY VEHICLES.
December 1999 Signed a MTA and started an on-going collaboration in drug
delivery with a major pharmaceutical company under a
non-disclosure agreement.
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April 2000 Signed a MTA and started an on-going collaboration in drug
delivery with a major pharmaceutical company under a
non-disclosure agreement.
June 2000 Initiate an on-going collaboration with the National Cancer
Institute, Drug Delivery.
October 2000 Initiated an on-going collaboration with the Institute for
Tuberculosis Research, University of Illinois of Chicago,
drug delivery.
November 2000 A U.S. Patent No 722,647 to the Universities. AUTOGENOUS
VACCINE (HIV)
November 2000 U.S. Patent No. 6,153,217 issued to BioDelivery Sciences,
Inc. and the University of Medicine and Dentistry of New
Jersey. NANOCOCHLEATE FORMULATIONS. Initiate process for
preparation of Investigational New Drug Application for
Amphotericin B cochleates.
December 2000 U.S. Patent No. 6,165,502, issued to the Universities.
AUTOGENOUS VACCINE (cancer etc.).
January 2001 Signed a MTA and started an on-going collaboration with a
major pharmaceutical company under a non-disclosure
agreement in drug delivery.
April 2001 Establish a MTA and started an on-going collaboration with
Utrecht Institute for Pharmaceutical Sciences, and
University Medical Center Nijmegen, The Netherlands, to
study mechanism of cochleates in drug delivery.
May 2001 Signed a MTA with PHRI, NY to develop the cochleates for the
treatment of Staphylococcus, drug delivery.
June 2001 Signed a MTA with EUR Erasmus University of Rotterdam, The
Netherlands, to develop the cochleates for the treatment of
Staphylococcus, drug delivery.
June 2001 License Agreement with Retina Pharma International, Inc. and
Tatton Technology, LLC, affiliates of Dr. O'Donnell a
stockholder, director and officer, for such entities to
potentially use our technology to encapsulate their
proprietary therapies for potential of certain
neurodegenerative diseases.
September 2001 Award of $0.9 million, with an additional $1.8 million
expected to be awarded NIH(SBIR) Grant for Pre-clinical and
Clinical development of Amphotericin B cochleates.
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COMPETITION
The biopharmaceutical industry in general is competitive and subject to rapid and substantial technological change. Developments by others may render our proposed technology and proposed drugs and HIV therapy under development noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Below are some examples of companies seeking to develope potentially competitive technologies. Many of these entities have significantly greater research and development capabilities than we do, as well as substantially more research capabilities, marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. In addition, acquisitions of, or investments in, competing development-stage pharmaceutical or biotechnology companies by large corporations could increase such competitors' research, financial, marketing, manufacturing and other resources.
While many development activities are private, we are not aware of any other drug delivery technology using a naturally occurring drug delivery vehicle (carrier) that can be used to simultaneously address two important clinical goals; oral delivery of drugs that normally require injection and targeted cell delivery once the drug is in the body.
Included amongst companies which we believe are developing potentially competitive technologies are Emisphere (NASDAQ: EMIS), a publicly-traded company and Nobex, a privately-held company. We believe that these potential competitors are seeking to develop and commercialize technologies for the oral delivery of drug which may require customization for various therapeutics or groups of therapeutics. While our information concerning these competitors and their development strategy is limited, we believe our technology
can be differentiated because our cochleate technology is seeking to deliver a potential broad base of water soluble and water insoluble (fat of lipid soluble) compounds with limited customization for each specific drug.
We believe that our technology may have cell-targeted delivery attributes. Additional companies which are developing potentially competitive technologies in this area may include Valentis (NASDAQ: VLTS) and Enzon (NASDAQ: ENZN), both publicly traded companies, which we believe may be seeking to develop technologies for cell-targeted delivery of drugs. While we have limited information regarding these potential competitors and their development strategy, we believe that our technology may be differentiated because unlike these potential competitors, we seek to use our cochleate to encapsulate the therapeutic to achieve drug delivery into the interior of the cells such as inflammatory cells.
We believe that competitors may also be working on patient-specific therapies for cancer. However, we are not aware of any competitors currently attempting to develop patient-specific therapies for HIV. This does not, however, mean to imply that there are not any now or that there will not be in the future. Vaccines can be used for prophylactic (prevention of infection), or therapeutic (treatment following infection) applications. The patient-specific therapeutic, which we are attempting to develop, is intended to boost or alter the immune response in patients already infected with HIV. For the most part, HIV vaccines in development, about which we are aware, are being targeted specifically to prevent infection, however, some of these vaccines may also prove useful for therapeutic applications. As such, these could prove to be competitive with our autologous therapeutic.
Our drug delivery technology, specific drugs encapsulated with our drug delivery technology and HIV autologous immunotherapeutics must compete with other existing technologies and/or technologies in development. Such potential competitive technologies may ultimately prove to be safer, more effective or less costly than any drugs which we are currently developing or may be able to develop. Additionally, our competitive position may be materially affected by our ability to develop or successfully commercialize our drugs and technologies before any such competitor.
MANUFACTURING
During drug development and the regulatory approval process, we plan to rely on third-party manufacturers to produce our compounds for research purposes and for pre-clinical and clinical trials. With regard to our intended Amphotericin B product, we have entered into a manufacturing agreement with Octo Plus, Inc. Under our agreement, Octo Plus, Inc. will manufacture our encochleated Amphotericin B for use in clinical and preclinic trials. Manufacturing by Octo Plus, Inc. is required to comply with Good Manufacturing Practices with demonstrated scale-up capability for submission to the FDA. To date, we have not entered into manufacturing arrangements for any other intended Bioral product. As our intended products near market introduction, we intend to outsource manufacturing to third party manufacturers, which comply with the FDA's applicable Good Manufacturing Practices. While we believe that such commercial manufacturing arrangements may be available, no such relationships have been establish to date.
We intend to purchase component raw materials from various suppliers. With regard to our lipids, we have a supply relationship with Avanti Polar Lipids, Inc. which we believe is capable of meeting our anticipated requirements during clinical trials. Avanti Polar Lipids, Inc. is located in Alabaster, Alabama. As our intended products near market introduction, we intend to seek multiple suppliers of all required components.
In the event that Avanti Polar Lipids, Inc. fails to provide us with the necessary supply of required lipids, we would have difficulty replacing such supply in a timely manner which could negatively affect our research and production capabilities.
SALES AND MARKETING
Our marketing strategy, assuming completion of our drug delivery technology and product development and regulatory approval, is to market each of our approved orally delivered products under the Bioral brand name. Marketing may be conducted through a wide range of potential arrangements such as licensing, direct
sales, co-marketing, joint venture and other arrangements. Such arrangements may be with large or small pharmaceutical companies, general or specialty distributors, biotechnology companies, physicians or clinics, or otherwise. We have a non-exclusive distribution arrangement with Biotech Specialty Partners, LLC ("BSP"). BSP is an early-stage alliance of specialty pharmaceutical and biotechnology companies.
GOVERNMENT REGULATION
The manufacturing and marketing of any drug encapsulated in our drug delivery technology, our autologous HIV therapeutic and our related research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. We anticipate that these regulations will apply separately to each drug to be encapsulated by us in our drug delivery technology. We believe that complying with these regulations will involve a considerable level of time, expense and uncertainty.
In the United States, drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our drugs. Drug development and approval within this regulatory framework is difficult to predict and will take a number of years and involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the United States include:
1. Pre-clinical laboratory tests, in vivo pre-clinical studies and formulation studies;
2. The submission to the FDA of an Investigational New Drug Application (IND) for human clinical testing which must become effective before human clinical trials can commence;
3. Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;
4. The submission of a New Drug Application or Biologic Drug License Application to the FDA; and
5. FDA approval of the New Drug Application or Biologic Drug License Application prior to any commercial sale or shipment of the product.
In addition to obtaining FDA approval for each product, each domestic product-manufacturing establishment must be registered with, and approved by, the FDA. Domestic manufacturing establishments are subject to biennial inspections by the FDA and must comply with the FDA's Good Manufacturing Practices for products, drugs and devices.
Pre-clinical Trials
Pre-clinical testing includes laboratory evaluation of chemistry and formulation, as well as tissue culture and animal studies to assess the potential safety and efficacy of the product. Pre-clinical safety tests must be conducted by laboratories that comply with FDA regulations regarding Good Laboratory Practices. No assurance can be given as to the ultimate outcome of such pre-clinical testing. The results of pre-clinical testing are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. Unless the FDA objects to an IND, the IND will become effective 30 days following its receipt by the FDA.
We intend to largely rely upon contractors to perform pre-clinical trials. With regard to Bioral Clofazimine, our pre-clinical trials are being coordinated by the Institute for Tuberculosis research, University of Illinois at Chicago. To date, we have not established any relationship with regard to pre-clinical testing of our intended Bioral anti-inflammatory products.
Clinical Trials
Clinical trials involve the administration of the new product to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent institutional review board at the institution where the study will be conducted. The institutional review board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Compounds must be formulated according to Good Manufacturing Practices.
Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the product into healthy human subjects, the drug is tested for safety (adverse side effects), absorption, dosage tolerance, metabolism, bio-distribution, excretion and pharmacodynamics (clinical pharmacology). Phase II is the proof of principal stage and involves studies in a limited patient population in order to:
- Determine the efficacy of the product for specific, targeted indications;
- Determine dosage tolerance and optimal dosage; and
- Identify possible adverse side effects and safety risks.
When there is evidence that the product is found to be effective and has an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to further evaluate clinical efficacy and to test for safety within an expanded patient population at geographically dispersed multi-center clinical study sites. Phase III frequently involves randomized controlled trials and, whenever possible, double blind studies. We, or the FDA, may suspend clinical trials at any time if it is believed that the individuals participating in such trials are being exposed to unacceptable health risks.
We intend to rely upon contractors to perform our clinical trials. We have entered into an agreement with Pharma Research, Inc., Wilmington, Delaware, to prepare and file our IND with regard to Phase I clinical trials and on acceptance to potentially oversee clinical trials of our "nano-encapsulated" Amphotericin B. Under the agreement, Pharma-Research, Inc. We have not established similar relationships regarding anticipated clinical trials for an other intended Bioral product.
New Drug Application and FDA Approval Process
The results of the pharmaceutical development, pre-clinical studies and clinical studies are submitted to the FDA in the form of a New Drug Application for approval of the marketing and commercial shipment of the product. The testing and approval process is likely to require substantial time and effort. In addition to the results of preclinical and clinical testing, the NDA applicant must submit detailed information about chemistry and manufacturing and controls that will determine how the product will be made. The approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Consequently, there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may deny a New Drug Application if applicable regulatory criteria are not satisfied, require additional testing or information or require post-marketing testing and surveillance to monitor the safety of a company's products if it does not believe the New Drug Application contains adequate evidence of the safety and efficacy of the drug. Notwithstanding the submission of such data, the FDA may ultimately decide that a New Drug Application does not satisfy its regulatory criteria for approval. Moreover, if regulatory approval of a drug is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Post approval studies may be conducted as Phase IV to explore further intervention, new indications or new product uses.
Among the conditions for New Drug Application approval is the requirement that any prospective manufacturer's quality control and manufacturing procedures conform to Good Manufacturing Practices and the requirement specifications of the FDA. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of drugion and quality control to
ensure full technical compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state or local agencies.
International Approval
Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country at this time has its own procedures and requirements.
Other Regulation
In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state or local regulations. Our research and development may involve the controlled use of hazardous materials, chemicals, and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of any accident, we could be held liable for any damages that result and any such liability could exceed our resources.
EMPLOYEES
As of December 31, 2001, we had eight full-time employees, of which six are scientists and two are administrative. Three of these scientists have Ph.D. degrees. None of our employees are covered by collective bargaining agreements. From time to time, we also employ independent contractors to support our engineering and support and administrative functions. We consider relations with our employees to be good. Each of our current scientific personnel has entered into confidentiality and non-competition agreements with us.
FACILITIES
We conduct our operations in laboratory and administrative facilities on a single site located on the campus of the University of Medicine and Dentistry of New Jersey. Pursuant to a five year lease agreement with the university ending 2006, we occupy a total of approximately 8,000 square feet. The monthly rent is $3,340 plus agreed payments for graduate student assistants and supplies used by us. The terms of the lease allows us flexibility of terminating the lease arrangement and relocating to a new space better suited for our long-term space requirements. Our ability to terminate is without a penalty provided that we give prior written notice.
LEGAL PROCEEDINGS
We are not subject to any pending legal actions; provided, however, in May 2001, we settled litigation commenced against BioDelivery Sciences, Inc. by Irving A. Berstein and certain of his family members and affiliates.
Mr. Berstein was a founder, officer, director and more than 10% stockholder of Biodelivery Sciences, Inc. A dispute arose between Mr. Berstein and the remaining management team of Biodelivery Sciences, Inc. which was considered to be disruptive to the ongoing operation of Biodelivery Sciences, Inc. The litigation was based upon various legal theories arising out of Mr. Berstein's conduct as an officer and director of Biodelivery Sciences, Inc., the terms and enforceability of certain agreements between Mr. Berstein and Biodelivery Sciences, Inc., the termination of employment of Mr. Berstein as an employee and officer of Biodelivery Sciences, Inc. and the subsequent issuance of stock by Biodelivery Sciences, Inc. to stockholders other than Mr. Berstein. The litigation involved both direct claims by Mr. Berstein against Biodelivery Sciences, Inc. and certain members of management individually and counterclaims by Biodelivery Sciences, Inc. against
Mr. Berstein. Claims for compensation for past and future services and under long term contracts were alleged. Further, Mr. Berstein alleged that an issuance of stock to other stockholders of Biodelivery Sciences, Inc. except him around the time of his termination was inappropriate and dilutive. Mr. Berstein alleged an entitlement to additional shares of stock to prevent dilution to him. In the settlement, all claims of Mr. Berstein and the counterclaims against Mr. Berstein were fully resolved and we purchased Mr. Berstein's entire stock position in Biodelivery Sciences, International, Inc.
The settlement required that we pay $150,000 in cash and $125,000 by promissory note, which is being satisfied in full out of the proceeds of this offering. At the same time, we purchased the shares of BioDelivery Sciences, Inc. held by these plaintiffs for $500,000 which was paid $200,000 in cash and $300,000 by promissory note. As part of the settlement, there is a lien upon all of our assets until all of outstanding promissory notes have been paid. We will use part of the proceeds to fully satisfy debt owed pursuant to this litigation and remove the lien on our assets.
We have received notification of a potential claim for a finder's fee arising out of an introduction to BioDelivery Sciences, Inc. in 2000. It is our belief that the potential claim is neither material or meritorious.
MANAGEMENT
Our directors and executive officers and their ages as of December 1, 2001 are as follows:
NAME AGE POSITION(S) HELD
---- --- ----------------
Francis E. O'Donnell, Jr., 51
M.D. ........................... President, Chief Executive Officer, Chairman, and
Director
Raphael J. Mannino, Ph.D. ........ 54 Executive Vice President, Chief Scientific
Officer and Director
James A. McNulty.................. 50 Secretary, Treasurer, and Chief Financial Officer
Donald L. Ferguson................ 53 Senior Executive Vice President
Leila Zarif, Ph.D., MBA........... 46 Executive Vice President of Research and
Development
Christopher Chapman, M.D. ........ 48 Executive Vice President of Medical and
Regulatory Affairs and Director of New Business
Development
Susan Gould-Fogerite, Ph.D. ...... 48 Executive Vice President of Business
Development-Vaccines and Gene Therapy Medical
School
L.M. Stephenson, Ph.D. ........... 58 Director
William Stone..................... 53 Director
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There are no family relationships between any director, executive officer, or person nominated or chosen to become a director or executive officer.
Francis E. O'Donnell, Jr., MD, age 51, has been CEO, President, Chairman and Director on a part time basis since inception in October 2000. Post-funding, we are intending to identify a replacement CEO and President for Dr. O'Donnell, who will assume full day-to-day responsibilities of our operations. For more than the last five years, Dr. O'Donnell has served as managing director of The Hopkins Capital Group, an affiliation of limited liability companies which engage in business development and venture activities. He has been Chairman of Laser Sight Inc. (LASE), a publicly traded manufacturer of advanced refractive laser systems since 1993. He is also the founder and a director of BioKeys Pharmaceuticals, Inc., a publicly traded biopharmaceutical company. He is a founder and chairman of PhotoVision Pharmaceuticals, Inc. and since early 2001, the chairman of RetinaPharma, Inc. He is a non-managing partner of Tatton Technologies, LLC, a biotechnology company and a managing partner of Biotech Specialty Partners, LLC, an alliance of specialty pharmacy and biotechnology companies. Dr. O'Donnell is a graduate of The Johns Hopkins School of Medicine and received his residency training at the Wilmer Ophthalmological Institute. Dr. O'Donnell is a former professor and Chairman of the Department of Ophthalmology, St. Louis University School of Medicine. Dr. O'Donnell holds 25 U.S. Patents. Dr. O'Donnell is the 2000 Recipient of the Jules Stein Vision Award sponsored by Retinitis Pigmentosa International.
James McNulty, age 51, has been Secretary, Treasurer, and Chief Financial Officer on a part time basis (estimated to constitute approximately 80% of his time) since October 2000. Mr. McNulty has since May 2000, also served as Chief Financial Officer of Hopkins Capital Group, an affiliation of limited liability companies which engage in venture activities. Hopkins Capital Group is owned and controlled by Dr. Francis E. O'Donnell. Mr. McNulty has performed accounting and consulting services as a certified public accountant for approximately 27 years. He co-founded, Pender McNulty Newkirk, which became one of Florida's largest regional CPA firms, and was a founder/principal in two other CPA firms, McNulty & Company, and McNulty Garcia & Ortiz. He served as CFO of Star Scientific, Inc. (STSI) from October 1998 to May 2000. Since June 2000 he has served as CFO/COO of American Prescription Providers, Inc. He is a principal in Pinnacle Group Holdings, a real estate development company developing a major downtown Tampa destination entertainment complex. He is a published co-author (with Pat Summerall) of Business Golf, The Art of Building Relationships Through Golf, and is chairman of Business Links International, Inc., a business development training company, which uses golf as its focus. Mr. McNulty is a graduate of University South
Florida, a licensed Certified Public Accountant, and is a member of the American and Florida Institutes of CPA's.
Donald L. Ferguson, age 53, has been Senior Executive Vice President on a part time basis since October 2000. Mr. Ferguson has been Chief Executive Officer and principal owner of Land Dynamics, Inc., a developer of real estate projects since its founding in 1979 and currently owns in excess of 20 real estate properties. Mr. Ferguson is an investor in early stage technology and biotechnology companies including Nanovision Technologies, Inc., Star Scientific, Inc., BioKeys Pharmaceuticals, Inc. and PhotoVision Pharmaceuticals, Inc. Mr. Ferguson holds an M.B.A. Degree from the University of Kansas and a B.S. Degree in industrial engineering from Oklahoma State University.
Raphael J. Mannino, Ph.D., age 54, has been Executive Vice President and Chief Scientific Officer since October 2000, and a Director since October 2001. Dr. Mannino has served as President, CEO, Chief Scientific Officer, and a member of the Board of Directors of BioDelivery Science, Inc. since its incorporation in 1995. Dr. Mannino's previous experience includes positions as Associate Professor, at the University of Medicine and Dentistry of New Jersey (1990 to present), Assistant, then Associate Professor, Albany Medical College (1980 to 1990), and Instructor then Assistant Professor, Rutgers Medical School (1977 to 1980). His postdoctoral training was from 1973 to 1977 at the Biocenter in Basel, Switzerland. Dr. Mannino received his Ph.D. in Biological Chemistry in 1973 from the Johns Hopkins University, School of Medicine.
Leila Zarif, Ph.D., MBA., age 46, has been Executive Vice President of Research and Development since October 2000. Dr. Zarif joined BioDelivery Sciences, Inc. in 1997 as Director of European Operations, and then moved to the United States headquarters as Vice President from October 1997 until October 2000. Dr. Zarif served as a Director and Treasurer from March 1998 until March 2000. Dr. Zarif's prior experience includes eleven (11) years with ATTA, SA. (Application and Transfer of Advanced Technology, French subsidiary of Alliance Pharmaceutical Corp., San Diego) beginning as Head of New Technology Assessment and promoted to President in 1993. Previously, Dr. Zarif worked as a postdoctoral fellow with the French CNRS (National Center of Scientific Research). Dr. Zarif received her Ph.D. in Chemistry in 1988, her MBA in 1992, and her Habilitation to Direct Research in 1995 from the University of Nice, France.
Christopher Chapman, MD, age 48, has been the Executive Vice President of Medical and Regulatory Affairs and Director of New Business Development (pharmaceuticals) on a part time basis since October 2000. Dr. Chapman received his M.D. degree from Georgetown University in Washington, D.C. in 1987 where he completed his internship in Internal Medicine. He completed a residency in Anesthesiology and a fellowship in Cardiovascular and Obstetric Anesthesiology at Georgetown University. Since 1995, Dr. Chapman has been a critical care physician on the staff at Doctor's Community Hospital, Lanham, Maryland. He was most recently President of Chapman Pharmaceutical Consulting. From 1995 to April 2000, Dr. Chapman was Executive Director, Medical Affairs, Quintiles Consulting and a founding Co-Director of Quintiles BRI (QBRI) Medical Affairs, Drug Safety and Medical Writing Departments.
Susan Gould-Fogerite, Ph.D., age 48, has been Executive Vice President of Business Development -- Vaccines and Gene Therapy since October 2000. Dr. Gould-Fogerite served as Vice President and Secretary, and has been a member of the Board of Directors of BioDelivery Sciences, Inc. since its incorporation in 1995. Dr. Gould-Fogerite's previous experience includes her positions as Assistant Professor, at University Of Medicine And Dentistry Of New Jersey , New Jersey Medical School (1991 to present), and Research Instructor (1985 to 1988), then Research Assistant Professor (1988-1990), at Albany Medical College. Dr. Gould-Fogerite received her Ph.D. in Microbiology and Immunology from the Albany Medical College in 1985.
L.M. Stephenson, Ph.D., age 58, is a member of the Board of the Company. Dr. Stephenson has been associated with the University of Medicine and Dentistry of New Jersey since 1995 where he is currently the Vice President for Research with responsibility over developing the research capability, research funding and intellectual property of New Jersey's medical science campuses, including three medical schools, dental, nursing and public health schools and a graduate school of biomedical sciences. He also serves as the Acting Associate Dean for Research of the New Jersey Medical School where he is temporarily responsible for managing and reorganizing the Sponsored Projects Office. Dr. Stephenson also currently serves as the Director
of Patents and Licensing of the University of Medicine and Dentistry of New Jersey where he is responsible for management of the Intellectual Property Assets, including marketing of patents and establishment of new ventures. Dr. Stephenson is a graduate of the University of North Carolina where he earned a BS in chemistry and was awarded the Venable Medal for outstanding senior in chemistry. Dr. Stephenson earned his Ph.D. in chemistry from the California Institute of Technology where he earned the Kodak Prize for outstanding chemistry graduate student and was an NSF Predoctoral Fellow. Additionally, Dr. Stephenson was a Research Fellow at Harvard University. Dr. Stephenson also serves on the board of directors of the following institutions: Kessler Medical Rehabilitation & Research Corporation (Non-Profit), University Heights Sciences Park (Non-Profit), New Jersey Entrepreneurs Network, Rutgers Help Desk & Business Incubator, Crescent Genomics and the New Jersey Research and Development Council.
William Stone, age 58, is a member of our Board of Directors. For the past 20 years, Mr. Stone has been continuously employed with Mallinckrodt, Inc. in various capacities such as Vice-President, CIO and Controller. Mr. Stone retired in October 2000. Mr. Stone is a graduate of the University of Missouri-Columbia where he earned a BS and MA degree in accounting. Mr. Stone is also a Certified Public Accountant.
BOARD COMPOSITION
Directors are elected annually at our annual meeting of stockholders, and serve for the term for which they are elected and until their successors are duly elected and qualified. There is only one class of directors.
BOARD COMPENSATION
The Company's policy is to pay $1,000 per diem compensation to members of the Board for attendance at formal Board meetings or committee meetings and no compensation for informal meetings such as telephonic meetings and written consent actions. All directors are reimbursed for travel and other related expenses incurred in attending meetings of the Board.
Directors are eligible to participate in our 2001 stock option plan. We grant each director upon agreeing to serve an option to purchase 20,000 shares of common stock. We award an additional 10,000 for each committee chairmanship and 5,000 shares for each committee membership. We grant subsequent grants of options to purchase 20,000 shares upon each anniversary of such director's appointment. Such options are granted at an exercise price equal to the fair market value of the common stock on the grant date and fully vest following one year of service after the date of grant.
We have indemnified each member of the board of directors and our executive officers to the fullest extent authorized, permitted or allowed by law.
BOARD COMMITTEES
The board of directors has a compensation committee that reviews and recommends the compensation arrangements for our management. The members of the compensation committee are Dr. O'Donnell, L.M. Stephenson, and William Stone.
The board of directors has an audit committee that reviews our annual audit and meets with our independent auditors to review our internal controls and financial management practices. The board's audit committee currently consists of Dr. O'Donnell, L.M. Stephenson, and William Stone. The functions of the audit committee are to make recommendations to the board of directors regarding the selection of independent auditors, review the results and scope of the audit and other services provided by our independent auditors and review and evaluate our audit and control functions.
SCIENTIFIC ADVISORY BOARD
We have established our Scientific Advisory Board as an additional scientific and technical resource for our management team. Members of our advisory board have entered into consulting agreements which
provide for expense reimbursements, non-qualified stock options and in some instances cash compensation. The following is a short discussion of our advisory board members' background:
Ralph Arlinghaus, Ph.D. is Professor and Chairman of the Department of Molecular Pathology at M. D. Anderson Cancer Center since 1986. Dr. Arlinghaus has an extensive research background and experience in several fields, including small RNA viruses (picornaviruses), retroviruses, including HIV, molecular mechanisms involved in signal transduction, and molecular aspects of leukemia research both at the level of diagnostics and developing novel strategies to treat leukemia. From 1983-1986 Dr. Arlinghaus was Director of Vaccine Development at the Johnson & Johnson Biotechnology Center in La Jolla, CA.
Floyd H. Chilton, Ph.D., is Founder, Director, President, Chief Executive Officer and Chief Scientific Officer of Pilot Therapeutics. Prior to joining Pilot Therapeutics as CEO and CSO in December 2000, Dr. Chilton was Director of Molecular Medicine, Professor of Physiology and Pharmacology, Professor of Internal Medicine (Section on Pulmonary and Critical Care Medicine) and Professor of Biochemistry at the Wake Forest University School of Medicine. Dr. Chilton is widely recognized in academia and industry for his leading work on the role of arachidonic acid metabolism in human diseases.
Gerald Lee Mandell, MD, MACP is the Owen R. Cheatham Professor of the Sciences and Professor of Medicine at the University of Virginia. He is the founding editor of the world's leading reference source, Principles and Practices of Infectious Diseases and the journal Current Infectious Diseases. He is a past-President of the Infectious Diseases Society of America and was holder of an NIH MERIT Award for his research focused on neutrophils and infection and neutrophil interactions with antibiotics. He is a member of the Institute of Medicine.
James M. Oleske, M.D., MPH is Francois-Xavier Bagnoud Professor of Pediatrics and Director, Division of Pulmonary, Allergy, Immunology and Infectious Diseases Department of Pediatrics UMD-New Jersey Medical School. Dr. Oleske is an internationally recognized expert in the management of children with HIV/AIDS. His earlier interest in immune based therapy for infants and children with primary immunodeficiency has been extended to children with HIV infection His multiple medical Board certifications (Allergy/Immunology, Infectious Disease, Laboratory Immunology and Palliative/Hospice Care and Pain) reflect his lifelong commitment of advocacy for children.
David S. Perlin, Ph.D., is the Scientific Director of The Public Health Research Institute, an internationally recognized 60 year-old biomedical research institute in New York City that emphasizes molecular approaches to infectious diseases research. Dr. Perlin is widely published, and his research activities focus on investigating the molecular properties of fungal membrane proteins, novel approaches to fungal diagnostics, and the molecular basis for clinical resistance to antifungal agents.
Leo A. Whiteside, M.D., is founder and President of Missouri Bone and Joint Center, Missouri Bone and Joint Research Laboratory, and Whiteside Biomechanics Inc. Dr. Whiteside is an internationally recognized arthritis surgeon and innovator, specializing in total replacement of the hip and knee. He has been the surgeon-inventor for three major hip replacement and two major knee replacement systems, and his company is involved with developing and marketing orthopaedic surgical instruments and implantable devices. He is past president of the Hip Society, recipient of the Charnley award for excellence for research involving hip replacement surgery, and is currently on the editorial board of The Journal of Arthroplasty and Clinical Orthopaedics and Related Research.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws limit or eliminate the personal liability of our directors for monetary damages for breach of the directors' fiduciary duty of care. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, our directors or officers will not be
personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as a director, except for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; and
- any transaction from which the director derived an improper personal benefit.
These provisions are permitted under Delaware law which will be the controlling law upon the completion of the reincorporation.
Our certificate of incorporation also provides that we will indemnify, to the fullest extent permitted by law, any person made or threatened to be made a party to any action or proceeding by reason of the fact that he or she is or was one of our directors or officers or serves or served at any other enterprise as a director, officer or employee at our request.
Our bylaws provide that we will, to the maximum extent and in the manner permitted by Delaware law, indemnify each of the following persons against expenses, including attorneys' fees, judgments, fines, settlements, and other amounts incurred in connection with any proceeding arising by reason of the fact that he or she is or was our agent:
- one of our current or past directors or officers;
- a current or past director or officer of another enterprise who served at our request; or
- a current or past director or officer of a corporation that was our predecessor corporation or of another enterprise at the request of a predecessor corporation.
We have entered into indemnification agreements with each of our directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification described above and to provide additional procedural protections. These agreements, among other things, indemnify our directors and executive officers for certain expenses, including attorneys' fees, judgments, fines, penalties and settlement amounts incurred by them in any action or proceeding arising out of their services to us, our subsidiaries or any other enterprise to which they provide services at our request. In addition, we will acquire directors' and officers' insurance providing indemnification for our directors, officers and certain employees for certain liabilities. We believe that these indemnification provisions and agreements are necessary to attract and retain qualified directors and officers.
The limited liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment in us may be adversely affected to the extent we pay the costs of settlement and damage awards against our directors and officers under these indemnification provisions.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the compensation earned for services rendered to us during the fiscal year ended December 31, 2000 by our Chief Executive Officer and our four other most highly compensated executive officers who earned more than $100,000 in fiscal 2000 and were serving as executive officers at the end of fiscal 2000, whom we refer to collectively as the named executive officers.
The annual and long-term remuneration to or accrued for the executive officers, for services rendered during the years ended December 31, 1998, 1999, 2000 and 2001 was as follows:
SUMMARY COMPENSATION TABLE*
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------------------- ----------------------
(a) (b) (c) (d) (f) (g)
(e) RESTRICTED SECURITIES (h) (i)
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
--------------------------- ---- -------- ----- ------------ ---------- ------------ ------- ------------
($) ($) ($) ($) (#) ($) ($)
Francis E. O'Donnell, Jr., 2001 -- -- -- -- -- -- --
M.D.,...........................
CEO, President and Chairman 2000 -- -- -- -- -- -- --
709 The Hampton Lane 1999 -- -- -- -- -- -- --
Chesterfield, MO 63017 1998 -- -- -- -- -- -- --
James McNulty, CFO,............... 2001 $ 48,000 -- -- -- -- -- --
Secretary and Treasurer 2000 -- -- -- -- -- -- --
4419 W. Sevilla Street 1999 -- -- -- -- -- -- --
Tampa, Florida 33629 1998 -- -- -- -- -- -- --
Donald L. Ferguson,............... 2001 -- -- -- -- -- -- --
Senior Executive Vice President 2000 -- -- -- -- -- -- --
Land Dynamics, Inc. 1999 -- -- -- -- -- -- --
11719 Old Ballas Road, 1998 -- -- -- -- -- -- --
Suite 110
St. Louis, MO 63141
Raphael J. Mannino, Ph.D., ....... 2001 $ 87,110 -- -- -- -- -- --
Executive Vice President, 2000 $ 64,800 -- -- -- -- -- --
Chief Scientific Officer 1999 $ 64,800 -- -- -- -- -- --
UMDNJ New Jersey 1998 $ 69,784 -- -- -- -- -- --
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
Christopher Chapman, ............. 2001 $ 80,000 -- -- -- -- -- --
Director of Medical and 2000 -- -- -- -- -- -- --
Regulatory
Affairs and Director of New 1999 -- -- -- -- -- -- --
Business Management
800 Falls Lake Drive 1998 -- -- -- -- -- -- --
Mitchelsville, MD 20720
Leila Zarif, Ph.D., .............. 2001 $144,898 -- -- -- -- -- --
Executive Vice President 2000 $114,716 -- -- -- -- -- --
of Research and Development 1999 $109,622 -- -- -- -- -- --
UMDNJ New Jersey 1998 $106,025 -- -- -- -- -- --
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
|
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------------------- ----------------------
(a) (b) (c) (d) (f) (g)
(e) RESTRICTED SECURITIES (h) (i)
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
--------------------------- ---- -------- ----- ------------ ---------- ------------ ------- ------------
($) ($) ($) ($) (#) ($) ($)
Susan Gould-Fogerite, Ph.D., ..... 2001 $ 42,368 -- -- -- -- -- --
Director of Business 2000 $ 40,800 -- -- -- -- -- --
Development -- Vaccines and 1999 $ 40,800 -- -- -- -- -- --
Gene Therapy 1998 $ 43,938 -- -- -- -- -- --
UMDNJ New Jersey
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
|
* Salary reflects total compensation paid to these executives (pre-merger and post-merger with BioDelivery Sciences, Inc. during these periods).
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2000
The Company did not grant any options to purchase shares of common stock to executive officers in the year ended December 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No options were exercised during the fiscal year-end December 31, 2000.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISABLE
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
--------------------------- -------------- ----------- ------------------ ------------------
(a) (b) (c) (d) (e)
Francis E. O'Donnell, Jr.,
M.D. ............................. -- -- -- --
CEO, President and Chairman
709 The Hampton Lane
Chesterfield, MO 63017
James McNulty, CFO................ -- -- -- --
Secretary and Treasurer
4419 W. Sevilla Street
Tampa, Florida 33629
Donald L. Ferguson................ -- -- -- --
Senior Executive Vice President
Land Dynamics, Inc.
11719 Old Ballas Road,
Suite 110
St. Louis, MO 63141
|
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISABLE
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
--------------------------- -------------- ----------- ------------------ ------------------
(a) (b) (c) (d) (e)
Raphael J. Mannino, Ph.D. ........ -- -- -- --
Executive Vice President,
Chief Scientific Officer
UMDNJ New Jersey
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
Christopher Chapman............... -- -- -- --
Director of Medical and
Regulatory
Affairs and Director of New
Business Management
800 Falls Lake Drive
Mitchelsville, MD 20720
Leila Zarif, Ph.D. ............... -- -- -- --
Executive Vice President
of Research and Development
UMDNJ New Jersey
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
Susan Gould-Fogerite, Ph.D. ...... -- -- -- --
Director of Business
Development -- Vaccines and
Gene Therapy
UMDNJ New Jersey
Medical School
185 South Orange Avenue
Building 4
Newark, NJ 07103
|
EMPLOYMENT AGREEMENTS
Except for Mr. James McNulty and Dr. Christopher Chapman, we currently have no written employment agreements or confidentiality and non-compete agreements with any of our officers, directors, or key employees. We may elect to pursue obtaining employment agreement with certain of these individuals at some point in the future. Under our employment at will arrangement, our officers will receive the following annualized salaries and other benefits in 2001:
(i) Dr. O'Donnell, President, CEO and Chairman - Receives no salary and no benefits.
(ii) James McNulty, CFO, Secretary and Treasurer - Although he is a part-time CFO, he has an employment agreement with us for a base salary of $48,000, which terminates on March 1, 2004. Under the terms of this agreement, he is also entitled to the following benefits: medical and dental.
(iii) Donald Ferguson, Senior Executive Vice President - Receives no salary and no benefits.
(iv) Dr. Raphael Mannino, Ph.D., Executive Vice President, and Chief Scientific Officer-Receives a salary of $87,110 and receives no benefits.
(v) Dr. Leila Zarif, Executive Vice President of Research and Development - Receives a salary of $144,898. Under the terms of this agreement, she is also entitled to the following benefits: medical and dental.
(vi) Dr. Susan Gould-Fogerite, Director of Business Development - Receives a salary of $42,368 and is entitled to the following benefits: a 401k Plan.
(vii) Chistopher Chapman, MD, Director of Medical and Regulatory Affairs and Director of New Business Management -- Receives $6,667 per month pursuant to a consulting contract and receives no other benefits from us. This consulting contract was entered into prior to Dr. Chapman becoming an officer, however, he continues to receive remuneration under the consulting agreement. Prior to the effective date, such consulting agreement will be reconstituted into an employment agreement on similar terms and conditions.
Drs. Raphael Maninno, Leila Zarif, and Susan Gould-Fogerite issued us promissory notes in connection with the recently completed merger of BioDelivery Science, Inc. into our company. Simultaneously with the closing of this offering, we are forgiving those notes and providing these same individuals with a total of $200,000 as compensation for their tax liability.
2001 STOCK OPTION PLAN
The purpose of the 2001 stock option plan is (i) to align our interests and recipients of options under the 2001 stock option plan by increasing the proprietary interest of such recipients in our growth and success, and (ii) to advance our interests by providing additional incentives to officers, key employees and well-qualified non-employee directors and consultants who provide services to us, who are responsible for our management and growth, or otherwise contribute to the conduct and direction of its business, operations and affairs.
Our board of directors will administer the 2001 stock option plan, select the persons to whom options are granted and fix the terms of such options.
Our 2001 stock option plan reserved 572,082 shares which was authorized by our board of directors and approved by our stockholders at our October 2001 annual meeting. Our board of directors subsequently voted to increase the plan to 1,000,000 shares which will be submitted to our stockholders for approval at the next annual meeting. Options to purchase 949,126 shares of common stock have been granted under the 2001 stock option plan. Options to purchase 949,126 shares have been granted under the 2001 Stock Option Plan. Options may be awarded during the five-year term of the 2001 stock option plan to our employees (including employees who are directors), consultants who are not employees and our other affiliates. Our 2001 stock option plan provides for the grant of options intended to have been approved by our Board and qualify as incentive stock options under Section 422A of the Internal Revenue Code of 1986, as amended, ("Incentive Stock Options"), and options which are not Incentive Stock Options ("Non-Statutory Stock Options").
Only our employees or employees of our subsidiaries may be granted Incentive Stock Options. Our affiliates or consultants or others as may be permitted by our board of directors, may be granted Non-Statutory Stock Options.
Directors are eligible to participate in the 2001 stock option plan. The 2001 stock option plan provides for an initial grant of an option to purchase up to 20,000 shares of common stock to each director upon first joining our board of directors and subsequent grants of options to purchase 20,000 shares upon each anniversary of such director's appointment. Additionally, directors will be granted 10,000 options for each committee chairmanship and 5,000 options for each committee membership. Such options are granted at an exercise price equal to the fair market value of the common stock on the grant date and fully vest following one year of service after the date of grant.
Options and warrants to purchase 949,126 shares of our common stock at prices ranging from $2.88 to $17.48 have been granted as of December 31, 2001. Certain options granted under the 2001 options plan will commence vesting upon grant, but are not exercisable until the earlier of: (i) 13 months following the completion this offering registered with the SEC; or (ii) 24 months from the date of grant. Once vesting commences, the options generally vest equally over a two-year period, except for options granted to the board of directors which vest 100% upon the date of grant.
CERTAIN TRANSACTIONS
During 2001, we entered into agreements with RetinaPharma, Inc. and Tatton Technology LLC. Both are biotechnology companies which are developing neutraceutical neuroprotective therapies for treating neurodegenerative disease such as macular degeneration and Parkinson's disease. To the extent that such drugs utilize Bioral cochleate technology, we will support drug development and will share in thirty percent (30%) of any profits from such sales of Bioral encapsulated drugs. The Hopkins Capital Group II, LLC, one of our significant stockholders and Dr. Francis E. O'Donnell, Jr., our CEO, President and a director are affiliated as stockholders and a director of RetinaPharma, Inc. Additionally, Hopkins Capital Capital, LLC, which is affiliated with Hopkins Capital Group II, LLC and Dr. O'Donnell, is a significant stockholder of Tatton Technologies, LLC. Dr. O'Donnell is the managing director of Hopkins Capital Group, LLC and Hopkins Capital Group II, LLC."
Dr. Francis O'Donnell and Donald Ferguson have guaranteed a line of credit up to $450,000 with a bank and other liabilities for the benefit of the company.
We have also entered into an agreement with Biotech Specialty Partners, LLC, an emerging alliance of early stage biotechnology and specialty pharmaceutical companies. Biotech Specialty Partners, LLC is in its formative stage and to date has not distributed any pharmaceutical products. Under this agreement, Biotech Specialty Partners, LLC will serve as a nonexclusive distributor of our Bioral drugs in consideration of a ten (10%) discount to the wholesale price, which our board of directors have determined to be commercially reasonable. The Hopkins Capital Group, LLC, which is affiliated with Dr. Francis E. O'Donnell, Jr., our CEO and director, are affiliated as stockholders, and a member of the management, of Biotech Specialty Partners, LLC.
We have also entered in an agreement with BioKeys Pharmaceutical, Inc, a biotechnology company, which is developing several potential products which are vaccine based. To the extent that BioKeys Pharmaceutical, Inc. utilizes our Bioral drug delivery technology, we will earn a royalty ranging between 15% to 30% of product sales incorporating our technology and between 10% and 20% of any royalty income earned by BioKeys Pharmaceutical, Inc. with regard to licenses involving our technology. Regent Court Technologies LLC, which is affiliated with one of our stockholders, and Dr. Francis E. O'Donnell, Jr., our CEO and director, and Donald L. Ferguson, our senior executive vice-president, are affiliated as stockholders and Dr. O'Donnell is a member of the management of BioKeys Pharmaceutical, Inc.
Mr. James McNulty, our current part-time Chief Financial Officer, is also the Chief Financial Officer of The Hopkins Capital Group II, LLC, which is affiliated with Dr. Francis E. O'Donnell, our president and CEO.
Samuel S. Duffey, Esq., through Friday Harbour, LLC, a Florida limited liability company owned with his spouse, owns 74,371 shares of our common stock. An aggregate of 51,487 additional shares are owned by trusts for the benefit of Mr. Duffey's adult children. Mr. Duffey is a partner in Duffey & Dolan, P.A. which provides legal services to us and Friday Harbour, LLC, which provides consulting services to us and Hopkins Capital Group, LLC.
In 2001, we settled litigation commenced against BioDelivery Sciences, Inc. by Irving A. Berstein and certain of his family members and affiliates. Mr. Berstein was one of the founders, stockholders, and former officer and director of BioDelivery Sciences, Inc. The settlement required that we pay $150,000 in cash and $125,000 by promissory note, which is being satisfied in full out of the proceeds of this offering. At the same time, we purchased the shares of BioDelivery Sciences, Inc. owned by these stockholders for $500,000 which was paid $200,000 in cash and $300,000 by promissory note which is being satisfied in full out of the proceeds of this offering.
In December 2001, we exchanged 447,391 shares of our stock for 1,470,000 shares of BioDelivery Sciences, Inc. redeemable common stock. Drs. Raphael J. Mannino, Leila Zarif and Susan Gould-Fogerite, an officer of the company, principally owned those BioDelivery Sciences Inc. shares. In connection with this exchange, we removed certain restrictions, put rights with respect to those shares and expect to forgive loans of approximately $320,000 that are secured by the BioDelivery Sciences Inc. shares upon the successful completion of the offering.
We also issued an additional 137,300 shares during 2001 to the University of Medicine and Dentistry of New Jersey to settle outstanding payments owed to them under our research agreement.
As a matter of corporate governance policy, we have not and will not make loans to officers or loan guarantees available to "promoters" as that term is commonly understood by the SEC and state securities authorities.
We believe that the terms of the above transactions with affiliates were as favorable to us or our affiliates as those generally available from unaffiliated third parities. At the time of the above referenced transactions, we did not have sufficient disinterested directors to ratify or approve the transactions.
All future transactions between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors of the Company who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel. We intend to maintain at least two independent members on our Board of Directors.
PRINCIPAL STOCKHOLDERS
The following table presents information concerning the beneficial ownership of the shares of our common stock.
- each person who is known by us to beneficially own more than 5% of our common stock;
- each of our directors;
- each of the named executive officers; and
- all of our directors and executive officers of as a group.
The number and percentage of shares beneficially owned are based on 5,000,862 shares of common stock outstanding. This figure assumes conversion of all outstanding shares of preferred stock into common stock prior to this offering, and the issuance of 520,313 shares of common stock in conjunction with our acquisition of the remaining capital stock of BioDelivery Sciences, Inc. through the January 2002 merger. In computing the outstanding shares of common stock, we have excluded all shares of common stock subject to options or warrants since they are not currently exercisable or exercisable within 60 days of the effective date and are therefore not deemed to be outstanding and beneficially owned by the person holding the options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person.
Except as indicated in the footnotes to this table, and subject to applicable community property laws, these persons have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Percentage ownership figures after the offering do not include shares that may be purchased by each person in this offering.
PERCENTAGE PERCENTAGE
NO. OF SHARES OF CLASS OF CLASS
OF COMMON PRIOR TO THIS AFTER THIS
NAME OF BENEFICIAL OWNER POSITION STOCK OFFERING OFFERING
------------------------ -------- ------------- ------------- ----------
Hopkins Capital Group II,
LLC(1)
4419 W. Sevilla Street
Tampa, FL 33629 Stockholder 3,036,613 60.72% 43.37%
University of Medicine and
Dentistry of New Jersey(6)
65 Bergen Street
MB 1414
University Heights
Newark, NJ 07103 Stockholder 139,522 2.79% 1.99%
Albany Medical College(6)
Director of Research Admin
47 New Scotland Avenue
Albany, NY 12202 Stockholder 2,222 0.04% 0.03%
Francis E. O'Donnell, Jr.,
M.D.(2)
CEO, President and Chairman
709 The Hampton Lane
Chesterfield, MO 63017 Chief Executive Officer,
Chairman and Director 3,086,957 61.73% 44.09%
John R. Williams, Sr.(3)
1 Starwood Lane
Manakin-Sabot, VA 23103 Stockholder 3,128,146 62.55% 44.68%
Dennis Ryll, M.D.(4)
1029 Speckledwood
Manor Court
Chesterfield, MO 63017 Stockholder 3,082,380 61.64% 44.03%
|
PERCENTAGE PERCENTAGE
NO. OF SHARES OF CLASS OF CLASS
OF COMMON PRIOR TO THIS AFTER THIS
NAME OF BENEFICIAL OWNER POSITION STOCK OFFERING OFFERING
------------------------ -------- ------------- ------------- ----------
James A. McNulty
4419 W. Sevilla Street
Tampa, FL 33629 Chief Financial Officer
and Secretary 76,659 1.53% 1.09%
Donald L. Ferguson(7)
11719 Old Ballas Road,
Suite 110
St. Louis, MO 63141 Sr. Executive Vice President 91,533 1.83% 1.31%
Raphael J. Mannino, Ph.D.(8)
185 South Orange Avenue
Building 4
Newark, NJ 07103 Executive Vice President,
Chief Scientific Officer and
Director 182,609 3.65% 2.61%
Susan Gould-Fogerite,
Ph.D.(9)
185 South Orange Avenue
Building 4
Newark, NJ 07103 Director of Business
Development -- Vaccines and
Gene Therapy 152,174 3.04% 2.17%
Leila Zarif, Ph.D.(10)
185 South Orange Avenue
Building 4
Newark, NJ 07103 Executive Vice President of
Research and Development 152,174 3.04% 2.17%
L.M. Stephenson, Ph.D.(11)
University of Medicine and
Dentistry of New Jersey
65 Bergen Street MB 1414
University Heights
Newark, NJ 07103 Director -- -- --
William Stone(12)
11120 Geyers Down Lane
Frontenac, MO 63131 Director -- -- --
All directors and officers as a group(5) 3,742,105 74.83% 53.45%
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(2) Includes the shares owned by Hopkins Capital Group II, LLC and 45,767 shares of common stock, owned by his wife, as to which he disclaims beneficial interest of. Does not include option to purchase 35,000 shares of common stock at an exercise price of $3.06 per share exercisable 13 months from the date of this prospectus.
(3) Includes the shares owned by Hopkins Capital Group II, LLC and 45,767 shares of common stock, converted from preferred stock prior to this offering, owned by his wife, as to which he disclaims beneficial interest of.
(4) Includes the shares owned by Hopkins Capital Group II, LLC.
(5) Includes the shares described in footnote (2) above.
(6) Both of the universities each owns warrants to purchase 9,952 additional shares of common stock at an exercise price of $3.06 per share vesting 13 months from the date of this prospectus. These options were granted in October 2001.
(7) Does not include options to purchase 137,300 shares of common stock at an exercise price of $3.06 per share vesting the earlier of 13 months from the date of this prospectus or October 2003; options to purchase 68,650 shares of common stock at an exercise price of $11.80 per share vesting the earlier of 25 months from the date of this prospectus or October 2004; and options to purchase 68,650 shares of common stock at an exercise price of $17.48 per share vesting the earlier of 37 months from the date of this prospectus or October 2005.
(8) Does not include options to purchase 45,767 shares of common stock at an exercise price of $3.06 per share vesting the earlier of 13 months from the date of this prospectus or October 2003; options to purchase 22,883 shares of common stock at an exercise price of $11.80 per share vesting the earlier of 25 months from the date of this prospectus or October 2004; and options to purchase 22,883 shares of common stock at an exercise price of $17.48 per share vesting the earlier of 37 months from the date of this prospectus or October 2005.
(9) Does not include options to purchase 17,162 shares of common stock at an exercise price of $3.06 per share vesting the earlier of 13 months from the date of this prospectus or October 2003; options to purchase 8,581 shares of common stock at an exercise price of $11.80 per share vesting the earlier of 25 months from the date of this prospectus or October 2004; and options to purchase 8,581 shares of common stock at an exercise price of $17.48 per share vesting the earlier of 37 months from the date of this prospectus or October 2005.
(10) Does not include options to purchase 45,767 shares of common stock at an exercise price of $3.06 per share vesting the earlier of 13 months from the date of this prospectus or October 2003; options to purchase 22,883 shares of common stock at an exercise price of $11.80 per share vesting the earlier of 25 months from the date of this prospectus or October 2004; and options to purchase 22,883 shares of common stock at an exercise price of $17.48 per share vesting the earlier of 37 months from the date of this prospectus or October 2005.
(11) Does not include options to purchase 30,000 shares of common stock at an exercise price of $3.06 per share exercisable 13 months from the date of this prospectus.
(12) Does not includes options to purchase 35,000 shares of common stock at an exercise price of $3.06 per share exercisable 13 months from the date of this prospectus.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 80,000,000 shares of common stock and 20,000,000 shares of preferred stock. Upon the completion of this offering, our outstanding capital stock will consist of 7,000,862 shares of common stock, $.001 par value, and no shares of preferred stock, $.001 par value. There will also be 2,000,000 outstanding Class A warrants to purchase 2,000,000 shares of common stock in the aggregate. These figures do not include securities to be issued as part of the exercise of the overallotment option, the representative's unit purchase option or the 2001 Incentive Stock Option Plan.
UNITS
Each Unit consists of: (i) one share of our common stock, par value $.001 per share; and (ii) one redeemable Class A common stock purchase warrant. The common stock and warrants will not trade as separate securities until 30 days after this offering unless the representative of the underwriters determines that separate trading should occur earlier
COMMON STOCK
There are 5,000,862 shares of common stock outstanding, held of record by approximately 227 stockholders. 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. Subject to preferential rights with respect to any outstanding 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 our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights of any outstanding preferred stock.
Our common stock has no preemptive or conversion rights or other subscription rights. There are no sinking fund provisions applicable to the common stock. The outstanding shares of common stock are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable.
CLASS A WARRANTS
Each Class A warrant entitles the holder to purchase one share of our common stock at a price of $ (120% of the initial offering price of the Units). The exercise prices of the Class A warrants subject to adjustment, including anti-dilution provisions for corporate events, such as stock splits and for issuance of securities at less than the current exercise price. You may exercise your warrants at any time for four years after a one year period following the date of this prospectus unless we have redeemed them.
The Class A warrants are exercisable from 2002 until 2006. We may redeem the outstanding Class A warrants for $.10 per warrant upon 30 days written notice to the warrant holder; provided: (i) the underlying shares of common stock are eligible for resale under the Securities Act pursuant to an effective registration statement; (ii) the average closing sale price of the common stock equals or exceeds 150% of the offering price of the Units for the 10 trading days prior to the date of the notice of redemption; and (iii) that 12 months has elapsed since the date of this prospectus.
The Class A Warrants will be issued is registered under a warrant agreement between us and American Stock Transfer and Trust Company, as warrant agent. The shares of common stock underlying the Class A warrants, when issued upon exercise of the Class A Warrants will be fully paid and non-assessable.
PREFERRED STOCK
We have authorized 20,000,000 shares of preferred stock, none of which have been designated or are outstanding. Prior to this offering, all outstanding shares of preferred stock were rescinded and shares of common stock issued in lieu thereof. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including voting rights, of the holders of common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the common stock. Notwithstanding the broad discretion granted to the Board of Directors with respect to
designating the terms and conditions of any series of preferred stock, our Board of Directors has agreed to refrain from issuing shares of preferred stock, or unless such designation and issuance is approved by a majority of our independent directors who do not have an interest in the transactions and who have access to and consulted with (at our expense) our counsel or counsel of their choosing.
OPTIONS
We have options and warrants to purchase 949,126 shares of our common stock at a weighted average exercise price of $7.07 per share. Up to 50,874 additional shares of common stock may be subject to options granted in the future under the 2001 stock option plan. See "2001 incentive stock option plan."
In order for the holders of the rights to resell the common stock issuable upon exercise of the rights, there must be a current prospectus available under the Securities Act of 1933 and applicable state securities laws.
REGISTRATION RIGHTS
Except for the registration rights granted to the underwriters pursuant to the underwriting agreement, there are no registration rights granted to investors. See "Underwriting".
ANTI-TAKEOVER LAW
At such time as we re-incorporate in Delaware, we will be subject to
Section 203 of the Delaware General Corporation Law, which restricts certain
transactions and business combinations between a corporation and an "interested
stockholder" (as defined in Section 203) owning 15% or more of the corporation's
outstanding voting stock, for a period of three years from the date the
stockholder becomes an interested stockholder. Subject to certain exceptions,
unless the transaction is approved by the board of directors and the holders of
at least two-thirds of our outstanding voting stock (excluding shares held by
the interested stockholder), Section 203 prohibits significant business
transactions such as a merger with, disposition of assets to, or receipt of
disproportionate financial benefits by the interested stockholder, or any other
transaction that would increase the interest stockholder's proportionate
ownership of any class or series of the corporation's stock. The statutory ban
does not apply if, upon consummation of the transaction in which any person
becomes an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock of the corporation (excluding shares held by
persons who are both directors and officers or by certain employee stock plans).
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will be our transfer agent and registrar for our common stock and warrant agent for the Class A warrants.
LISTING
We have applied to the Nasdaq Small Cap Market for quotation of our Units, Class A Warrants, and common stock under the symbols "BDSIU", "BDSIA", and "BDSI", respectively and are awaiting their review. We have also applied to the Boston Stock Exchange for quotation of our Units, Class A Warrants and common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect prevailing market prices.
Upon consummation of the offering, we will have an aggregate of 7,000,862 shares of common stock outstanding, assuming that the underwriters do not exercise their over-allotment option and none of the outstanding options and warrants are exercised. Of the 7,000,862 shares outstanding after the offering, only the 2,000,000 shares sold in this offering (excluding an additional 300,000 shares included in the underwriter's overallotment option) will be freely tradable without restriction under the Securities Act, except for any shares that may be sold or purchased by our "affiliates." Shares purchased by our affiliates will be subject to the volume and other limitations of Rule 144 of the Securities Act, or "Rule 144" described below. As defined in Rule 144, an "affiliate" of an issuer is a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the issuer. Upon the expiration of certain contractual "lock-up" restrictions described below, shares will be eligible for sale days after the date of this prospectus, with of these shares subject to the volume and other limitations of Rule 144 and of these shares subject to the volume and other limitations of Rule 144(k). The remaining shares will become eligible for sale at various times after that date. All of these remaining shares will be subject to the volume and other limitations of Rule 144.
The Representative required as a condition to closing of the offering that all officers, directors, and certain significant stockholders agree to contractual restrictions for a period of twelve months (three years in the case of Dr. Francis O'Donnell and The Hopkins Group II, LLC.) from the effective date of this prospectus, as follows:
- 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 to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or other securities, in cash or otherwise.
These persons and entities own an aggregate of shares of common stock, and warrants. Roan/Meyers Associates, L.P. may choose to release some or all of these shares from such restrictions prior to the expiration of the day period "lock-up" period, although it has no current intention of doing so.
RULE 144
Under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted shares of common stock for at least one year, including the holding period of any prior owner who is not an affiliate, would be entitled to sell a number of the shares within any three-month period equal to the greater of 1% of the then outstanding shares of the common stock or the average weekly reported volume of trading of the common stock on the Nasdaq Small Cap Market during the four calendar weeks preceding such sale. Immediately after the offering, 1% of our outstanding shares of common stock would equal approximately 70,001 shares. Under Rule 144, restricted shares are subject to manner of sale and notice requirements and requirements as to the availability of current public information concerning us.
Under Rule 144(k), a person who is not deemed to have been an affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an affiliate, is entitled to sell such shares without regard to the volume or other limitations of Rule 144 just described.
RULE 701
Immediately after this offering, excluding underwriter's overallotment there will be options and warrants outstanding to purchase approximately 3,349,126 shares of common stock. Subject to the provisions of the lock-up agreements described above, holders of these options may rely on the resale provisions of Rule 701 under the Securities Act. Rule 701 permits non- affiliates to sell their shares without having to comply with the volume, holding period or other limitations of Rule 144 and permits affiliates to sell their shares without having to comply with the holding period limitation of Rule 144, in each case beginning 90 days after the consummation of this offering.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting agreement dated the date hereof, the underwriters named below through their representative Roan/Meyers & Associates, L.P., have severally agreed to purchase, and we have agreed to sell to them, severally, the respective number of Units set forth opposite their names at the public offering price less the underwriting discounts and commission set forth on the cover page of this prospectus below:
NUMBER
OF
UNDERWRITER UNITS
----------- ------
Roan/Meyers Associates, L.P. ...............................
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The underwriters are collectively referred to as the "underwriters." The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the Units offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the Units offered by this prospectus if any Units are taken except for those covered by the overallotment option. These conditions include requirements that no stop order be in effect and that no proceedings for such purpose be instituted or threatened by the Securities and Exchange Commission.
The representative has informed us that the underwriters propose to offer the Units directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a Unit under the public offering price. Any underwriter may allow, and such dealers may re-allow, a concession not in excess of $ a Unit to other dealers including the underwriter. After the initial offering of the Units, the offering price and other selling terms may from time to time be changed by the representative.
We have granted to the representative an option, exercisable for 45 days from the date of this prospectus, to purchase up to an aggregate of 300,000 additional Units at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the Units offered hereby. To the extent such option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional Units as the number set forth next to such underwriter's name in the preceding table bears to the total number of Units set forth next to the names of all underwriters in the preceding table.
We have also agreed to issue to the representative to purchase up to 200,000 Units at an exercise price equal to % of the initial offering price of the units. The exercise price and the number of underlying securities in the warrants contained in the representative's Units are subject to adjustment upon the same terms as contained the Class A warrants being sold in the Units. These warrants are exercisable during the four year period beginning one year from the date of effectiveness of the registration statement, of which this prospectus forms a part. These warrants, and the securities underlying them, are not transferable, except to other underwriters (and/or their officers or partners), an individual who is an officer or partner of an underwriter, by will or by the laws of descent and distribution.
The representative's unit purchase option are not redeemable by us. In addition, we have agreed to certain "demand and piggyback" registration rights for the securities underlying the representative's unit purchase option. The holder of the representative's unit purchase option can demand, on one occasion, at anytime until
five years from the effective date of the registration statement, that we register the shares and warrants for resale under the Securities Act of 1933. In addition, the warrants provide for one piggyback registration.
The holders of the representative's unit purchase option will have, in that capacity, no voting, dividend or other stockholder rights. Any profit realized by the representative on the sale of the securities issuable upon exercise of the representative's unit purchase option may be deemed to be additional underwriting compensation. The securities underlying the representative's unit purchase option are being registered on the registration statement. During the term of the representative's unit purchase option, the holders thereof are given the opportunity to profit from a rise in the market price of our common stock. We may find it more difficult to raise additional equity capital while the representative's unit purchase option are outstanding. At any time at which the representative's unit purchase option are likely to be exercised, we may be able to obtain additional equity capital on more favorable terms.
We have also paid to the representative $75,000 on account of the representative's expenses in connection with this offering to be applied to the non-accountable expense allowance equal to 2% of the gross proceeds of the offering (including proceeds from the sale, if any, of the over allotment option securities).
The representative has informed us that sales to discretionary accounts by the underwriters will not exceed 5% of the securities offered in the offering.
We have agreed, in connection with the exercise of the Class A warrants, to
pay to the representative a fee of 5% of the exercise price for each Class A
warrants exercised; provided, however, that the representative will not be
entitled to receive such compensation in warrant exercise transactions in which
(i) the market price of common stock at the time of exercise is lower than the
exercise price of the warrants; (ii) the warrants are held in any discretionary
account; (iii) disclosure of compensation arrangements is not made, in addition
to the disclosure provided in this Prospectus, in documents provided to holders
of warrants at the time of exercise; (iv) the holder of the warrants has not
confirmed in writing that the representative solicited such exercise; or (v) the
solicitation of exercise of the warrants was in violation of Regulation M
promulgated under the Securities Act. In addition, unless granted an exemption
by the Commission from Regulation M under the Exchange Act, the representative
will be prohibited from engaging in any market making activities or solicited
brokerage activities until the later of the termination of such solicitations
activity or the termination by waiver or otherwise of any right the
representative may have to receive a fee for the exercise of the warrants
following such solicitation. Such a prohibition, while in effect, could impair
the liquidity and market price of the securities offered pursuant to the
offering.
The Representative required as a condition to closing of the offering that all officers, directors, and certain significant stockholders agree to contractual restrictions for a period of twelve months (three years in the case of Dr. Francis O'Donnell and The Hopkins Group II, LLC) from the effective date of this prospectus, as follows:
- 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 to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Unit or any securities convertible into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
The restrictions described above do not apply to:
- the sale of Units to the underwriters;
- the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing, provided that purchasers enter into similar "lock-up" agreements; or
- transactions by any person other than us relating to the Units or other securities acquired in open market transactions after the completion of the offering of the shares.
REGULATION M
In order to facilitate the offering of the Units, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Units. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of Units available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing Units in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of the Units compared to the price available under the over-allotment option. The underwriters may also sell the Units in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Unit in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, the Units in the open market to stabilize the price of the Unit. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the Units in the offering, if the syndicate repurchases previously distributed the Units to cover syndicate short positions or to stabilize the price of the Unit. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
DETERMINATION OF OFFERING PRICE
Before this offering, there has been no public market for the units and the common stock and Class A warrants contained in the units. Accordingly, the initial public offering price of the units offered by this prospectus and the exercise price of the Class A warrants were determined by negotiation between us and the representative. Among the factors considered in determining the initial public offering price of the units and the exercise price of the unit warrants were:
- our history and our prospects;
- the industry in which we operate;
- the status and development prospects for our proposed products and services;
- our past and present operating results;
- the previous experience of our executive officers; and
- the general condition of the securities markets at the time of this offering.
The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the units. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the units, or the common stock and warrants contained in the units, can be resold at or above the initial public offering price.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by Ellenoff Grossman Schole & Cyruli, LLP, New York, New York. Goldstein & DiGioia LLP is acting as counsel for Roan Meyer & Associates, L.P., as representative, and the underwriters.
EXPERTS
The financial statements for our company as of December 31, 2000 and for the year ended December 31, 2000 and the financial statements of BioDelivery Sciences, Inc. for the year ended December 31, 1999 and the nine months ended September 30, 2000, included in this Prospectus and in the registration statement, have been audited by Grant Thornton LLP, independent certified public accountants, as stated in their reports included herein and in the registration statement, and are included herein in reliance upon the reports given upon the authority of that firm as experts in auditing and accounting.
The financial statements for our company as of December 31, 1999 and for the year ended December 31, 1999 included in this Prospectus and in the registration statement, have been audited by Stark Winter Schenkein & Co., LLP independent auditors, as stated in their reports included herein and in the registration statement, and are included herein in reliance upon the report given upon the authority of that firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits thereto. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the registration statement are not necessarily complete and each such statement is qualified in all respects by reference to the full text of such contract or document. For further information with respect to us and the common stock, reference is hereby made to the registration statement and the exhibits thereto, which may be inspected and copied at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may be obtained at prescribed rates from the Commission's Public Reference Section at such addresses. Also, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.
Prior to filing this registration statement on Form SB-2, we have voluntarily complied with the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy and information statements and other information with the Commission. Such periodic reports, proxy and information statements and other information will be available for inspection and copying at the regional offices, public reference facilities and Web site of the Commission referred to above.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
UNAUDITED COMBINED PRO FORMA FINANCIAL INFORMATION
Basis of Presentation..................................... F-2
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 2001..................................... F-3
Unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30,
2001................................................... F-4
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999........ F-5
BIODELIVERY SCIENCES INTERNATIONAL, INC.
Report of Independent Certified Public Accountants - Grant
Thornton LLP........................................... F-8
Report of Independent Auditors - Stark Tinter &
Associates, LLC........................................ F-9
Consolidated Balance Sheets as of December 31, 1999 and
2000 and September 30, 2001 (unaudited)................ F-10
Consolidated Statements of Operations for the years ended
December 31, 1999 and 2000, the period from January 6,
1997 (date of incorporation) to December 31, 2000, and
the nine months ended September 30, 2000 and 2001
(unaudited)............................................ F-11
Consolidated Statement of Stockholders' Equity (Deficit)
for the period from January 6, 1997 (date of
incorporation) to December 31, 1999, the year ended
December 31, 2000, and the nine months ended September
30, 2001 (unaudited)................................... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 2000, the period from January 6,
1997 (date of incorporation) to December 31, 2000, and
the nine months ended September 30, 2000 and 2001
(unaudited)............................................ F-13
Notes to Consolidated Financial Statements................ F-14
BIODELIVERY SCIENCES, INC.
Report of Independent Certified Public Accountants........ F-24
Statements of Operations for the year ended December 31,
1999 and the nine months ended September 30, 2000...... F-25
Statements of Cash Flows for the year ended December 31,
1999 and the nine months ended September 30, 2000...... F-26
Notes to Financial Statements............................. F-27
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BIODELIVERY SCIENCES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed combined balance sheet and statements of operations give effect to the October 10, 2000 acquisition of a majority equity interest (the 2000 Acquisition of interest) of BioDelivery Sciences, Inc., (BDS) by BioDelivery Sciences International, Inc. (BDSI) and the non-recurring pro forma effects of the January 2002 merger between BDSI and BioDelivery Sciences Inc. (the Merger).
In connection with the 2000 Acquisition, BDSI acquired 210,006 shares of newly issued BioDelivery Sciences Inc. Series A Convertible Preferred Stock representing 84.8% of the voting rights of BioDelivery Sciences Inc. in exchange for cash and notes payable to BioDelivery Sciences Inc. of $1,000,000 and $14,000,000, respectively. The business combination was accounted for as a purchase, which resulted in no goodwill being recorded. The shares of Series A Preferred are convertible into BioDelivery Sciences Inc. Common Stock on a 50-for-1 basis, subject to customary anti-dilution adjustments. Dividends accrue on the Series A Preferred at the rate of 8% per annum.
In connection with the Merger, BDSI exchanged 520,313 shares of common stock for 239,600 shares of BioDelivery Sciences Inc. common stock and 1,470,000 shares of BioDelivery Sciences Inc. redeemable common stock. The acquisition of the 239,600 shares of common stock represents the acquisition of minority interest. The acquisition of the 1,470,000 shares of redeemable common stock also involves the removal of restrictions and put rights and forgiveness of stockholder debt associated with these shares. The redeemable stock was originally characterized as a variable stock award for accounting purposes and, therefore, the acquisition of the redeemable stock involves the recognition of compensation costs. As of December 2001, the redemption provisions with respect to such shares have been terminated.
The unaudited pro forma condensed combined balance sheet gives effect to the Merger as if it occurred on September 30, 2001. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2001 gives effect to the Merger as if it occurred on January 1, 2001. Historical financial information is derived from the financial statements of BDSI as of September 30, 2001 and for the nine months then ended, included elsewhere herein.
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2000 gives effect to the 2000 Acquisition and the Merger as if they had occurred as of January 1, 2000. Historical financial information is derived from the financial statements of BDSI for the year ended December 31, 2000 and BioDelivery Sciences Inc. for the nine months ended September 30, 2000, included elsewhere herein.
In January 2002, the Company approved a one for 4.37 reverse stock split. The pro forma condensed combined financial statements reflect this reverse stock split.
The pro forma adjustments are based on estimates, available information, and certain assumptions that management deems appropriate. The pro forma financial data does not purport to represent what the results of operations would actually have been if such transactions had occurred on the dates indicated and is not necessarily representative of the results of operations for any future period.
The pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this prospectus. See "Risk Factors" included elsewhere herein.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
HISTORICAL PRO FORMA PRO FORMA
BDSI ADJUSTMENTS NOTES COMBINED
---------- ----------- ----- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 126,924 $ -- $ 126,924
--------- ----------- ---------
Prepaid expenses and other assets............... 97,640 -- 97,640
--------- ----------- ---------
Total current assets......................... 224,564 -- 224,564
EQUIPMENT, net.................................... 185,272 -- 185,272
OTHER ASSETS...................................... 191,490 205,592 (a) 397,082
--------- ----------- ---------
Total assets................................. $ 601,326 $ 205,592 $ 806,918
--------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........ $ 396,893 $ -- $ 396,893
--------- ----------- ---------
Due to related party............................ 84,554 -- 84,554
Line of credit.................................. 75,000 -- 75,000
Current portion of capital lease payable........ 12,774 -- 12,774
Current portion of notes payable................ 160,760 -- 160,760
--------- ----------- ---------
Total current liabilities.................... 729,981 -- 729,981
CAPITAL LEASE PAYABLE............................. 20,399 -- 20,399
NOTES PAYABLE, less current portion............... 176,515 -- 176,515
REDEEMABLE COMMON STOCK........................... 2,346 (2,346) (b) --
--------- ----------- ---------
205,592 (a)
1,261,356 (b)
STOCKHOLDERS' EQUITY (DEFICIT).................... (327,915) (1,259,010) (b) (119,977)
--------- ----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT).................................. $ 601,326 $ 205,592 $ 806,918
--------- ----------- ---------
|
BIODELIVERY SCIENCES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
HISTORICAL PRO FORMA PRO FORMA
BDSI ADJUSTMENTS NOTES COMBINED
----------- ----------- ----- -----------
Sponsored research revenues..................... $ 36,385 $ -- $ 36,385
----------- --------- -----------
Research and development expense................ 1,143,736 -- 1,143,736
981,512 (c) --
General and administrative expense.............. 869,980 4,000 (d) 1,855,492
Total expenses............................. 2,013,716 985,512 2,999,228
Interest income, net............................ 7,527 -- 7,527
Loss before income taxes........................ (1,969,804) (985,512) (2,955,316)
Income tax expense.............................. -- -- --
----------- --------- -----------
Net loss........................................ $(1,969,804) $(985,512) $(2,955,316)
----------- --------- -----------
Net loss per share, basic and diluted........... $ (0.53) $ (0.69)
Weighted average common stock shares
outstanding --
Basic and diluted............................. 3,744,394 4,264,707(e)
|
BIODELIVERY SCIENCES INTERNATIONAL, INC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
BDS
BDSI FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED PRO FORMA
DECEMBER 31, SEPTEMBER 30, PRO FORMA BDSI
2000 2000 ADJUSTMENTS COMBINED
------------------ ------------- ----------- -----------
Sponsored Research Revenues....... $ 56,000 $ 614,001 $ -- $ 670,001
Expenses
Research and development........ 312,736 820,551 -- 1,133,287
----------- --------- ---------- -----------
722,934(h)
General and administrative...... 540,239 62,480 4,000(i) 1,329,653
----------- --------- ---------- -----------
852,975 883,031 726,934 2,462,940
Interest income, net.............. 21,772 25,290 --(g) 47,062
----------- --------- ---------- -----------
Loss before income taxes and
minority interest............... (775,203) (243,740) (726,934) (1,745,877)
Income tax benefit................ -- 37,736 -- 37,736
----------- --------- ---------- -----------
Loss before minority interest..... (775,203) (206,004) (726,934) (1,708,141)
Minority interest in net loss of
subsidiary...................... 102,472 -- (102,472)(f)
----------- --------- ---------- -----------
Net loss.......................... $ (672,731) $(206,004) $ (829,406) $(1,708,141)
=========== ========= ========== ===========
Net loss per common share: basic
and diluted..................... $ (0.19) $ (0.42)
=========== ===========
Weighted average common stock
shares..........................
outstanding - basic and
diluted...................... 3,512,586 4,032,899(e)
=========== ===========
|
BIODELIVERY SCIENCES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Adjustments reflect the following:
(a) Reflects the exchange of 72,922 shares of BDSI valued at approximately $2.82 per share (or $205,592) as of September 30, 2001 (post split) for 239,600 shares of BioDelivery Sciences Inc. common stock. The allocation of the value associated with the purchase of this minority interest is preliminary.
(b) Reflects the exchange of 447,391 shares of BDSI valued at approximately $2.82 per shares as of September 30, 2001 (post split) for 1,470,000 shares of BioDelivery Sciences Inc. redeemable common stock. This exchange also includes the removal of restrictions and loans associated with the redeemable common stock. The increase to additional paid in capital and increase in accumulated deficit reflects the compensatory nature of the BioDelivery Sciences Inc. redeemable securities, net of the $2,346 originally paid by the stockholders.
Value of BDSI shares........................................ $1,261,356
Less amount paid by BioDelivery Sciences Inc. (2,346)
stockholders..............................................
----------
Accumulated deficit (compensation expense).................. $1,259,010
==========
|
(c) Reflects the exchange of 447,391 shares of BDSI common stock valued at approximately $2.20 per share as of January 1, 2001 (post split) for 1,470,000 shares of BioDelivery Sciences Inc. redeemable common stock. This exchange also includes the removal of restrictions and loans associated with the redeemable common stock, resulting in compensation expense to the stockholders, as follows:
Value of BDSI shares........................................ $ 983,858
Less amount paid by BioDelivery Sciences Inc. (2,346)
stockholders..............................................
----------
Compensation expense........................................ $ 981,512
==========
|
The entire amount of stock compensation expense is allocated to general and administrative expense in the absence of a direct correlation to research efforts.
(d) Reflects the amortization of goodwill (based on a preliminary allocation) over a 30 year life which arises from the acquisition of BioDelivery Sciences Inc. minority interests. A goodwill value of $160,362 is associated with the exchange of 72,922 shares of BDSI common stock valued at approximately $2.20 per share at January 1, 2001 (post split) exchanged for 239,600 shares of BioDelivery Sciences Inc. common stock. Amortization expense of approximately $4,000 results from this recognition of goodwill.
(e) Weighted average common shares outstanding are adjusted by the 72,922 shares and 447,391 shares resulting from the Merger.
(f) Removes the loss attributable to minority interests due to the pro forma purchase of minority interests as of January 1, 2000. Changes in the minority interest balance during the year is as follows:
Balance at December 31, 1999 (which represents the
historical equity of BDS)................................. $ 308,476
Minority interest in net loss of subsidiary acquired........ (308,476)
----------
Balance at December 31, 2000................................ $ --
==========
|
(g) The accrual of interest on the note payable from BDSI to BioDelivery Sciences Inc. and the dividends payable from BioDelivery Sciences Inc. to BDSI would eliminate in consolidation, thus they are not reflected in this pro forma statement of operations.
(h) Reflects the exchange of 447,391 BDSI common shares valued at approximately $1.62 as of January 1, 2000 (post split) for 1,470,000 shares of BioDelivery Sciences Inc. redeemable common stock. This exchange also includes the removal of restrictions and loans associated with the redeemable common stock, resulting in compensation expense to the stockholders as follows:
Value of BDSI shares........................................ $ 725,280
Less amount paid by BioDelivery Sciences Inc. (2,346)
stockholders..............................................
----------
$ 722,934
==========
|
The entire amount of stock compensation is allocated to general and administrative expense in the absence of a direct correlation to research efforts.
(i) Reflects the amortization of goodwill (based on a preliminary allocation) over a 30 year life which arises from the acquisition of BioDelivery Sciences Inc. minority interests. A goodwill value of $118,215 associated with the exchange of 72,922 shares of BDSI common stock valued at approximately $1.62 per share on January 1, 2000 (post split) exchanged for 239,600 shares of BioDelivery Sciences Inc. common stock. Amortization expense of approximately $4,000 results from this recognition of goodwill.
For BioDelivery Sciences Inc., the results of operations for the period from September 30, 2000 to October 10, 2000 (the date of the 2000 Acquisition) were not significant. During this period, BioDelivery Sciences Inc. recognized revenue and expense of approximately $25,000.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BioDelivery Sciences International, Inc.
We have audited the accompanying consolidated balance sheet of BioDelivery Sciences International, Inc. (a development stage company) and subsidiary as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioDelivery Sciences International, Inc. and subsidiary as of December 31, 2000, and the consolidated results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
We also audited the combination of the accompanying consolidated statements of operations and cash flows for the period January 6, 1997 (date of incorporation) to December 31, 2000, which includes the statements of operations and cash flows for the period January 6, 1997 (date of incorporation) to December 31, 1999 that were audited and reported on separately by another auditor; in our opinion, such consolidated statements have been properly combined.
/s/ GRANT THORNTON LLP
Tampa, Florida
June 6, 2001
|
(Except for Note 1, as to which the
date is January 28, 2002)
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
BioDelivery Sciences International, Inc.
We have audited the accompanying balance sheet of BioDelivery Sciences International, Inc. (a development stage Company) as of December 31, 1999, and the related statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1999, and the period from January 6, 1997 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BioDelivery Sciences International, Inc. (a development stage Company) as of December 31, 1999, and the results of its operations and its cash flows for the year ended December 31, 1999 and the period from January 6, 1997 (date of inception) to December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ STARK TINTER & ASSOCIATES, LLC
Certified Public Accountants
Denver, Colorado
January 5, 2000
|
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------ SEPTEMBER 30,
1999 2000 2001
----- ---------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 950,939 $ 126,924
Prepaid expenses and other assets......................... -- 54,481 97,640
----- ---------- -----------
Total current assets................................... -- 1,005,420 224,564
EQUIPMENT, net.............................................. -- 253,390 185,272
OTHER ASSETS................................................ 36 30,124 191,490
----- ---------- -----------
Total Assets........................................... $ 36 $1,288,934 $ 601,326
===== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ -- $ 394,020 $ 396,893
Due to related parties.................................... -- 515,584 84,554
Line of credit............................................ -- -- 75,000
Current portion of capital lease payable.................. -- 11,307 12,774
Current portion of notes payable.......................... -- -- 160,760
----- ---------- -----------
Total current liabilities.............................. -- 920,911 729,981
CAPITAL LEASE PAYABLE....................................... -- 28,372 20,399
NOTES PAYABLE, less current portion......................... -- -- 176,515
COMMITMENTS AND CONTINGENCIES............................... -- -- --
REDEEMABLE COMMON STOCK, net of notes receivable of
approximately $321,000.................................... -- 2,346 2,346
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 462,243 shares issued and outstanding...... -- 462 462
Common stock, $.001 par value, 80,000,000 shares
authorized, 80,092, 3,512,586 and 4,018,307 (unaudited)
shares issued and outstanding in 1999, 2000 and 2001,
respectively........................................... 80 3,513 4,018
Additional paid-in capital................................ 31 1,006,136 2,310,215
Deficit accumulated during development stage.............. (75) (672,806) (2,642,610)
----- ---------- -----------
Total stockholders' equity (deficit)................... 36 337,305 (327,915)
----- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)....................................... $ 36 $1,288,934 $ 601,326
===== ========== ===========
|
The accompanying notes are an integral part of these financial statements.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
JANUARY 6, 1997
(DATE OF NINE MONTHS ENDED
YEAR ENDED YEAR ENDED INCORPORATION) SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------------
1999 2000 2000 2000 2001
------------ ------------ --------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Sponsored research
revenues................... $ -- $ 56,000 $ 56,000 $ -- $ 36,385
Expenses:
Research and development... -- 312,736 312,736 -- 1,143,736
General and
administrative.......... 18 540,239 540,314 14 869,980
---------- ---------- --------- ---------- -----------
Total expenses.......... 18 852,975 853,050 14 2,013,716
Interest income, net......... -- 21,772 21,772 -- 7,527
---------- ---------- --------- ---------- -----------
Loss before income taxes and
minority interest.......... (18) (775,203) (775,278) (14) (1,969,804)
Income tax expense........... -- -- -- -- --
---------- ---------- --------- ---------- -----------
Loss before minority
interest................... (18) (775,203) (775,278) (14) (1,969,804)
Minority interest in net loss
of subsidiary.............. -- 102,472 102,472 -- --
---------- ---------- --------- ---------- -----------
Net loss..................... $ (18) $ (672,731) $(672,806) $ (14) $(1,969,804)
========== ========== ========= ========== ===========
Net loss per common share:
Basic and diluted.......... $ -- $ (0.19) $ -- $ (0.53)
========== ========== ========== ===========
Weighted average common stock
shares outstanding -- basic
and diluted................ 3,512,586 3,512,586 3,512,586 3,744,394
========== ========== ========== ===========
|
The accompanying notes are an integral part of these financial statements.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING STOCKHOLDERS'
---------------- ------------------ PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE (DEFICIT)
------- ------ --------- ------ ---------- ----------- -------------
BALANCE, JANUARY 6, 1997
(date of incorporation)
Shares issued to founders................ -- $ -- 80,091 $ 80 $ 31 $ -- $ 111
Shares issued for services............... -- -- 1 -- -- -- --
Net loss................................. -- -- -- -- -- (75) (75)
------- ---- --------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999............... -- -- 80,092 80 31 (75) 36
Shares issued to founders................ -- -- 3,432,494 3,433 (3,433) -- --
Preferred stock issued for cash.......... 462,243 462 -- -- 1,009,538 -- 1,010,000
Net loss................................. -- -- -- -- -- (672,731) (672,731)
------- ---- --------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 2000............... 462,243 462 3,512,586 3,513 1,006,136 (672,806) 337,305
Shares issued for cash (unaudited)....... -- -- 368,421 368 804,632 -- 805,000
Shares issued for satisfaction of debt
(unaudited)............................ -- -- 137,300 137 499,447 -- 499,584
Net loss (unaudited)..................... -- -- -- -- -- (1,969,804) (1,969,804)
------- ---- --------- ------ ---------- ----------- -----------
BALANCE, SEPTEMBER 30, 2001
(unaudited)............................ 462,243 $462 4,018,307 $4,018 $2,310,215 $(2,642,610) $ (327,915)
======= ==== ========= ====== ========== =========== ===========
|
The accompanying notes are an integral part of this financial statements.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
JANUARY 6, 1997
(DATE OF NINE MONTHS ENDED
YEAR ENDED YEAR ENDED INCORPORATION) SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------------
1999 2000 2000 2000 2001
------------ ------------ ---------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net loss......................... $(18) $(672,731) $(672,806) $(14) $(1,969,804)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................ 18 23,455 23,509 14 73,127
Loss applicable to minority
interest.................... -- (102,472) (102,472) -- --
Deferred revenue.............. -- (56,000) (56,000) -- --
Litigation settlement......... -- -- -- -- 300,000
Changes in assets and
liabilities:
Prepaid expenses and other
assets................... -- 33,077 33,098 -- (93,159)
Accounts payable and accrued
liabilities.............. -- 307,064 307,064 -- 127,873
Due to related parties........ -- 178,081 178,081 -- 68,554
---- --------- --------- ---- -----------
Net cash used by operating
activities............... -- (289,526) (289,526) -- (1,493,409)
---- --------- --------- ---- -----------
INVESTING ACTIVITIES:
Net cash received with business
combination................... -- 380,465 380,465 -- --
Purchase of minority interest.... -- -- -- -- (116,375)
---- --------- --------- ---- -----------
Net cash provided (used) by
investing activities..... -- 380,465 380,465 -- (116,375)
---- --------- --------- ---- -----------
FINANCING ACTIVITIES:
Issuance of Preferred Stock...... -- 1,010,000 1,010,000 -- --
Issuance of Common Stock......... -- -- -- -- 805,000
Proceeds from line of credit..... -- -- -- -- 75,000
Payment on capital lease
payable....................... -- -- -- -- (6,506)
Payment on notes payable......... -- (150,000) (150,000) -- (87,725)
---- --------- --------- ---- -----------
Net cash provided by
financing activities..... -- 860,000 860,000 -- 785,769
---- --------- --------- ---- -----------
NET CHANGE IN CASH................. -- 950,939 950,939 -- (824,015)
CASH AT BEGINNING OF PERIOD........ -- -- -- -- 950,939
---- --------- --------- ---- -----------
CASH AT END OF PERIOD.............. $ -- $ 950,939 $ 950,939 $ -- $ 126,924
==== ========= ========= ==== ===========
NON CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of 137,300 shares of
Common Stock for pay down of
due to related party.......... $ -- $ -- $ -- $ -- $ 499,584
Litigation settled in part by
issuance of a note payable.... $ -- $ -- $ -- $ -- $ 300,000
|
The accompanying notes are an integral part of these financial statements.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 1 -- ORGANIZATION
BioDelivery Sciences International, Inc. ("BDSI") (formerly known as MAS Acquisition XXIII Corp.) was incorporated in the State of Indiana on January 6, 1997. BDSI and its subsidiary, BioDelivery Sciences, Inc. ("BDS"), are collectively referred to as the Company. In October 2000, BDSI acquired 84.8% of the voting rights of BioDelivery Sciences Inc. through the purchase of BioDelivery Sciences Inc. Series A Preferred Stock.
The Company is a development stage company that has devoted substantially all of its efforts to research and product development involving drug delivery technology (e.g., cochleate technology) and has not yet generated any revenues from the sale of products or licensing of technology. The Company intends to obtain additional funds for research and development through collaborative arrangements with corporate partners, additional financings, and from other sources. The Company operates in one segment focused on the development of its drug delivery platform technology.
The accompanying consolidated statements of operations and cash flows for the period January 6, 1997 (date of incorporation) to December 31, 2000 include the statements of operations and cash flows for the period January 6, 1997 (date of incorporation) to December 31, 1999 that were audited and reported on separately by an auditor previously engaged by the Company.
In January 2002, the Company approved a one for 4.37 reverse stock split. The financial statements have been retroactively restated to reflect this reverse stock split.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of BDSI and its subsidiary, BioDelivery Sciences Inc. All significant inter-company balances have been eliminated. Minority interest in net loss of subsidiary reflects the losses attributable to the common stockholders of BioDelivery Sciences Inc. to the extent that net assets were attributed to those stockholders on the business combination date. Those stockholders own 100% of the common stock of BioDelivery Sciences Inc. while BDSI owns preferred stock with voting rights, representing 84.8% of the total voting rights. At December 31, 2000, the equity attributable to the minority interest holders was at a deficit balance. Accordingly, the minority interest on the balance sheet of BDSI was reduced to zero. The minority interest balance remains at zero on September 30, 2001, as the majority of the losses incurred for the nine months ended September 30, 2001 are also attributable to BioDelivery Sciences Inc.
REVENUE RECOGNITION
Sponsored research amounts are recognized as revenue, when the research underlying such payments has been performed or when the funds have otherwise been utilized, such as for the purchase of operating assets. Revenue is recognized to the extent provided for under the related grant or collaborative research agreement. Research and development expenses are charged to operations as incurred. Research and development expenses principally include, among other things, consulting fees and cost reimbursements to the University of Medicine and Dentistry of New Jersey ("UMDNJ"), testing of compounds under investigation, and salaries and benefits of employees engaged in research and development activities. Patent costs are expensed as incurred as research and development expenses.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
EQUIPMENT
Office and laboratory equipment are carried at cost less accumulated depreciation, which is computed on a straight-line basis over their estimated useful lives, generally 5 years. Accelerated depreciation methods are utilized for income tax purposes.
INCOME TAXES
Deferred income tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the accompanying financial statements conforms with accounting principles generally accepted in the United States of America and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
IMPAIRMENT OF ASSETS
The Company periodically reviews long-lived assets for impairment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets in measuring whether the assets to be held and used will be realizable. In the event of an impairment, the Company would discount the future cash flows using its then estimated incremental borrowing rate to estimate the amount of the impairment.
CONCENTRATION OF CREDIT RISK
The Company derived substantially all of its working capital from the sale of its Common and Preferred Stock (see Note 6). BioDelivery Sciences Inc. historically derived its working capital from research and development arrangements.
STOCK BASED COMPENSATION
The Company follows SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), which establishes a fair value based method of accounting for stock-based employee compensation plans; however, the Company has elected to continue to account for its employee stock compensation plans under Accounting Principles Board Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS 123 had been applied. No options or warrants have been granted by the Company through September 30, 2001.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REDEEMABLE COMMON STOCK
During 1999, certain employees of the Company purchased 1,470,000 shares of redeemable common stock of BioDelivery Sciences Inc. for $0.22 per share (the fair value of the stock less a permanent discount) in exchange for cash and notes payable. Of the 1,470,000 shares, 1,400,000 were purchased by officers of the Company. The obligation to re-purchase the 1,470,000 shares of BioDelivery Sciences Inc. redeemable permanent discount common stock is at the option of the holder. The Company accounts for its ten-year re-purchase obligation (through 2009) using variable plan accounting; however, through September 30, 2001 the value of the stock (less the permanent discount) is lower than the initial redemption value. Accordingly, no compensation expense has been recognized related to the redeemable permanent discount common stock. Under the terms of the redemption agreement, holders may require the Company to repurchase, at the then fair value (less the permanent discount), the permanent discount common stock beginning in 2004 or upon an employee's termination, whichever is earlier. See also Note 13, "Subsequent Events".
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Bulletin No. 101 ("SAB 101"). SAB 101 provides guidance on applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements and is effective in the Company's fourth quarter of 2000. The implementation of SAB 101 did not have an impact on the Company's operating results.
In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning January 1, 2002; however certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001, and the effective date of SFAS 142. The Company does not believe the adoption of these standards will have a material impact on the Company's financial statements.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The provisions of the statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements and the related notes thereto for September 30, 2000 and 2001 include all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation and are prepared on the same basis as audited annual statements. The interim results are not necessarily indicative of the results that may be expected for the full year.
NOTE 3 -- BUSINESS COMBINATION
On October 10, 2000, BDSI acquired 210,006 shares of newly issued BioDelivery Sciences Inc. Series A Convertible Preferred Stock representing 84.8% of the voting rights of BioDelivery Sciences Inc. in exchange for cash and notes payable to BioDelivery Sciences Inc. of $1,000,000 and $14,000,000, respectively. Since its inception in 1995, BioDelivery Sciences Inc. has been principally engaged in developing a cochleate based drug delivery platform and had no pre-existing relationship with BDSI prior to the acquisition. The business combination was accounted for as a purchase and the operations of BioDelivery Sciences Inc. are included in the consolidated financial statements since September 30, 2000 as the operations during the period October 1, 2000 through October 10, 2000 were not significant. The shares of Series A Preferred are convertible into BioDelivery Sciences Inc. Common Stock on a 50-for-1 basis, subject to customary anti-dilution adjustments. Dividends accrue on the Series A Preferred at the rate of 8% per annum. In the event of liquidation, dissolution, or winding up of BioDelivery Sciences Inc., the Series A Preferred Stockholders will be entitled to receive, in preference to Common Stockholders of BioDelivery Sciences Inc., an amount per share equal to the original purchase price plus any accrued dividends per share. The Series A Preferred Stock is convertible at the option of the preferred stockholders, but it will automatically convert at the earlier of the initial public offering of BDS's common stock, or September 2005. The BioDelivery Sciences Inc. Series A Preferred Stock and note are eliminated in consolidation. BDSI and BioDelivery Sciences Inc. have amended the payment terms of the $14.0 million notes to defer the commencement of payments to August 1, 2001. See also Note 13, "Subsequent Events". The first scheduled payment under the notes was otherwise required on January 1, 2001.
In conjunction with the business combination, the following was acquired:
Cash acquired............................................... $ 380,465
Fair value of non-cash assets acquired...................... 394,491
---------
Liabilities assumed, including minority interests of
$102,472.................................................. $(774,956)
=========
|
The following unaudited pro forma summary combines the historical results of operations of BDSI with the historical operations of BioDelivery Sciences Inc. (exclusive of the impact of minority interest) as if the acquisition had occurred at the beginning of the respective periods. This pro forma summary does not necessarily reflect the results of operations as they would have been if BDSI and BioDelivery Sciences Inc. operated as a single entity during such periods.
YEAR ENDED DECEMBER 31, 1999 2000 ----------------------- ---------- --------- Sponsored research revenues................................. $1,565,000 $ 670,001 Net income (loss)........................................... $ 92,493 $(981,207) Net income (loss) per share -- basic........................ $ 0.03 $ (0.28) Net income (loss) per share -- diluted...................... $ 0.03 $ (0.28) |
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 3 -- BUSINESS COMBINATION -- (CONTINUED)
The BioDelivery Sciences Inc. common stock was subsequently acquired with the settlement of certain litigation (see Note 5) and the merger of BioDelivery Sciences Inc. with BDSI (see Note 13).
NOTE 4 -- RESEARCH AND DEVELOPMENT ARRANGEMENTS
Upon its formation, BioDelivery Sciences Inc. originally secured license rights from two universities that have exclusive rights to certain technology. In exchange for these rights, BioDelivery Sciences Inc. issued shares of common stock with anti-dilution provisions and agreed to make future royalty payments to the universities upon a) the licensing of rights to sub-licensees (up to 25% of fees); b) sales by sub-licensees (25% of BioDelivery Sciences Inc. proceeds); or c) BioDelivery Sciences Inc. sales (3% of revenue). BioDelivery Sciences Inc. has also entered into various collaborative research arrangements with third parties, whereby the third parties ultimately obtain licensing rights for new inventions/patents arising from the associated research. These agreements generally provide for joint ownership of the patent rights developed from collaborative efforts. The parties also agree to later negotiate a reasonable royalty arrangement upon commercialization of any such product developed under the collaborative efforts.
BioDelivery Sciences Inc. has entered into a research agreement with UMDNJ. For the period from the acquisition of voting rights of BioDelivery Sciences Inc. by BDSI through December 31, 2000 and for the nine month period ended September 30, 2001, BioDelivery Sciences Inc. incurred costs of $78,081 and $153,594, respectively, to UMDNJ under the terms of the research agreement. At December 31, 2000, BioDelivery Sciences Inc. owed UMDNJ $415,584 under this agreement, which is included in due to related parties. The research agreement provides for the procurement of supplies, rent, certain payroll costs, and other expenses associated with research performed under the research agreement.
On April 1, 2001, the Company agreed to issue approximately 137,300 shares of common stock in consideration for payment in full of its approximate $500,000 payable at March 31, 2001, to UMDNJ.
On July 1, 1996, BioDelivery Sciences Inc. entered into a license agreement with a commercial pharmaceutical company ("Funding Company"). This agreement allowed for the Funding Company to obtain an exclusive license in and to all inventions, developments, improvements, or know-how relating to cochleates, liposomes and proteoliposomes, owned, controlled or licensed to BioDelivery Sciences Inc. The Funding Company would also have the rights to all BioDelivery Sciences Inc. developed vaccines designed to induce an antigen specific immune response in humans; including vaccines to prevent or treat allergies. In exchange for the exclusive license, the Funding Company agreed to pay research and royalty payments which ultimately totaled $6.7 million. The agreement commenced upon execution and was to expire five years following the first commercial sale of a licensed product or the date of expiration of the last licensed patent having a valid claim covering any licensed product, whichever is later. However, the Funding Company chose to terminate the agreement effective in 2000.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
During May 2001, the Company entered into a settlement agreement with a former consultant and certain stockholders related to the consultant (together, the Plaintiffs). Under the terms of the settlement agreement, the Company agreed to pay $150,000 in cash and $125,000 in a note payable to the Plaintiffs. The $125,000 note is payable in monthly installments through June 2002 and bears interest at 9%. The Company also agreed to re-purchase all of the BioDelivery Sciences Inc. common stock owned by the Plaintiffs for cash
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
of $200,000 and a note payable of $300,000. The $300,000 note is payable monthly through June 2004 and bears interest at 9%. The notes are secured by all of BDS's tangible and intangible assets, including license agreements. Relating to this litigation, the Company accrued approximately $300,000 at December 31, 2000 and recorded an additional $380,000 of legal expense for the nine months ended September 30, 2001.
OPERATING LEASES
BioDelivery Sciences Inc. leases a facility from UMDNJ under an operating lease. Lease expense for the period ended December 31, 2000 was approximately $10,000. While BioDelivery Sciences Inc. intends to continue leasing this facility, there are no future minimum commitments on operating leases at December 31, 2000.
CAPITAL LEASES
The Company leases certain equipment under a capital lease. Future minimum lease payments at December 31, 2000 remaining on this capital lease are as follows.
2001........................................................ $ 14,713
2002........................................................ 14,713
2003........................................................ 14,713
2004........................................................ 8,582
2005........................................................ --
Less amount representing interest........................... (13,042)
--------
$ 39,679
========
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2000, the carrying amount of cash, accounts payable, accrued expenses, capital lease obligations and notes payable approximate fair value based either on the short term nature of the instruments or on the related interest rate approximating the current market rate.
NOTE 6 -- PREFERRED STOCK
During 2000, the Company issued 462,243 shares of Preferred Stock for $1,010,000. The Preferred Stock is convertible to Common Stock on a one-for-one basis, is non-redeemable, and does not pay dividends.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 7 -- EQUIPMENT
Equipment consists of the following:
DECEMBER 31,
---------------- SEPTEMBER 30,
1999 2000 2001
----- -------- -------------
(UNAUDITED)
Office and laboratory equipment........................ $ -- $236,466 $236,466
Leased equipment....................................... -- 39,679 39,679
----- -------- --------
-- 276,145 276,145
Less accumulated depreciation and amortization......... -- (22,755) (90,873)
----- -------- --------
Net equipment.......................................... $ -- $253,390 $185,272
===== ======== ========
|
Depreciation and amortization expense related to equipment for the year ended December 31, 2000 and nine months ended September 30, 2001 was $22,755 and $68,118, respectively. There was no expense for the other periods presented.
NOTE 8 -- INCOME TAXES
The Company has no income tax expense or benefit for all periods presented as the Company has incurred net operating losses since inception and has recognized valuation allowances for all deferred tax assets.
Reconciliation of the Federal statutory income tax rate of 34% to the effective rate is as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- -------------------------
1999 2000 2000 2001
------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
Federal statutory income tax rate........... 34.00% 34.00% 34,00% 34.00%
State taxes, net of federal benefit......... 4.95 4.95 4.95 4.95
Valuation allowance......................... (38.95) (38.95) (38.95) (38.95)
------ ------ ------ ------
--% --% --% --%
====== ====== ====== ======
|
The tax effects of temporary differences and net operating losses that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
DECEMBER 31,
-----------------
1999 2000
----- ---------
Deferred tax assets (liabilities)
Depreciation.............................................. $ -- $ (36,831)
Accrued liabilities....................................... -- 128,375
Net operating loss carryforward........................... -- 213,504
----- ---------
-- 305,048
Less valuation allowance.................................... -- (305,048)
----- ---------
Net deferred tax............................................ $ -- $ --
===== =========
|
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 8 -- INCOME TAXES -- (CONTINUED)
At December 31, 2000, the Company has a federal net operating loss carryforward of $629,484, which expires beginning in 2020 and a State net operating loss carryforward of $857,214, which expires beginning in 2007.
NOTE 9 -- NET LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and diluted income per share computations. The 3,512,586 shares of common stock outstanding in 1999 and 2000 reflect the recapitalization of the Company in 2000 and all periods reflect the impact of the 1 for 4.37 shares reverse stock split approved by the board of directors in December 2001. The recapitalization included the cancellation of all but 80,092 shares and the issuance of 3,432,494 shares for nominal consideration to founding members of management during 2000.
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1999 2000 2000 2001
----------- ---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Net loss -- (numerator)............ $ (18) $(672,731) $ (14) $(1,969,804)
========== ========= ========== ===========
Basic:
Weighted average Shares
outstanding (denominator)..... 3,512,586 3,512,586 3,512,586 3,744,394
========== ========= ========== ===========
Net loss per common
share -- basic................ $ $ (0.19) -- $ (0.53)
========== ========= ========== ===========
Diluted:
Weighted average shares
outstanding................... 3,512,586 3,512,586 3,512,586 3,744,394
Effect of dilutive options....... -- -- -- --
---------- --------- ---------- -----------
Adjusted weighted average shares
(denominator)................. 3,512,586 3,512,586 3,512,586 3,744,394
========== ========= ========== ===========
Net loss per common share --
diluted....................... $ -- $ (0.19) $ -- $ (0.53)
========== ========= ========== ===========
|
The effects of Preferred Stock have been excluded from Common Stock equivalents because their effect would be anti-dilutive.
NOTE 10 -- RELATED PARTY TRANSACTIONS
During the period ended December 31, 2000, the Company sold 45,767 shares of Preferred Stock to a relative of a principal stockholder for $100,000. The terms of the Preferred Stock sold to this related party were equal to those for Preferred Stock sold to unrelated parties.
Subsequent to December 31, 2000, the Company entered into sublicense agreements with three related parties. Those parties agreed to remit to the Company 30% of net profits arising from the commercialization of technology licensed by the Company. No license payments were made in any of the periods presented.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 10 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
During the three month period ended September 30, 2001, the Company entered into a research agreement with a related party and received a $35,000 loan. The funds are recorded as due to related parties.
During the three month period ended September 30, 2001, the Company secured a $250,000 revolving line of credit from a financial institution. The line of credit is guaranteed by a principal stockholder and bears interest of 9%. As of September 30, 2001, $175,000 was available under the line of credit.
NOTE 11 -- NATIONAL INSTITUTES OF HEALTH GRANT (UNAUDITED)
In 2001, the National Institutes of Health (NIH) awarded the Company a Small Business Innovation Research Grant (SBIR), which will be utilized in research and development efforts. NIH has formally awarded the Company a 2001 grant of $883,972, of which the Company expects to receive approximately 50% in the fourth quarter of 2001 and the remainder through June 2003. Additionally, this award refers to funding levels of $814,398 and $989,352 that the Company expects to be awarded in 2002 and 2003, respectively, subject to availability and satisfactory progress of the project. Therefore, the Company expects to receive a total of approximately $2.7 million related to its initial application for the grant through June 2004. The initial application was for approximately $3.0 million, However, due to the expected purchase of certain materials from sources outside the United States, the expected funding was accordingly reduced. The grant is subject to provisions for monitoring set forth in NIH Guide for Grants and Contracts dated February 24, 2000, specifically, the NIAID Policy on Monitoring Grants Supporting Clinical Trials and Studies. If NIH believes that satisfactory progress is not achieved, the 2002 and 2003 amounts noted above may be reduced or eliminated.
As of September 30, 2001, the Company has not received nor recognized revenue from this grant. As awarded on September 19, 2001, the grant provided for reimbursement of, or advances for, future research and development efforts. During October 2001, the Company negotiated a lump sum payment of $220,000. The terms that were negotiated in October 2001 allowed the Company to recover $220,000 of costs principally incurred in the third quarter of 2001, which were recognized as revenue upon agreement of those negotiated terms in October 2001. Upon receiving funding under the grant and utilizing the funds as specified, no amounts are refundable.
NOTE 12 -- PLAN OF OPERATIONS (UNAUDITED)
Since inception, the Company has financed its operations principally from the sale of equity securities. Historically, the Company's subsidiary financed its operations principally from funded research arrangements. The Company has not generated revenue from the sale of any product or from any licensing arrangement since inception. The Company intends on financing its research and development efforts and its working capital needs from existing and new sources of financing. For instance, the Company was granted up to approximately $2.7 million from the National Institutes of Health to fund specific research efforts conducted by the Company (see Note 11). The Company has also recently filed Form SB-2 and expects to offer for sale up to 2,300,000 units, each consisting of one share of common stock and one warrants, each to purchase an additional share of common stock. The expected offering price for each unit is between $5.25 and $6.00 per unit. There can be no assurance that the offering will result in the sale of any such securities. The Company expects to raise additional funding from traditional financing sources, including term notes from unrelated parties or advances from related parties. While there can be no assurance that such sources will provide
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE 12 -- PLAN OF OPERATIONS (UNAUDITED) -- (CONTINUED)
adequate funding for the Company's operations, management believes such sources will be available to the Company.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
In December 2001, the Company rescinded the 462,243 shares of preferred stock sold to preferred stockholders and subsequently issued 462,243 shares of common stock.
In October 2001, the Company approved a stock option plan, which covers a total of 572,082 shares of common stock and granted options (and warrants) to purchase 949,123 shares of its common stock at a weighted average exercise price of $7.07. The Board has approved, subject to stockholder approval at the next meeting, to increase the shares available under the 2001 stock option plan to 1,000,000. Options may be awarded during the ten-year term of the 2001 stock option plan to Company employees, directors, consultants and other affiliates.
In November 2001, the Company filed Form SB-2 with the Securities and Exchange Commission. The proposed public offering consists of up to 2,300,000 Units each comprised of one share of common stock and one redeemable Class A common stock purchase warrant.
In January 2002, the Company finalized a merger agreement, which required the exchange of 1.33 newly issued shares of identical BDSI common stock for each share of BioDelivery Sciences Inc. common stock outstanding, including redeemable permanent discount common stock. This resulted in dissolution of BioDelivery Sciences Inc., the elimination of the $14,000,000 note payable from BDSI to BioDelivery Sciences Inc. and the cancellation of the BioDelivery Sciences Inc. Series A Preferred Stock. The Company expects to recognize the fair value of the BDSI common stock exchanged using the purchase method of accounting for the non-permanent discount common stock. The allocation of the amount has not been determined. The remaining 447,391 shares of redeemable permanent discount common stock continue to be variable compensatory awards until all the restrictions are removed and the underlying debt forgiven, which is expected to occur upon or shortly after the initial public offering occurs.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of BioDelivery Sciences, Inc.
We have audited the accompanying statements of operations of BioDelivery Sciences, Inc. (a development stage company) and the related statements of cash flows for the nine months ended September 30, 2000, and the twelve months ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United Stated of America. 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 results of operations of BioDelivery Sciences, Inc. and cash flows for the nine months ended September 30, 2000 and the twelve months ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP Tampa, Florida December 15, 2000 |
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD FROM
MARCH 28, 1995
NINE MONTHS (DATE OF
ENDED YEAR ENDED INCORPORATION)
SEPTEMBER 30, DECEMBER 31, TO SEPTEMBER 30,
2000 1999 2000
------------- ------------ ----------------
(UNAUDITED)
Sponsored research revenues.......................... $ 614,001 $1,565,000 $7,338,501
EXPENSES:
Research and development........................... 820,551 1,333,287 6,816,444
General and administrative......................... 62,480 159,053 423,233
--------- ---------- ----------
Total expenses.................................. 883,031 1,492,340 7,239,677
OTHER INCOME (EXPENSE)
Interest income.................................... 21,570 34,430 169,318
Other income....................................... 3,720 -- 17,856
--------- ---------- ----------
Net income (loss) before income tax benefit
(expense).......................................... (243,740) 107,090 285,998
Income tax benefit (expense)......................... 37,736 (14,579) (183,925)
--------- ---------- ----------
Net income (loss).................................... $(206,004) $ 92,511 $ 102,073
========= ========== ==========
|
The accompanying notes are an integral part of these financial statements.
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
PERIOD FROM
MARCH 28, 1995
NINE MONTHS (DATE OF
ENDED YEAR ENDED INCORPORATION)
SEPTEMBER 30, DECEMBER 31, TO SEPTEMBER 30,
2000 1999 2000
------------- ------------ ----------------
(UNAUDITED)
Net income (loss).................................... $(206,004) $ 92,511 $102,073
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 70,422 79,824 243,688
Changes in assets and liabilities:
Prepaid expenses and other assets............. (31,124) (47,645) (87,558)
Accounts payable and accrued liabilities...... 14,734 36,348 86,955
Deferred revenue.............................. (46,000) (15,000) 56,000
Due to related party.......................... 234,471 11,366 337,503
--------- -------- --------
Net cash provided by operating
activities............................... 36,499 157,404 738,661
INVESTING ACTIVITIES:
Purchases of equipment............................. (18,391) (85,868) (468,458)
Purchase of other assets........................... -- -- (42,484)
--------- -------- --------
Net cash used in investing activities...... (18,391) (85,868) (510,942)
FINANCING ACTIVITIES:
Issuance of common stock........................... -- 2,346 2,746
Proceeds from notes payable........................ 350,000 -- 350,000
--------- -------- --------
Net cash provided by financing
activities............................... 350,000 2,346 352,746
NET CHANGE IN CASH................................... 368,108 73,882 580,465
CASH AT BEGINNING OF PERIOD.......................... 212,357 138,475 --
--------- -------- --------
CASH AT END OF PERIOD................................ $ 580,465 $212,357 $580,465
========= ======== ========
SUPPLEMENTAL INFORMATION
Cash paid for taxes................................ $ -- $ 27,665 $221,661
========= ======== ========
|
The accompanying notes are an integral part of these financial statements.
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
BioDelivery Sciences, Inc. ("BDS" or the "Company") was incorporated in the State of Delaware on March 28, 1995. The Company was formed to develop and commercialize the delivery of certain pharmaceutical drugs and vaccines orally.
The Company is a development stage company, which has devoted substantially all of its efforts to research and product development and has not yet generated any revenues from the sale of products. At this time, there can be no assurance of future revenues. In addition, the Company expects to continue to incur losses for the foreseeable future, and there can be no assurance that the Company will successfully complete the transition from a development stage company to successful operations.
In order to continue its research and product development activities as planned, the Company has raised capital through sponsored research agreements with commercial entities and other third parties. The Company has also raised capital from investors subsequent to September 30, 2000, as more fully discussed in Note 7, which management believes will provide adequate funding through September 30, 2001. The Company intends to obtain additional funds for research and development through collaborative arrangements with corporate partners, additional financings, and from other sources; however, there can be no assurance that the Company will be able to obtain necessary financing when required or what the terms of any such financing, if obtained, might be. Accordingly, there can be no assurance of the Company's future success.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sponsored research amounts are recognized as revenue when the research underlying such payments has been performed or when the funds have otherwise been utilized, such as for the purchase of operating assets. Research and development expenses are charged to operations as incurred. Research and development expenses principally include, among other things, consulting fees and cost reimbursements to the University of Medicine and Dentistry of New Jersey ("UMDNJ"), testing of compounds under investigation, and salaries and benefits of employees engaged in research and development activities. Patent costs are expensed as incurred as research and development expenses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
EQUIPMENT
Office and laboratory equipment are carried at cost less accumulated depreciation, which is computed on a straight-line basis over their estimated useful lives, generally 5 years. Accelerated depreciation methods are utilized for income tax purposes. Depreciation and amortization expense related to equipment for the nine months and the year ended September 30, 2000 and December 31, 1999 were $68,265 and $76,925, respectively.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the accompanying financial statements conforms with accounting principles generally accepted in the United States of America and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets to be held and used or disposed of, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets in measuring whether the assets to be held and used will be realizable.
CONCENTRATION OF CREDIT RISK
As described in Note 3, the Company derived substantially all of its working capital from a research and development arrangement that was terminated during 1999.
STOCK OPTIONS, WARRANTS, AND SARS
The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which establishes a fair value based method of accounting for stock-based employee compensation plans; however, the Company has elected to continue to account for its employee stock compensation plans under Accounting Principles Board Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS 123 has been applied. Through September 30, 2000 no options or warrants have been granted by the Company.
NOTE 3 -- RESEARCH AND DEVELOPMENT ARRANGEMENTS
As part of the Company's grant of an exclusive technology license to a third party, the Company agreed to conduct research in certain areas in exchange for funding. Research funding received under this agreement was $325,000 and $1,300,000 in 2000 and 1999, respectively. This agreement was terminated by the third party during 1999 and the Company was relieved of its obligations to provide exclusive technology licensing. Additionally, the Company has entered into various other collaborative research arrangements with third parties, whereby the third parties ultimately obtain licensing rights for new inventions/patents arising from the associated research.
In 1996, the Company issued 7,300 shares of common stock each to UMDNJ and Albany Medical College ("AMC") for exclusive, worldwide license agreement rights. Under the terms of the license agreement, the Company is obligated to pay royalties of 3% for sales of product and 25% of its income arising from sales of product sold by sub-licensees that the Company may contract with in the future.
The Company has also entered into a research agreement with UMDNJ. For the periods ended September 30, 2000 and December 31, 1999, the Company incurred costs of $243,805 and $311,366, respectively, to UMDNJ under the terms of the research agreement. At September 30, 2000 and Decem-
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RESEARCH AND DEVELOPMENT ARRANGEMENTS -- (CONTINUED)
ber 31, 1999, the Company owed UMDNJ $337,503 and $103,032, respectively, under this agreement. The research agreement provides for the procurement of supplies, rent, certain payroll costs, and other expenses associated with research performed under the research agreement.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
During 1996, the Company entered into an agreement with a consultant/stockholder under which the Company is obligated to pay a monthly consulting fee of $15,000 for services through January 2001. The agreement also provides for additional costs payable to the consultant beginning in 2000 through 2004, upon the Company obtaining certain levels of financing. In August 1999, the Company unilaterally terminated the contract with this consultant and ceased making further payments. The consultant subsequently filed suit against the Company alleging that, among other things, the Company is required to pay the monthly consulting fees. The Company has filed a counter suit against the consultant and management believes that the Company is not liable for any alleged damages and that the Company is entitled to a refund of a portion of previously paid consulting fees. Accordingly, no reserve has been recognized associated with this dispute.
The Company is subject to claims arising in the ordinary course of business, but does not believe that any such claims presently identified will have a material adverse effect on its financial condition or results of operations.
OPERATING LEASES
The Company leases a facility from UMDNJ under an operating lease. Lease expense for the periods ended September 30, 2000 and December 31, 1999 was approximately $30,000 and $40,000, respectively. While the Company intends to continue leasing this facility, there are no future minimum commitments on operating leases at September 30, 2000.
CAPITAL LEASES
The Company leases certain equipment under a capital lease. Future minimum lease payments remaining on this capital lease are as follows.
2000 (3 months)............................................. $ 3,678
2001........................................................ 14,713
2002........................................................ 14,713
2003........................................................ 14,713
2004........................................................ 4,904
Less amount representing interest........................... (13,042)
--------
$ 39,679
========
|
NOTE 5 -- STOCK OPTIONS, WARRANTS, AND OTHER INCENTIVE COMPENSATION
In 1999, the board of directors of the Company approved the 1999 Stock Option Plan (1999 Plan) and reserved 500,000 shares of common stock for issuance of stock options to employees and consultants. No options were granted under this plan.
BIODELIVERY SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- STOCK OPTIONS, WARRANTS, AND OTHER INCENTIVE COMPENSATION -- (CONTINUED)
During 1999, certain employees of the Company purchased 1,470,000 shares of redeemable common stock for $0.22 per share (the fair value of the stock less a permanent discount) in exchange for cash and notes payable. The Company is obligated to re-purchase the stock at fair value less the original discount at the option of the holder beginning in 2004, or earlier upon termination of the respective employee. The notes amount to approximately $321,000, bear interest of 6% annually, and mature in 2009. Upon the fair value of the common stock exceeding $2.22 per share, the Company will recognize compensation expense for the amount in excess of $2.22 per share and adjust compensation in future periods based on variable accounting requirements. Through September 30, 2000, no compensation expense has been recognized.
NOTE 6 -- INCOME TAXES
The Company's provision (benefit) for income taxes included in the financial statements is as follows:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Current Tax:
Federal................................................... $(37,736) $ --
State..................................................... -- --
Deferred Tax:
Federal................................................... -- 9,622
State..................................................... -- 4,957
-------- -------
$(37,736) $14,579
======== =======
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The Company's Federal net operating loss carryforward of $93,312 expires in 2020. The Company's State net operating loss of $289,836 expires in 2007. The Company's effective tax rate of approximately 15% in 2000 varies from the statutory rate primarily due to the valuation allowance associated with net operating loss carryforwards and the effect of graduated tax rates.
NOTE 7 -- SUBSEQUENT EVENT
On October 10, 2000, the Company sold 210,006 shares of Series A Convertible Preferred Stock representing 84.8% of the voting rights of the Company to BioDelivery Sciences International, Inc. in exchange for cash and notes receivable of $1.0 million and $14.0 million, respectively. The shares of Series A Preferred are convertible to Common Stock on a 50-for-1 basis, subject to customary anti-dilution adjustments. Dividends shall accrue on the Series A Preferred at the rate of 8% per annum. In the event of liquidation, dissolution, or winding up of the Company, the Series A Preferred Stockholders will be entitled to receive, in preference to the Company's Common Stockholders, an amount per share equal to the original purchase price plus any accrued dividends per share. The Series A Preferred Stock is convertible at the earlier of voluntary conversion by the preferred stockholders, initial public offering of the Company's common stock, or 2005.
[BIODELIVERY LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee and the Nasdaq Small Cap Market listing fee.
AMOUNT
TO BE PAID
----------
SEC registration fee........................................ $ 20,000
NASD filing fee............................................. 8,600
NASDAQ Small Cap Market listing fee......................... 75,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 375,000
Accounting fees and expenses................................ 100,000
Blue Sky qualification fees and expenses.................... 15,000
Transfer Agent and Registrar fees........................... 7,500
Miscellaneous fees and expenses............................. 100,000
--------
Total............................................. $851,100
========
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Prior to the effective date of this prospectus, we will re-incorporate into the state of Delaware Section 145 of the Delaware General Corporation Law (the "Delaware Law") authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article of the Company's Certificate of Incorporation and Article of the Company's Bylaws provide for indemnification of the Company's directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. In addition, the Company has entered into Indemnification Agreements with its officers and directors. The Underwriting Agreement also provides for cross-indemnification among the Company and the Underwriters with respect to certain matters, including matters arising under the Securities Act.
RECENT SALES OF UNREGISTERED SECURITIES
(a) Over the last 36 months, we have sold the following unregistered securities (all presented post-split):
We issued 3,432,494 shares in 2000, as part of a contribution agreement with the Hopkins Capital Group II, LLC, which resulted in a change of control of our company.
In November 2000, we issued 462,242 shares of common stock resulting from a cash investment of $1,010,000 as part of a private placement offering. These shares were originally issued as preferred stock, which were rescinded and subsequently reissued as common stock.
We issued 368,421 shares in June 2001, resulting from a cash investment of $805,000 as part of a private placement offering.
We issued 137,300 shares in 2001 in satisfaction of a debt obligation to the University of Medicine and Dentistry of New Jersey incurred under our research agreement and rental of the facilities.
As part of the merger with BioDelivery Sciences, Inc. in January 2002, we issued 520,313 shares of common stock to the BioDelivery Sciences, Inc. stockholders.
II-1
There were no underwriters or placement agents employed in connection with any of the transactions set forth above.
For additional information concerning these equity investment transactions, please see the section entitled "Certain Transactions" in the prospectus.
The issuances described above were deemed exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Certain issuances described above were deemed exempt from registration under the Securities Act in reliance on Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
NUMBER
------ DESCRIPTION
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of the Company as an Indiana
corporation******
3.2 Articles of Amendment of the Article of Incorporation as an
Indiana corporation*****
3.3 Bylaws of the Company as an Indiana corporation******
3.4 Articles of Incorporation of the Company after
reincorporation merger into Delaware
3.5 Bylaws of the Company after reincorporation merger into
Delaware
4.1 Form of Warrant Agreement with Forms of Class A Warrants*
4.2 Form of Representative's Unit Purchase Option*******
5.1 Opinion of Ellenoff Grossman Schole & Cyruli, LLP*******
10.1 Research Agreement with the University of Medicine and
Dentistry of New Jersey**
10.2 Licensing Agreement with the University of Medicine and
Dentistry of New Jersey and Albany Medical College***
10.3 Licensing Agreement with Albany Medical College***
10.4 License Agreement with BioKeys Pharmaceuticals, Inc.
10.5 License Agreement with Tatton Technologies, LLC
10.6 License Agreement with RetinaPharma, Inc.
10.7 License Agreement with Biotech Specialty Partners, LLC
10.8 National Institutes of Health Grant Letter
10.9 Merger Agreement with BioDelivery Sciences, Inc., dated July
20, 2001**
10.10 Settlement Agreement and Stock Purchase Agreement with
Irving Berstein, et al.**
10.11 Employment Agreement with Christopher Chapman**
10.12 Employment Agreement with James A. McNulty**
10.13 2001 Incentive Stock Option Plan
10.14 Promissory Note for BioKeys Pharmaceuticals, Inc. dated
August 22, 2001*******
10.15 Research Agreement with PharmaResearch Corporation*******
23.1 Consent of Grant Thornton LLP
|
II-2
NUMBER DESCRIPTION ------ 23.2 Consent of Stark, Winter Schenkein & Co., LLP 24 Consent of Ellenoff Grossman Schole & Cyrulli, LLP******* |
* Previously filed with Form SB-2, Amendment No. 1, November 8, 2001.
** Previously filed with Form 10QSB, for the quarter ended March 31, 2001
*** Previously filed with Form 10KSB, for the fiscal year ended December 31, 2000 filed on August 15, 2001.
**** Previously filed with Form 8K filed October 26, 2001.
***** Previously filed with Form 8K filed October 9, 2000 under our prior name of MAS Acquisition XXIII Corp.
****** Previously filed with Form 10SB filed January 18, 2000 under our prior name of MAS Acquisition XXIII Corp.
******* To be filed by amendment
All other documents are filed herewith.
UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements 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 of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, 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 it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, 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-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Newark, State of New Jersey on February 1, 2002.
BIODELIVERY SCIENCES INTERNATIONAL,
INC.
By: /s/ FRANCIS E. O'DONNELL
------------------------------------
Francis E. O'Donnell
President and Chief Executive Officer
(Principal Executive Officer)
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Pursuant to the requirements of the Securities Act, this Amendment to Registration Statement on Form SB-2 has been signed by the following persons in the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
/s/ FRANCIS E. O'DONNELL Director, President, Chief February 1, 2002
----------------------------------------------- Executive Officer, and Chairman
Francis E. O'Donnell of the Board
/s/ JAMES A. MCNULTY Secretary, Treasurer, and Chief February 1, 2002
----------------------------------------------- Financial Officer
/s/ RAPHAEL J. MANNINO Director, Executive Vice February 1, 2002
----------------------------------------------- President and Chief Scientific
Officer
/s/ L.M. STEPHENSON Director February 1, 2002
-----------------------------------------------
/s/ WILLIAM STONE Director February 1, 2002
-----------------------------------------------
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II-4
EXHIBIT INDEX
NUMBER
------ DESCRIPTION
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of the Company as an Indiana
corporation******
3.2 Articles of Amendment of the Article of Incorporation as an
Indiana corporation*****
3.3 Bylaws of the Company as an Indiana corporation******
3.4 Articles of Incorporation of the Company after
reincorporation merger into Delaware
3.5 Bylaws of the Company after reincorporation merger into
Delaware
4.1 Form of Warrant Agreement with Forms of Class A Warrants*
4.2 Form of Representative's Unit Purchase Option*******
5.1 Opinion of Ellenoff Grossman Schole & Cyruli, LLP*******
10.1 Research Agreement with the University of Medicine and
Dentistry of New Jersey**
10.2 Licensing Agreement with the University of Medicine and
Dentistry of New Jersey and Albany Medical College***
10.3 Licensing Agreement with Albany Medical College***
10.4 License Agreement with BioKeys Pharmaceuticals, Inc.
10.5 License Agreement with Tatton Technologies, LLC
10.6 License Agreement with RetinaPharma, Inc.
10.7 License Agreement with Biotech Specialty Partners, LLC
10.8 National Institutes of Health Grant Letter
10.9 Merger Agreement with BioDelivery Sciences, Inc., dated July
20, 2001**
10.10 Settlement Agreement and Stock Purchase Agreement with
Irving Berstein, et al.**
10.11 Employment Agreement with Christopher Chapman**
10.12 Employment Agreement with James A. McNulty**
10.13 2001 Incentive Stock Option Plan
10.14 Promissory Note for BioKeys Pharmaceuticals, Inc. dated
August 22, 2001*******
10.15 Research Agreement with PharmaResearch Corporation********
23.1 Consent of Grant Thornton LLP
23.2 Consent of Stark, Winter Schenkein & Co., LLP
24 Consent of Ellenoff Grossman Schole & Cyrulli, LLP*******
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* Previously filed with Form SB-2, Amendment No. 1, November 8, 2001.
** Previously filed with Form 10QSB, for the quarter ended March 31, 2001
*** Previously filed with Form 10KSB, for the fiscal year ended December 31, 2000 filed on August 15, 2001.
**** Previously filed with Form 8K filed October 26, 2001.
***** Previously filed with Form 8K filed October 9, 2000 under our prior name of MAS Acquisition XXIII Corp.
****** Previously filed with Form 10SB filed January 18, 2000 under our prior name of MAS Acquisition XXIII Corp.
*******To be filed by amendment
All other documents are filed herewith.
Exhibit 3.4
CERTIFICATE OF INCORPORATION
OF
BIODELIVERY SCIENCES INTERNATIONAL, INC.
FIRST: The name of the corporation is:
BIODELIVERY SCIENCES INTERNATIONAL, INC.
SECOND: The address of its registered office in the State of Delaware is 9 East Loockerman Street, Delaware, Delaware 19901, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "GCL").
FOURTH: The Corporation shall have perpetual existence.
FIFTH: The total number of shares of capital stock which the corporation shall have authority to issue is sixty five million (65,000,000) shares, consisting of fifty-five million (55,000,000) shares of common stock, each of the par value of one-hundredth of one cent ($.001) (the "Common Stock") and ten million (10,000,000) shares of preferred stock, each of the par value of one-hundredth of one cent ($.001) each (the "Preferred Stock").
The Preferred Stock shall be issued by the Board of Directors in one or more classes or one or more series within any classes and such classes or series shall have such voting powers (or lack thereof) and such designations, preferences, limitations or restrictions as the Board of Directors may from time to time determine.
Holders of shares of Common Stock shall be entitled to cast one vote for each share held at all stockholders' meetings for all purposes, including the election of directors. The Common Stock shall not have cumulative voting rights.
No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class
or of securities convertible into shares of stock of any class, whether now or hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the bylaws of the Corporation.
SEVENTH: No director shall be personally liable to the
Corporation or its shareholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law, (i) for
breach of the director's duty of loyalty to the Corporation or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
GCL, or (iv) for any transaction from which the director derived an improper
personal benefit. If the GCL hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the GCL, as
amended. No amendment to or repeal of this Article Seventh shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH: The Corporation shall, to the maximum extent permitted under the General Corporation Law of the State of Delaware and except as set forth below, indemnify, hold harmless and, upon request, advance expenses to each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan (any such person being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with any action, suit, proceeding, claim or counterclaim, or part thereof, initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation.
1. Advance of Expenses. Notwithstanding any other provisions, this Certificate of Incorporation, the By-Laws of the Corporation, or any agreement, vote of stockholder or disinterested directors, or arrangement to the contrary, the Corporation shall advance payment of expenses incurred by an Indemnitee in advance of the final disposition of any matter only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment.
2. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.
3. Other Rights. The Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article.
4. Reliance. Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this Article in entering into or continuing such service. The rights to indemnification and to the advance of expenses conferred in this Article shall apply to claims made against an Indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof.
5. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation.
6. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was, or has agreed to become, a director, officer, employee or agent of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, against all expenses
(including attorney's fees) judgments, fines or amounts paid in settlement incurred by such person in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such expenses under the General Corporation Law of the State of Delaware.
7. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses, including attorneys' fees, judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
NINTH: The Board of Directors shall have authority from time to time to set apart out of any assets of the Corporation otherwise available for dividends a reserve or reserves as working capital or for any other purpose or purposes, and to abolish or add to any such reserve or reserves from time to time as said board may deem to be in the interest of the Corporation; and said Board shall likewise have power to determine in its discretion, except as herein otherwise provided, what part of the assets of the Corporation available for dividends in excess of such reserve or reserves shall be declared in dividends and paid to the stockholders of the Corporation.
1. Issuance of Stock. The shares of all classes of stock of the Corporation may be issued by the Corporation from time to time for such consideration as from time to time may be fixed by the Board of Directors of the Corporation, provided that shares of stock having a par value shall not be issued for a consideration less than such par value, as determined by the Board. At any time, or from time to time, the Corporation may grant rights or options to purchase from the Corporation any shares of its stock of any class or classes to run for such period of time, for such consideration, upon such terms and conditions, and in such form as the Board of Directors may determine. The Board of Directors shall have authority, as provided by law, to determine that only a part of the consideration which shall be received by the Corporation for the shares of its stock which it shall issue from time to time, shall be capital; provided, however, that, if all the shares issued shall be shares having a par value, the amount of the part of such consideration so determined to be capital shall be equal to the aggregate par value of such shares. The excess, if any, at any time, of the total net assets of the Corporation over the amount so determined to be capital, as aforesaid, shall be surplus. All classes of stock of the Corporation shall be and remain at all times nonassessable. The Board of Directors is hereby expressly authorized, in its discretion, in connection with the issuance of any obligations or stock of the Corporation (but without intending hereby to limit its general power so to do in other cases), to grant rights or options to purchase stock of the Corporation of any class upon such terms and during such period as the Board of Directors shall determine, and to cause such rights to be evidenced by such warrants or other instruments as it may deem advisable.
2. Inspection of Books and Records. The Board of Directors shall have power from time to time to determine to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation.
3. Tender Offer. The Board of Directors of this Corporation, when evaluating any offer of another party to make a tender or exchange offer for any equity security of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation as a whole, be authorized to give due consideration to any such factors as the Board of Directors determines to be relevant, including without limitation: (i) the interests of the stockholders of the Corporation; (ii) whether the proposed transaction might violate federal or state laws; (iii) not only the consideration being offered in the proposed transaction, in relation of the then current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part or through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation's financial condition and future prospects; and (iv) the social, legal and economic effects upon employees, suppliers, customers and others having similar relationships with the Corporation, and the communities in which the Corporation conducts its business. In connection with any such evaluation, the Board of Directors is authorized to conduct such investigations and to engage in such legal proceedings as the Board of Directors may determine.
TENTH: To the extent allowed by the Delaware General Corporation Law, the Corporation expressly elects not to be governed by Section 203 of the Delaware General Corporation Law.
ELEVENTH: The name and mailing address of the incorporator is:
Tony Ngo, Esq., c/o Ellenoff Grossman Schole & Cyruli, LLP, 370 Lexington
Avenue, New York, New York 10017.
IN WITNESS WHEREOF, the undersigned hereby executes this certificate of incorporation this ___ day of January, 2002.
/s/ Tony Ngo ---------------------- Tony Ngo Sole Incorporator |
Exhibit 3.5
BYLAWS
OF
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(a Delaware corporation)
BYLAWS
OF
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
ARTICLE 1 Offices
1.1 Principal Office 1
1.2 Additional Offices 1
ARTICLE 2 Meeting of Stockholders
2.1 Place of Meeting 1
2.2 Annual Meeting 1
2.3 Special Meetings 3
2.4 Notice of Meetings 4
2.5 Business Matter of a Special Meeting 4
2.6 List of Stockholders 4
2.7 Organization and Conduct of Business 4
2.8 Quorum and Adjournments 5
2.9 Voting Rights 5
2.10 Majority Vote 5
2.11 Record Date for Stockholder Notice and Voting 5
2.12 Proxies 6
2.13 Inspectors of Election 6
2.14 Action Without Meeting by Written Consent 6
2.15 Joint Owners of Stock 7
ARTICLE 3 Directors
3.1 Number; Qualifications 7
3.2 Resignation and Vacancies 7
3.3 Removal of Directors 8
3.4 Powers 8
3.5 Place of Meetings 9
3.6 Annual Meetings 9
3.7 Regular Meetings 9
3.8 Special Meetings 9
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3.9 Quorum and Adjournments 9
3.10 Action Without Meeting 9
3.11 Telephone Meetings 9
3.12 Waiver of Notice 9
3.13 Fees and Compensation of Directors 10
3.14 Rights of Inspection 10
3.15 Organization 10
3.16 Resignation 10
ARTICLE 4 Committees of Directors
4.1 Selection 10
4.2 Power 11
4.3 Committee Minutes 11
ARTICLE 5 Officers
5.1 Officers Designated 11
5.2 Appointment of Officers 11
5.3 Subordinate Officers 11
5.4 Removal and Resignation of Officers 11
5.5 Vacancies in Offices 12
5.6 Compensation 12
5.7 The Chairman of the Board 12
5.8 The President 12
5.9 The Vice President 12
5.10 The Secretary 12
5.11 The Assistant Secretary 13
5.12 The Treasurer 13
5.13 The Assistant Treasurer 13
ARTICLE 6 Stock Certificates
6.1 Certificates for Shares 13
6.2 Signatures on Certificates 14
6.3 Transfer of Stock 14
6.4 Registered Stockholders 14
6.5 Record Date 14
6.6 Lost, Stolen or Destroyed Certificates 14
ARTICLE 7 Notices
7.1 Notice to Stockholders 15
7.2 Notice to Directors 15
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7.3 Affidavit of Mailing 15
7.4 Time Notices Deemed Given 15
7.5 Methods of Notice 15
7.6 Failure to Receive Notice 15
7.7 Notice to Person With Communication is Unlawful 15
7.8 Notice to Person With Undeliverable Address 16
ARTICLE 8 General Provisions
8.1 Dividends 16
8.2 Dividend Reserve 16
8.3 Annual Statement 16
8.4 Checks 17
8.5 Corporate Seal 17
8.6 Execution of Corporate Contracts and Instruments 17
ARTICLE 9 Amendments 17
ARTICLE 10 Indemnification
10.1 Directors and Officers 17
10.2 Employees and Other Agents 17
10.3 Expenses 18
10.4 Enforcement 18
10.5 Non-Exclusivity of Rights 19
10.6 Survival of Rights 19
10.7 Insurance 19
10.8 Amendments 19
10.9 Saving Clause 19
10.10 Certain Definitions 20
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BYLAWS
OF
BioDelivery Sciences International, Inc.
(a Delaware corporation)
ARTICLE 1
Offices
1.1 Principa1 Office. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of Delaware.
1.2 Additional Offices. The Board of Directors (the "Board") may at any time establish branch or subordinate offices at any place or places.
ARTICLE 2
Meeting of Stockholders
2.1 Place of Meeting. All meetings of the stockholders for the election of directors shall be held at the principal office of the Corporation, at such place as may be fixed from time to time by the Board or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board and stated in the notice of the meeting. Meetings of stockholders for any purpose may be held at such time and place within or without the State of Delaware as the Board may fix from time to time and as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual Meeting.
(a) Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board and stated in the notice of the meeting. At such annual meetings, the stockholders shall elect a Board and transact such other business as may properly be brought before the meetings. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 2.2(b)
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. For nominations or other business
to be properly brought before an annual meeting by a stockholder pursuant to
clause (iii) of Section 2.2(a) of these Bylaws, (i) the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation, (ii)
such other business must be a proper matter for stockholder action under the
Delaware General Corporation Law ("DGCL"), (iii) if the stockholder, or the
beneficial owner on whose behalf any such proposal or nomination is made, has
provided the corporation with a Solicitation Notice (as defined in this Section
2(b)), such stockholder or beneficial owner must, in the case of a proposal,
have delivered a proxy statement and form of proxy to holders of at least the
percentage of the corporation's voting shares required under applicable law to
carry any such proposal, or, in the case of a nomination or nominations, have
delivered a proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section 2.2.
To be timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above.
Such stockholder's notice shall set forth: (A) as to each person whom the
stockholder proposed to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (B) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number of
shares of the corporation which are owned beneficially
and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 2.2(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.2 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 22 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.2. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 2.2, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 2.2, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
2.3 Special Meetings. Special meetings of the stockholders may be called for any purpose or purposes, unless otherwise prescribed by the statute or by the Certificate of Incorporation, at the request of the Board, the Chairman of the Board, the President or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting or such additional persons as may be provided in the Certificate of Incorporation or Bylaws. Such request shall state the purpose or
purposes of the proposed meeting. Upon request in writing that a special meeting of stockholders be called for any proper purpose, directed to the chairman of the board of directors, the president, the vice president or the secretary by any person (other than the board of directors) entitled to call a special meeting of stockholders, the person forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, such time not to be less than thirty-five (35) nor more than sixty (60) days after receipt of the request. Such request shall state the purpose or purposes of the proposed meeting.
2.4 Notice of Meetings. Written notice of stockholders' meetings, stating the place, date and time of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days prior to the meeting.
When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.
2.5 Business Matter of a Special Meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
2.6 List of Stockholders. The officer in charge of the stock ledger of the Corporation or the transfer agent shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, at a place within the city where the meeting is to be held, which place, if other than the place of the meeting, shall be specified in the notice of the meeting. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present in person thereat.
2.7 Organization and Conduct of Business. (a) The Chairman of the Board or, in his or her absence, the President of the Corporation or, in their absence, such person as the Board may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as Chairman of the meeting. In the absence of the Secretary of the Corporation, the Secretary of the meeting shall be such person as the Chairman appoints. The Chairman of any meeting of stockholders shall determine the order of business and the discussion as seems to him or her in order.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
2.8 Quorum and Adjournments. Except where otherwise provided by law or the Certificate of Incorporation or these Bylaws, the holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented in proxy, shall constitute a quorum at all meetings of the stockholders. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.
2.9 Voting Rights. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder.
2.10 Majority Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these Bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question.
2.11 Record Date for Stockholder Notice and Voting. For purposes of determining the stockholders entitled to notice of any meeting or to vote, or entitled to receive payment of any dividend or other distribution, or entitled to exercise any right in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date
of any such meeting nor more than sixty (60) days before any other action.
If the Board does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
2.12 Proxies. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the Corporation. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the Corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven months from the date of the proxy, unless otherwise provided in the proxy.
2.13 Inspectors of Election. Before any meeting of stockholders the Board
may appoint any person other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of election are so
appointed, the Chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one (1), two (2) or three
(3). If inspectors are appointed at a meeting on the request of one or more
stockholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the Chairman of the meeting may, and upon the request
of any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
2.14 Action Without Meeting by Written Consent.
(a) All actions required to be taken at any annual or special meeting may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings or stockholders are recorded.
(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
2.15 Joint Owners of Stock. If shares or other securities having voting power stand of record in the name of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interest, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
ARTICLE 3
Directors
3.1 Number; Qualifications. The number of the directors shall be determined from time to time by resolution of the Board and the initial Board shall consist of five (5) directors. All directors shall be elected at the annual meeting or any special meeting of the stockholders, except as provided in Section 3.2, and each director so elected shall hold office until the next annual meeting or any special meeting or until his successor is elected and qualified or until his earlier resignation or removal. Directors need not be stockholders.
3.2 Resignation and Vacancies. A vacancy or vacancies in the Board shall be deemed to exist in the case of the death, resignation or removal of any director, or if the authorized number of directors be increased. Vacancies may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, unless otherwise provided in the Certificate of Incorporation. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the Board accepts the resignation of a director tendered to
take effect at a future time, the Board shall have power to elect a successor to take office when the resignation is to become effective. If there are no directors in office, then an election of directors may be held in the manner provided by statute.
3.3 Removal of Directors. Unless otherwise restricted by statute, the Certificate of Incorporation or these Bylaws, any director or the entire Board may be removed, with or without cause, by the holders of at least a majority of the shares entitled to vote at an election of directors.
3.4 Powers. The business of the Corporation shall be managed by or under the direction of the Board which may exercise all such powers of the Corporation and do all such lawful acts and things which are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Without prejudice to these general powers, and subject to the same limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the Corporation; prescribe any powers and duties for them that are consistent with law, with the Certificate of Incorporation, and with these Bylaws; fix their compensation; and require from them security for faithful service;
(b) Confer upon any office the power to appoint, remove and suspend subordinate officers, employees and agents;
(c) Change the principal executive office or the principal business office in the State of Delaware or any other state from one location to another; cause the Corporation to be qualified to do business in any other state, territory, dependency or country and conduct business within or without the State of Delaware; and designate any place within or without the State of Delaware for the holding of any stockholders meeting, or meetings, including annual meetings;
(d) Adopt, make, and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates;
(e) Authorize the issuance of shares of stock of the Corporation on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities canceled, tangible or intangible property actually received;
(f) Borrow money and incur indebtedness on behalf of the Corporation, and cause to be executed and delivered for the Corporation's purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations and other evidences of debt and securities;
(g) Declare dividends from time to time in accordance with law;
(h) Adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and
(i) Adopt from time to time regulations not inconsistent with these Bylaws for the management of the Corporation's business and affairs.
3.5 Place of Meetings. The Board may hold meetings, both regular and special, either within or without the State of Delaware.
3.6 Annual Meetings. The annual meetings of the Board shall be held immediately following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the Board, provided a quorum shall be present. The annual meetings shall be for the purposes of organization, and an election of officers and the transaction of other business.
3.7 Regular Meetings. Regular meetings of the Board may be held without notice at such time and place as may be determined from time to time by the Board.
3.8 Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, the President, a Vice President or a majority of the Board upon one (1) day's notice to each director.
3.9 Quorum and Adjournments. At all meetings of the Board, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may otherwise be specifically provided by law or the Certificate of Incorporation. If a quorum is not present at any meeting of the Board, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved of by at least a majority of the required quorum for that meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
3.11 Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any member of the Board or any committee may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.12 Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the meeting.
3.13 Fees and Compensation of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
3.14 Rights of Inspection. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts.
3.15 Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
3.16 Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
ARTICLE 4
Committees of Directors
4.1 Selection. The Board may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute
a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.
4.2 Power. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or indemnifying directors or amending the Bylaws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board.
4.3 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
ARTICLE 5
Officers
5.1 Officers Designated. The officers of the Corporation shall be chosen by the Board and shall be a President, a Secretary and a Treasurer. The Board may also choose a Chairman of the Board, Chief Executive Officer, Chief Financial Officer, one or more Vice Presidents, and one or more assistant Secretaries and assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide.
5.2 Appointment of Officers. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or 5.5 of this Article 5, shall be appointed by the Board, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers. The Board may appoint, and may empower the President to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board may from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5 Vacancies in Offices. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointment to that office.
5.6 Compensation. The salaries of all officers of the Corporation shall be fixed from time to time by the Board and no officer shall be prevented from receiving a salary because he is also a director of the Corporation.
5.7 The Chairman of the Board. The Chairman of the Board, if such an officer be elected, shall, if present, perform such other powers and duties as may be assigned to him from time to time by the Board. If there is no President, the Chairman of the Board shall also be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 5.8 of this Article 5.
5.8 The President. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation, shall preside at all meetings of the stockholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. He or she shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation.
5.9 The Vice President. The Vice President (or in the event there be more than one, the Vice Presidents in the order designated by the directors, or in the absence of any designation, in the order of their election), shall, in the absence of the President or in the event of his disability or refusal to act, perform the duties of the President, and when so acting, shall have the powers of and subject to all the restrictions upon the President. The Vice President(s) shall perform such other duties and have such other designations (including, but not limited to, Executive and Senior Executive Vice President) and powers as may from time to time be prescribed for them by the Board, the President, the Chairman of the Board or these Bylaws.
5.10 The Secretary. The Secretary shall attend all meetings of the Board and the stockholders and
record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the standing committees, when required. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board, and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board or the President, under whose supervision he or she shall act. The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his or her signature. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.
5.11 The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order designated by the Board (or in the absence of any designation, in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board.
5.12 The Treasurer. The Treasurer shall have the custody of the Corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and the Board, at its regular meetings, or when the Board so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall also be the Chief Financial Officer in the absence of the designation by the Board of Directors of another Chief Financial Officer
5.13 The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order designated by the Board (or in the absence of any designation, in the order of their election) shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board.
ARTICLE 6
Stock Certificates
6.1 Certificates for Shares. The shares of the Corporation shall be represented by certificates or shall be uncertificated. Certificates shall be signed by, or in the name of the Corporation by, the Chairman of the Board, or the President or a Vice President and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation. Within a reasonable time after the issuance or transfer of uncertified stock, the Corporation shall send to the registered owner thereof a written notice containing the information required by the General Corporation Law of the State of Delaware or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
6.2 Signatures on Certificates. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
6.3 Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate of shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated share, such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation.
6.4 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a percent registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
6.5 Record Date. In order that the Corporation may determine the stockholders of record who are entitled to receive notice of, or to vote at, any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any lawful action, the Board may fix, in advance, a record date which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting, nor more than sixty (60) days prior to the date of any other action. A determination of stockholders of record entitled to notice or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
6.6 Lost, Stolen or Destroyed Certificates. The Board may direct thee a new certificate or certificates be issued to replace any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing the issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require, and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
ARTICLE 7
Notices
7.1 Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent.
7.2 Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
7.3 Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
7.4 Time Notices Deemed Given. All notices given by mail or by overnight delivery service, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission.
7.5 Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
7.6 Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such
stockholder or such director to receive such notice.
7.7 Notice to Person With Communication is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
7.8 Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE 8
General Provisions
8.1 Dividends. Dividends upon the capital stock of the Corporation, subject to any restrictions contained in the General Corporation Laws of Delaware or the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
8.2 Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose
as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
8.3 Annual Statement. The Board shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.
8.4 Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate.
8.5 Corporate Seal. The Board may provide a suitable seal, containing the name of the Corporation, which seal shall be in charge of the Secretary. If and when so directed by the Board or a committee thereof, duplicates of the seal maybe kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
8.6 Execution of Corporate Contracts and Instruments. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
ARTICLE 9
Amendments
In addition to the right of the stockholders of the corporation to make, alter, amend, change, add to or repeal the bylaws of the corporation, the Board of Directors shall have the power (without the assent or vote of the stockholders) to make, alter, amend, change, add to or repeal the bylaws of the corporation.
ARTICLE 10
Indemnification
10.1 Directors and Officers. The corporation shall indemnify its directors and officers (for the purposes of this Article XI, "officers" shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person 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 DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
10.2 Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except officers to such other persons as the Board of Directors shall determine.
10.3 Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Section 10 or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph 10.5 of this Section 10.5, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
10.4 Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Section 10 to a director or officer shall be enforceable by or on behalf of the person holding such right 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. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the corporation.
10.5 Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law, or by any other applicable law.
10.6 Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
10.7 Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Article 10.
10.8 Amendments. Any repeal or modification of this Article 10 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
10.9 Saving clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Article 10 that shall not have been invalidated, or by any other applicable law. If this Article 10 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.
10.10 Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall include, without
limitation, the investigation, preparation, prosecution, defense, settlement,
arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative. (2) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Section 10 with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued. (4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise. (5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article 10.
Exhibit 10.4
[BIOKEYS PHARMACEUTICALS LOGO]
Mr. Donald L. Ferguson August 20, 2001
Senior Executive Vice President
BioDelivery Sciences, Inc.
UMDNJ New Jersey Medical School
Building 4
185 South Orange Avenue
Newark, New Jersey 07103
Dear Don:
Per our conversation today, and pertaining to my discussions with Dr. Frank O'Donnell last week and today, I am writing to you to respond to your request for funding of BioDelivery Sciences, Inc. (BDSI) for its portion of the EradicAide Vaccine Project (EVP), the proposed budget and description which were delineated in your correspondence to me on July 31, 2001.
In order for Biokeys Pharmaceuticals, Inc. (BKP) to enter this development project, we felt it necessary to contemplate potential commercialization of our peptides in conjection with technology from BDSI and to propose payout guidelines for BDSI, based upon its level of technology contribution for the final EradicAide product.
TERMS OF THE ERADICAIDE AGREEMENT
BKP agrees that it shall finance an initial $35,000.00 of BDSI's portion of the EradicAide Vaccine Project (EVP) budget on August 22, 2001, and assume all financial risk for that funding.
BDSI shall reimburse BKP for financing of BDSI's portion of the EVP, if funding by the Department of Health and Human Services occurs for the Phase I Grant Application submitted by BDSI on July 31, 2001. In the absence of such government funding, BKP shall continue funding of the EVP to the best of its ability, at its sole discretion.
BKP has previously funded M.D. Anderson Cancer Center for EradicAide development. Budget from that funding will be used by M.D. Anderson to support its portion of the budget for the EVP, subject to reimbursement to BKP by BDSI if Phase I Grant funding occurs.
BKP wishes to use a combination of liposomes or cochleates in conjunction with Sendai vital proteins and its HIV synthetic peptides to create an EradicAide HIV Vaccine.
9948 Hibert Street, Suite 100, San Diego, California 92131 P: 858-271-9671 F: 858-271-9678
The EVP will be used to research and develop such formulation(s) of EradicAide HIV Vaccine to determine feasibility for human clinical trials and eventual marketing.
BKP proposes that successful development of EradicAide HIV Vaccine could result in various types of formulations based upon an injectable or oral dosage form:
1) HIV synthetic peptides + Sendai Proteins + liposomes or cochleates in an injectable form
2) HIV synthetic peptides + Sendai Proteins + liposomes or cochleates in an oral form
Sales & Marketing-
BKP OUTLICENSING OF ERADICAIDE
If BKP enters into an outlicensing agreement for marketing of EradicAide, it expects to receive a royalty on sales.
BKP would pay BDSI a 10% royalty on its net adjusted royalty received from its marketing partner for the injectable form of EradicAide [1) above].
BKP would pay BDSI a 20% royalty on its net adjusted royalty received from its marketing partner for the oral form of EradicAide [2) above].
DIRECT MARKETING OF ERADICAIDE
If BKP directly markets EradicAide, it expects to undertake significant expenses, but increase its profit opportunity. Under a direct marketing program, BKP would agree to enter into a profit sharing agreement, adjusted for development, manufacturing, royalty and marketing expenses, with BDSI.
BKP would share profit at a 15% rate for an injectable form of EradicAide.
BKP would share profit at a 20% rate for a non-proprietary (liposomal) oral form of EradicAide.
BKP would share profit at a 30% rate for a cochleate oral form of EradicAide.
Don, I consider the signing of this letter as binding for the EradicAide Vaccine Project and a good faith proposal regarding a potential future royalty or profit-sharing agreement for a marketed EradicAide Vaccine. As we proceed with the project at hand, and make additional progress with GlaxoSmithKline, I suggest we continue dialogue as we better understand what it will take to integrate our technologies and produce a product for human use under an approved IND.
FOR BIOKEYS PHARMACEUTICALS, INC.
NicholasJVirca Aug 20, 2001 --------------------------------------------------- Nicholas Jon Virca Date President & CEO FOR BIODELIVERY SCIENCES INC. /s/ Donald L. Ferguson 8/21/01 --------------------------------------------------- Donald L. Ferguson Date Senior Executive Vice President |
Exhibit 10.5
SUBLICENSE AGREEMENT
This revised SUBLICENSE AGREEMENT ("Sublicense" or "Agreement") is made and entered into by and BioDelivery Sciences International, Inc. and BioDelivery Sciences Inc. (herein jointly referred to as "BDS") and Tatton Technologies, LLC ("Tatton") as of this 10th day of August, 2001.
W I T N E S S E T H :
WHEREAS, BDS is developing and commercializing a cochleate delivery system pursuant to patents, pending patent applications and proprietary and trade secret information (herein the "BDS Technology"); and
WHEREAS, Tatton is developing and commercializing technology regarding certain apoptotic pharmaceutical and apoptotic nutriceutical treatments as described in the License Agreement dated July 20, 2000 between GreyCell Pharmaceutical Research, Inc. and Wm. Tatton, MD, PhD and Tatton, and in the License Agreement dated July 5, 2000 between The University of Toronto Innovations Foundation and Tatton (hereinafter jointly referred to as the "Tatton Technology"); and
WHEREAS, BDS wishes to grant to Tatton a sublicense to all of the BDS Technology, whether patented or unpatented, for the delivery of apoptotic pharmaceuticals and apoptotic nutriceuticals, pursuant to the Tatton Technology.
NOW THEREFORE, for good and valuable consideration, in hand received, including the mutual covenants and promises of the parties as set forth in this Agreement, the parties mutually agree as follows:
1. SUBLICENSE. BDS hereby grants Tatton the exclusive, perpetual, worldwide right to commercialize, manufacture, sell, market, apply, and utilize all of the BDS Technology, whether patented or unpatented, for, but only for, the purposes of delivery of antiapoptotic pharmaceuticals and antiapoptotic nutriceuticals, which are specifically part of the Tatton Technology (the "Designated Use"). The parties expressly acknowledge that on the date hereof, BDS granted a separate sublicense to Warex, Inc. for use of the BDS Technology for the delivery of apoptotic pharmaceutical and apoptotic nutriceutical treatment of retinal disease and glaucoma, pursuant to the sublicense granted by Tatton to Warex on January 4, 2001 (the "Warex Sublicense"). The uses of the BDS Technology granted to Warex, Inc., pursuant to the Warex Sublicense are expressly excluded from the Designated Use granted to Tatton pursuant to this Agreement. Except as permitted in the Warex Sublicense, BDS shall not permit any other person or entity to use or apply the BDS Technology, or any part thereof, for the Designated Use, as defined herein, without the prior written permission of Tatton which may be withheld in the sole discretion of Tatton. Other than the specific restriction as set forth in the preceeding sentence which is by its terms limited to the Designated Use as defined herein, BDS shall be unrestricted in all application and uses of its technology during and following the term hereof. Further, BDS agrees to immediately notify Tatton of any use, infringement or claim threatened or asserted by any third party relating to the BDS Technology used for the Designated Use and
will cooperate with Tatton in the defense of such infringement or claim as same relates to the Designated Use.
2. COMMERCIALIZATION. Tatton agrees to exercise its reasonable efforts to commercialize the BDS Technology for the Designated Use through commercial sales, sublicenses, joint development agreements, and other commercialization efforts as determined appropriate in the sole discretion and judgment of Tatton.
3. ROYALTY. Tatton agrees to pay BDS a royalty equal to thirty percent (30%) of all net profits earned by Tatton from the sale of products incorporating the BDS Technology or net proceeds from the sale, assignment or sublicense of the BDS Technology for the Designated Use as permitted herein ("Net Profit"). For purposes hereof, Net Profit, whether from the sale of products, sublicenses, assignments or other disposition, shall be: (i) computed in a consistent manner, in accordance with generally accepted accounting principles; (ii) giving full effect to and deducting all expenses reasonably related to the development, commercialization, manufacture and sale of products incorporating the BDS Technology and Tatton Technology, including, but not limited to, royalty payments due to third parties; and (ii) make reasonable allocation of all costs and expenses including, but not limited to development costs and overhead costs, among its various activities (including those related to the BDS Technology and those which do not relate to the BDS Technology but which relate to or support the development or commercialization of Tatton products which are reasonably anticipated to utilize the BDS Technology) so that the allocation of such expenses and royalties to the sale of products incorporating the BDS Technology are reasonable in relationship to the overall business and activities being conducted by Tatton. Tatton shall pay all royalties due hereunder, on or before the 10th day of each month. All royalty payments shall be accompanied by a written report specifying Net Profits. BDS shall have the right to inspect the books and records of Tatton at any reasonable time during normal business hours. Notwithstanding the foregoing, royalties due BDSI shall not be less than five percent (5%) of the gross proceeds realized by Tatton Technologies in connection with the marketing, sale, assignment or sublicense of the BDSI Technology (the "Gross Proceeds"). Tatton Technologies shall pay all royalties due hereunder, on or before the 10th day of each month. All royalty payments shall be accompanied by a written report specifying Profits and Gross Proceeds. BDSI shall have the right to inspect the books and records of Tatton Technologies at any reasonable time during normal business hours.
(i) SUBLICENSE AND ASSIGNMENT. Tatton may sublicense or assign the BDS Technology for the Designated Uses, or any part thereof, in the exercise of its discretion provided that the assignee or sublicensee is bound by the terms of this Agreement which are applicable thereto and that the appropriate royalty, as provided in Paragraph 3 above, is paid to BDS. Any sublicense or assignment shall require the prior approval of BDS which shall not be unreasonably withheld and which may provide reasonable protection that any Royalties due BDS will be timely paid and imposing termination provisions in the Sublicense or Assignment in the event of failure to timely pay Royalties. In the event of a subsequent merger of any of the parties hereto this agreement shall continue to be binding on and enforcible against the successor and the other parties to this Agreement.
4.
5. REPRESENTATIONS AND WARRANTIES OF BDS. BDS makes the following representations and warranties to Tatton, each of which shall survive the closing of this Agreement:
a) BDS is the licensee of the BDS Technology, subject to no claims, interests, or rights of any third party, which are inconsistent with or which will be breached by virtue of this Agreement.
b) BDS has full right and authority to enter into this Agreement and to grant the Agreement provided for herein.
c) BDS agrees to defend the BDS Technology for the Designated Uses from infringement upon the rights thereof by any third party.
The grant of this Sublicense does not require the prior approval of any third party which has not been obtained and does not violate or breach any agreement, license, or other obligations to which BDS is a party or to which the BDS Technology is subject.
6. REPRESENTATIONS AND WARRANTIES OF TATTON. Tatton makes the following the representations and warranties to BDS, each of which shall survive the closing:
a) Tatton has full right and authority to enter into this Agreement.
b) Tatton is the licensee of the Tatton Technology, subject to no claims, interests, or rights of any third party, which are inconsistent with or which will be breached by virtue of this Agreement.
c) The execution of this Agreement by Tatton will not breach any agreement to which Tatton is a party.
d) Entering into and carrying out of this Agreement by Tatton does not require the consent or approval of any party which has not given such consent or approval.
e) Tatton will exercise its reasonable efforts and good faith to commercialize the BDS Technology for Designated Uses.
Tatton will exercise its best efforts and good faith to assist BDS in the defense of the BDS Technology for Designated Uses in the event of infringement by any third party.
7. NON-FRUSTRATION. Neither party to this Agreement shall commit any act or take any action which would frustrate or hamper the rights of the other parties under this Agreement. Each party shall act in good faith and engage in fair dealing when taking any action under or related to this Agreement.
8. TERM. This Agreement shall continue in effect for the period of time in which the BDS Technology is protected by any patent. In the event of a material breach of this Agreement, the non-breaching party may terminate this Agreement providing the material default is not cured by the breaching party within 30 days written notice specifying the event of default and the intention to terminate. Tatton may terminate this Agreement upon 30 days written notice, provided that all Royalties due from Tatton and any Sublicensee or Assignee are paid in full.
9. ARBITRATION. Any dispute arising under this Agreement shall be resolved solely by binding arbitration before the American Arbitration Association located in St. Louis,
Missouri. The finding of the arbitrators shall be final and binding and shall constitute the sole and exclusive means for resolving any dispute under this Agreement. The rules of the American Arbitration Association shall be binding upon said arbitration. The determination of arbitrators may be reduced to a final judgment in any court of competent jurisdiction.
10. MISCELLANEOUS.
(ii) This Agreement constitutes the entire understanding of the parties and shall not be amended or otherwise altered, except in writing, and executed by the parties hereto. This Agreement supersedes and replaces any and all prior oral and written agreements related to the subject matter hereof.
(iii) Tatton and BDS each acknowledges that certain of their shareholders including, but not limited to the Hopkins Capital Group and its affiliates, are stockholders and/or members of management of BDS, its Parent and Tatton (the "Overlapping and Conflicted Interest"). Such Overlapping and Conflicted Interest has been the subject of full disclosure and BDS, its Parent and Tatton have each had the opportunity to ask questions and obtain further information regarding the Overlapping and Conflicted Interest. Tatton and BDS, by virtue of the execution of this Agreement, expressly waived the Overlapping and Conflicted Interest and any conflicts of interest which may result therefrom. By execution of this Agreement, BDS and Tatton each waive said Overlapping and Conflicted Interest and the resulting conflicts of interest as a defect or defense with regard to this Agreement or the subject matter hereof.
(iv) This Agreement shall not be construed more stringently against either party, regardless of which party may have served as the draftsman.
(v) This Agreement and the resolution of any dispute shall be governed by the laws of the State of Missouri.
(vi) This Agreement has been prepared by Samuel S. Duffey, Duffey & Dolan, PA, which has, in the past, and may, in the future, provide advice or consultation to BDS, its Parent, Tatton and Hopkins Capital Group and their affiliates ("Disclosed Relationships"). Further, Mr. Duffey has disclosed that entities or Trusts affiliated with members of his family are stockholders of BDS' Parent. Mr. Duffey has advised BDS, its Parent and Tatton that he represented or has given advice to no party to this Agreement and that each party to this Agreement has been advised of their right to consult with independent legal counsel. BDS and Tatton, by execution of this Agreement, each expressly waive and release Mr. Duffey and Duffey & Dolan, PA from any and all conflicts of interest related to or resulting from the Disclosed Relationships or otherwise related to this Agreement or the subject matter hereof.
IN WITNESS WHEREOF, the parties have set their hand and seal on the day and year first above written.
Tatton Technologies, LLC
By: /s/ Frank O'Donnell
---------------------------------
Frank O'Donnell, Manager
|
BioDelivery Sciences Inc.
By: /s/ Raphael Mannino
------------------------------------
Raphael Mannino, President
|
BioDelivery Sciences International, Inc.
By: /s/ Donald L. Ferguson Sr. Exec. V.P.
------------------------------------
Donald L. Ferguson, Senior Executive
Vice President
|
SUBLICENSE AGREEMENT
This revised SUBLICENSE AGREEMENT ("Sublicense" or "Agreement") is made and entered into by BioDelivery Sciences International, Inc. and BioDelivery Sciences, Inc. (jointly referred to herein as "BDS") and RetinaPharma, Inc. f/k/a Warex Inc. ("RetinaPharma"), a Nevada corporation, as of this 10th day of August, 2001.
WITNESSETH:
WHEREAS, BDS is developing and commercializing a cochleate delivery system pursuant to patents, pending patent applications and proprietary and trade secret information (herein the "BDS Technology"); and
WHEREAS, RetinaPharma is developing and commercializing technology pursuant to a Sublicense Agreement dated January 4, 2001 with Tatton Technologies, LLC ("Tatton") for the treatment of retinal disease and glaucoma (the "Tatton Technology"); and
WHEREAS, BDS wishes to grant to RetinaPharma a Sublicense to the BDS Technology for the delivery of antiapoptotic pharmaceutical and antiapoptotic nutriceutical treatment for retinal disease and glaucoma.
NOW THEREFORE, for good and valuable consideration, in hand received, including the mutual covenants and promises of the parties as set forth in this Agreement, the parties mutually agree as follows:
1. SUBLICENSE. During the term of this Agreement, BDS hereby grants RetinaPharma the exclusive worldwide right to commercialize, manufacture, sell, market, apply, and utilize the BDS Technology for, but only for, the purposes of delivery of antiapoptotic pharmaceutical and nutriceutical treatments specifically utilizing the Tatton Technology under that certain Sublicense between Tatton Technologies LLC and RetinaPharma dated January 4, 2001, as same may be amended from time to time, for, and only for the purpose of treating antiapoptotic pharmaceutical and nutriceutical treatment of retinal disease and glaucoma in conjunction with the Tatton Technology (the "Designated Use"). During the term of this Agreement and for so long as RetinaPharma has not violated the terms hereof, BDS shall not permit any other person or entity to use or apply the BDS Technology, or any part thereof, for the Designated Use, as defined herein, without the prior written permission of RetinaPharma which may be withheld in the sole discretion of RetinaPharma. Other than the specific restriction set forth in the preceding sentence, which is, by its terms, specifically limited to the Designated Use as defined herein, BDS shall be unrestricted in all uses and applications of its technology during and following the term hereof. Further, BDS agrees to immediately notify RetinaPharma of any use, infringement or claim threatened or asserted by any third party relating to the BDS Technology used for the Designated Purpose and will cooperate with RetinaPharma in the defense of such use, infringement or claim as same relates to the Designated Use.
2. COMMERCIALIZATION. RetinaPharma agrees to exercise its reasonable efforts to commercialize the BDS Technology for the Designated Use through commercial sales, sublicenses, joint development agreements, and other commercialization efforts as determined appropriate in the sole discretion and judgment of RetinaPharma.
3. ROYALTY. RetinaPharma agrees to pay BDS a royalty equal to the greater of the Base Royalty, as hereinafter defined or thirty percent (30%) of all net pre-tax profits (the "Profits" as hereinafter defined) plus thirty percent (30%) of all net proceeds, if any, from the sale, assignment or sublicense of the BDS Technology for the Designated Use as permitted herein earned by RetinaPharma from the sale of products incorporating the BDS Technology. For purposes hereof, Profits, whether from the sale of products, sublicenses, assignments or other disposition, shall be: (i) computed in a consistent manner, in accordance with generally accepted accounting principles; and (ii) make reasonable allocation of all costs and expenses including, but not limited to development costs and overhead costs, among its various activities (including those related to the BDS Technology and those which do not relate to the BDS Technology but which relate to or support the development or commercialization of RetinaPharma products which are reasonable anticipated to utilize the BDS Technology) so that the allocation of such expenses and royalties to the sale of products incorporating the BDS Technology are reasonable in relationship to the overall business and activities being conducted by RetinaPharma. Notwithstanding the foregoing, royalties due BDS shall not be less than five percent (5%) of the gross proceeds realized by RetinaPharma in connection with the marketing, sale, assignment or sublicense of the BDS Technology (the "Gross Proceeds"). RetinaPharma shall pay all royalties due hereunder, on or before the 10th day of each month. All royalty payments shall be accompanied by a written report specifying Profits and Gross Proceeds. BDS shall have the right to inspect the books and records of RetinaPharma at any reasonable time during normal business hours.
4. SUBLICENSE AND ASSIGNMENT. RetinaPharma may sublicense or assign the BDS Technology, or any part thereof, for the Designated Uses, in the exercise of its discretion provided that the assignee or sub licensee is bound by the terms of this Agreement which are applicable thereto and that the appropriate royalty, as provided in Paragraph 3 above, is paid to BDS. Any sublicense or assignment shall require the prior written approval of BDS, which shall not be unreasonably withheld and which may provide reasonable protection that any Royalties due BDS will be timely paid and imposing termination provisions in the Sublicense or Assignment in the event of failure to timely pay Royalties. In the event of a subsequent merger of any of the parties hereto, this Agreement shall continue to be binding on and enforceable against the successor to such party and to the other parties to this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF BDS. BDS makes the following representations and warranties to RetinaPharma, each of which shall survive the closing of this Agreement:
a) BDS is the licensee of the BDS Technology, subject to no claims, interests, or rights of any third party, which are inconsistent with or which will be breached by virtue of this Agreement.
b) BDS has full right and authority to enter into this Agreement and to perform its obligations hereunder.
c) BDS agrees to cooperate with RetinaPharma to defend the BDS Technology for the Designated uses from infringement upon the rights thereof by any third party.
d) The grant of this Sublicense does not require the prior approval of any third party which has not been obtained and does not violate or breach any agreement, license, or other obligations to which BDS is a party or to which the BDS Technology is subject.
6. REPRESENTATIONS AND WARRANTIES OF RETINAPHARMA. RetinaPharma makes the following representations and warranties to BDS, each of which shall survive the closing:
a) RetinaPharma has full right and authority to enter into this Agreement and to perform its obligations hereunder.
b) The execution of this Agreement by RetinaPharma will not breach any agreement to which RetinaPharma is a party.
c) Entering into and carrying out of this Agreement by RetinaPharma does not require the consent or approval of any party, which has not given such consent or approval.
d) RetinaPharma will exercise reasonable efforts and good faith to commercialize the BDS Technology for Designated Uses.
7. NON-FRUSTRATION. Neither party to this Agreement shall commit any act or take any action that would frustrate or hamper the rights of the other party under this Agreement. Each party shall act in good faith and engage in fair dealing when taking any action under or related to this Agreement.
8. TERM. This Agreement shall continue in effect for so long as RetinaPharma is using the BDS Technology for the Designated Uses. In the event of a
material breach of this Agreement, the non-breaching party may terminate this Agreement providing the material default is not cured by the breaching party within 30 days written notice specifying the event of default and the intention to terminate. RetinaPharma may terminate this Agreement upon 30 days written notice provided that it is current in the payment of all Royalties pursuant to paragraph 3 above.
9. ARBITRATION. Any dispute arising under this Agreement shall be resolved solely by binding arbitration before the American Arbitration Association located in St. Louis, Missouri. The finding of the arbitrators shall be final and binding and shall constitute the sole and exclusive means for resolving any dispute under this Agreement. The rules of the American Arbitration Association shall be binding upon said arbitration. The determination of arbitrators may be reduced to a final judgment in any court of competent jurisdiction.
10. MISCELLANEOUS.
(i) This Agreement constitutes the entire understanding of the parties and shall not be amended or otherwise altered, except in writing, and executed by the parties hereto. This Agreement supersedes and replaces any and all prior oral and written agreements regarding the subject matter hereof.
(ii) RetinaPharma and BDS each acknowledges that certain of their shareholders including, but not limited to the Hopkins Capital Group and its affiliates, are stockholders and/or members of management of BDS and RetinaPharma (the "Overlapping and Conflicted Interest"). Such Overlapping and Conflicted Interest has been the subject of full disclosure and BDS and RetinaPharma have each had the opportunity to ask questions and obtain further information regarding the Overlapping and Conflicted Interest. RetinaPharma and BDS, by virtue of the execution of this Agreement, expressly waived the Overlapping and Conflicted Interest and any conflicts of interest, which may result therefrom. By execution of this Agreement, BDS and RetinaPharma each waive said Overlapping and Conflicted Interest and the resulting conflicts of interest as a defect or defense with regard to this Agreement or the subject matter hereof.
(iii) This Agreement shall not be construed more stringently against either party, regardless of which party may have served as the draftsman.
(iv) This Agreement and the resolution of any dispute shall be governed by the laws of the State of Missouri.
(v) This Agreement has been prepared by Samuel S. Duffey, Duffey & Dolan, PA, which has, in the past, and may, in the future, provide advice or consultation to BDS, RetinaPharma and Hopkins Capital Group and their affiliates ("Disclosed Relationships"). Further, Mr. Duffey has disclosed that entities or Trusts affiliated with members of his family are stockholders of BDS and RetinaPharma.
Mr. Duffey has advised BDS and RetinaPharma and Tatton that he represented and gave advise to no party to this Agreement, including but not limited to, BDS, RetinaPharma, Tatton nor Hopkins Capital Group in the preparation of this Agreement and that each party was advised of their right to consult with independent legal counsel. BDS and RetinaPharma, by execution of this Agreement, each expressly waive and release Mr. Duffey and Duffey & Dolan, PA from any and all conflicts of interest related to or resulting from the Disclosed Relationships or otherwise related to this Agreement or the subject matter hereof.
IN WITNESS WHEREOF, the parties have set their hand and seal on the day and year first above written.
BioDelivery Sciences International,Inc.
By: /s/ RAPHAEL MANNINO
------------------------------------
Raphael Mannino
President
|
BioDelivery Sciences International, Inc.
By: /s/ DONALD L. FERGUSON SrEx VP.
------------------------------------
Donald L. Ferguson,
Senior Executive President
|
RetinaPharma, Inc.
By: /s/ FRANK E. O'DONNELL
------------------------------------
Frank E. O'Donnell, Jr., MD
Chief Executive Officer
|
Exhibit 10.7
Agreement
Agreement ("Agreement") made as of this 30th day of Nov, 2000, by and between BioDelivery Sciences Inc, the ("Company"), and Biotech Specialty Partners, LLC, a Delaware limited liability company ("BSP").
I. Introductory Statement
The "BSP Network" is an alliance of biotechnology and pharmacy, marketing and distribution companies being created by contract between BPS and such companies. The BSP Network provides strategic relationships and affiliations designed to empower biotechnology firms to further product research and development and when its products become marketable, to have in place a marketing and distribution network at both wholesale and retail. BSP alliances generally position biotech companies with overall margins that are significantly higher than pharmaceutical company royalty arrangements by offering distribution capabilities as well as contract research and manufacturing assistance.
Company is a biopharmaceutical product development company which is focused on introducing new technologies using its patented delivery system, such as antifungal, antibiotic, antiviral, oncology chemotherapy, monoclonal antibodies, hormones, gene therapies, and vaccines, that improve the performance of existing drugs and address significant problems such as drug resistance and toxicity.
Company has determined that it is in its best interests to become a member of the BSP Network and BSP has determined that Biotech's proprietary rights to certain drugs make Company an appropriate party to join the BSP Network. Accordingly, this Agreement is being entered into to effect Company' membership into the BSP Network and to create a contracted alliance consistent with such membership.
II. Terms and Conditions
Company and BSP, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows:
Company hereby appoints BSP as a non-exclusive distributor of its drugs and products for Specialty Pharmacy, Institutional pharmacies, and mail order/online distribution.
Company hereby grants to BSP the right to have any therapeutic drug or device requiring or not requiring (i.e. OTC) U.S. Food and Drug Administration ("FDA") approval for marketing and sale in the United States and to which Company possesses any proprietary rights and/or of which Company is sponsoring the development become Covered Products under this Agreement.
During the term of this Agreement, with respect to Covered Products, Company shall, as deemed appropriate by the Company:
(i) Direct and pay for the research and development of a Covered Product with the objective of obtaining FDA approval for its marketing and sale in the United States. Company may sponsor/or contract with others for such research and development activities provided that it does not grant to others any manufacturing, selling or use rights without BSP's prior written approval.
(ii) Direct, prosecute with due diligence and expediency and pay for the application and procurement of United States patent rights and patents rights in such foreign countries as may be deemed prudent in the circumstances after consultation with BSP.
(iii) Following FDA marketing approval of a Covered Product, direct and pay for such clinical trials, tests, record keeping and reporting functions as may be required or appropriate to maintain in good standing such approval.
(iv) Perform the functions described in (i)-(iii) above with respect to obtaining marketing approvals in non-U.S. jurisdictions as may be appropriate in the circumstances.
(v) Manufacture or arrange for the manufacturing of Covered Products in accordance with FDA prescribed "good manufacturing practices." All packaging and labeling of Covered Products shall be produced in accordance with applicable FDA and other governmental regulations. Company shall consult with BSP with respect to packaging design. Company shall maintain from time to time adequate inventories of Covered Products based upon sales projections provided from time to time by BSP.
(vi) Keep BSP fully informed of all activities described in (i)-(v) above and consult with BSP on research and development strategies and progress.
(vii) Provide marketing, technical and sales support for BSP's marketing and distribution of a Covered Product.
During the term of this Agreement, with respect to Covered Products, BSP shall, as deemed appropriate by BSP:
(i) Provide consulting assistance to Company with respect to the research and development of Covered Products. BSP will refer to Company appropriate CRO's (Contract Research Organizations) to assist Company with such activities, including regulatory compliance. Such CRO's may be members of the BSP Network.
(ii) Consult with Company concerning the design of packaging and package inserts.
(iii) Develop and maintain a Specialty Pharmacy marketing program for each Covered Product, including a marketing plan, advertising, marketing and sales materials, pricing strategies, packaging materials, sales training and other matters customarily included in a comprehensive marketing program for a health-industry product. BSP shall coordinate such a program with the support services to be provided by Company pursuant to Section (3)(vii) above.
(iv) Establish a distribution program for each Covered Product, BSP shall designate wholesalers/distribution/retailers, some or all of which may be members of the BSP Network. BSP's right to distribute a Covered Product shall be exclusive to it for Specialty Pharmacy and Mail order/online pharmacy, except as provided in Section 9(b) below. BSP shall keep Company advised from time to time of anticipated sales so as to allow Company to maintain adequate inventories of Covered Products.
(v) Keep Company fully informed of all activities described in (i) -
(iv) above and consult with and assist BSP on continuing
research and development and regulatory compliance matters.
5. BSP Network
BSP is forming a network consisting of distributors, wholesalers, retailers and others ("BSP Network"). BSP shall, from time to time, provide the Company with a written list of current participants in the BSP Network. The Company agrees that it shall recognize and respect BSP's relationship with the members of the BSP Network and that the Company shall, whenever possible, only make sales of its products to members of the BSP Network through BSP, pursuant to this Agreement. The Company agrees to exercise best efforts and good faith to avoid making any sales of its products to members of the BSP Network in circumvention of BSP.
6. Financial Terms.
(a) During the term of this Agreement, the Company shall sell to BSP all of its products, as and when purchased by BSP, at a cost which is the lesser of: (i) ten percent (10%) below the lowest wholesale acquisition cost ("WAC"), inclusive of rebates, quantity discounts, etc; or (ii) the lowest cost at which the Company is then selling said product(s) to any other purchaser. At the request of BSP, the Company shall structure part, or all of the discount below WAC as a rebate to BSP.
7. Terms of Agreement.
The terms of this Agreement ("Term") shall commence upon execution hereof and continue until such time as there is no product which constitutes a Covered Product hereunder. Each product, upon becoming a Covered Product hereunder, shall remain a Covered Product for a minimum period of five (5) years following FDA approval of the marketing and sale of the product in the United States. Such five-year period may be extended for an additional period of five years at the option of BSP in the event that minimum sales levels of the Covered Product shall not have been met during said five-year period. "Minimum sales levels", as used herein, means levels of sales for the five-year period established by BSP and Company by
negotiation in good faith prior to the commencement of the five-year period. Minimum sales levels may be expressed as units sold, market share, market penetration, or dollar volume or some consideration thereof. BSP's exercise of its option to extend the Term with respect to a Covered Product shall be made, if at all, by written notice given to Company no later than thirty (30) days prior to the first five-year period set forth above.
8. Effect of Termination.
Upon expiration of the period during which a product is a Covered Product hereunder, BSP shall have the right for a period of at least ten (10) years thereafter, to acquire and be a distributor of a Covered Product on price terms that are no less favorable than any other wholesaler or distributor of the Covered Product. BSP's rights hereunder may be assigned to one or more members of the BSP Network.
9. Early Termination.
(a) Either party may terminate the Term by written notice to the other party if the other party shall be in default of any material provision of this agreement and such default shall continue for a period of at least forty-five (45) days after written notice of a default given to the defaulting party (except in the case of a default in the payment of money in which case the time period shall be twenty (20) days. Upon any such termination, the respective rights and obligations of each party shall cease and be of no further force and effect except that each party shall be liable for any accrued obligations to pay money and each party shall remain liable for breach of agreement, if any. Moreover, any right of termination shall be without prejudice to any right to obtain injunctive or other equitable relief.
(b) Company shall have the right, any provisions of this Agreement to the contrary notwithstanding, to terminate the Term with respect to a Covered Product which is a therapeutic drug at any time prior to the commencement of Phase III FDA human clinical trials for such Covered Product. If Company is offered (and it accepts said offer) a contractual arrangement, including sales/marketing/distribution by the Company, for the sales/marketing/distribution of such Covered Products which arrangement will yield to Company a greater return on the sale of such Covered Product for Specialty Pharmacy and Mail order/online pharmacy than is provided for in this Agreement, all factors being taken into consideration and providing that such arrangement is inconsistent with the role of BSP hereunder. Such right of termination shall be exercised, if at all, by written notice given by Company to BSP, which notice shall set forth all relevant terms of the alternative arrangement. Termination shall be effective thirty (30) days after such notice, provided BSP shall have been given the opportunity by Company to verify the alternative arrangement.
10 Waiver of Conflict of Interest
The Company has received full disclosure that certain shareholders, management and consultants of BioDelivery Sciences International, Inc. also serve as shareholders, management or consultants of BSP, that BSP is a development stage company with limited business experience, that BSP anticipates earning significant revenue as a result of this Agreement and that certain administrative and professional (including legal and accounting) support to BDSI and potentially to BDS, may also provide similar services to BSP (the "Disclosed Relationship"). The
Company has had the opportunity to make due diligence inquiry of the officers, directors and shareholders of both BSP and BioDelivery Sciences International, Inc regarding the Disclosed Relationship, this Agreement and the potential conflict of interest which may result there from. Based on the disclosure of the Disclosed Relationship and the right to conduct due diligence inquiry and the right to consult with and rely upon the advice of independent experts including, but not limited to, legal counsel, the Company confirms that it has waived all conflicts of interest, defenses or claims which may arise from or relate to any such conflicts of interest. The Company warrants that the Disclosed Relationship and the potential conflicts of interest have been disclosed to the satisfaction of its Board of Directors which, after being informed, adopted Resolutions which waived the potential conflicts of interest of BSP and of the directors and officers of BioDelivery Sciences international, Inc.
/s/ [illegible signature] 4 Dec 2000 --------------------------------- ------------- BioDelivery Sciences, Inc Date /s/ [illegible signature] 11-30-00 --------------------------------- ------------- BioTech Specialty Partners, LLC Date |
Exhibit 10.8
**************************** NOTICE OF GRANT AWARD ****************************
SMALL BUSINESS INNOVATION RESEARCH PROG Issue Date: 07/21/1998
Department of Health and Human Services
National Institutes Of Health
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
*******************************************************************************
Grant Number: 1 R43 AI46040-01
Principal Investigator: ZARIF, LEILA PHD
Project Title: COCHLEATE DRUG DELIVERY AGAINST FUNGAL INFECTIONS
PRESIDENT & CHIEF EXEC OFFICER
BIODELIVERY SCIENCES, INC
UNIV HEIGHTS SCIENCE PARK
111 LOCK STREET
NEWARK, NJ O7103
Budget Period: 08/01/1999 - 01/31/2000
Project Period: 08/01/1999 - 01/31/2000
Dear Business Official:
The National Institutes of health hereby awards a grant in the amount of $100,000 (see "Award Calculation" in Section I) to BIODELIVERY SCIENCES, INC. in support of the above referenced project. This award is pursuant to the authority of 42 USC 241 CFR PART 52 15 USC 638 and is subject to attached terms and conditions.
Acceptance of this award including attached Terms and Conditions is acknowledged by the grantee when funds are drawn down or otherwise obtained from the grant payment system.
Award recipients are responsible for appropriate acknowledgement of NIH support when preparing publications, or issuing statements, press releases, request for proposals, bid solicitations, and other documents describing projects or programs funded in whole or in part with NIH support.
If you have any questions about this award, please contact the individual(s) referenced in the attachments.
Sincerely yours,
VICTORIA PUTPRUSH
Victoria Putprush
Grants Management Officer
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
Attachments
SECTION I -- AWARD DATA -- 1 R43 AI46040-01
AWARD CALCULATION (U.S. Dollars):
Salaries and Wages ............................................. $ 44,294 Fringe Benefits ................................................ $ 9,400 Personnel Costs ................................................ $ 53,694 Consultant Services ............................................ $ 30,000 Supplies ....................................................... $ 11,306 Travel Costs ................................................... $ 5,000 Direct Costs ................................................... $100,000 APPROVED BUDGET ................................................ $100,000 TOTAL ........................................................ $100,000 |
FISCAL INFORMATION:
CFDA Number: 93.856
EIN: 1223354731Al
Document Number: R3AI46040A
IC/ CAN / FY1999
AI/ 8425740 / 100,000
NIH ADMINISTRATIVE DATA:
PCC: A25 / OC: 41.4A /Processed: VPUTPRUSH 980720 0834
SECTION II -- PAYMENT/HOTLINE INFORMATION -- 1 R43 AI46040-01
For Payment and HHS Office of Inspector General Hotline Information, see the NIH Home Page at http://www.nih.gov/grants/policy/awardconditions.htm
SECTION III -- TERMS AND CONDITIONS -- 1 R43 AI46040-01
This award is based on the application submitted to, and as approved by the NIH on the above-titled project and is subject to the terms and conditions incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts, to the extent those restrictions are pertinent to the award.
c. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://www.nih.gov/grants/policy/awardconditions.htm for certain references cited above.)
This grant is excluded from Expanded Authorities.
Treatment of Program Income:
Other Research (Add/Deduct Option)
The total costs (direct, indirect, and fixed fee) for Phase I of this SBIR may not exceed $100,000. Direct costs for this award reduced accordingly.
General program income that may be generated from this grant is to be treated under the
Additional cost alternative.
Information concerning funding, policy, administrative issues, is available for
First-Time NIH grantee organizations via the NIH "Welcome Wagon" Memorandum.
This document may be accessed through the following Internet address:
http://www.nih.gov/grants/funding/welcomewagon.htm
PAYMENT INFORMATION: The awardee organization will receive information and forms from the Payment Management System of the Department of Health and Human Services regarding requests for cash, manners of payment, and associated reporting requirements. Payment may be made on a cost-reimbursement or advance basis. Cost reimbursement may be requested monthly, quarterly, or at other periodic intervals. Advance payments may be requested on a monthly basis only. The telephone number for the Payment Management System Office is (301) 443-1660.
Normally, the awardee organization retains the principal worldwide patent rights to any invention developed with United States government support. Under Title 37 Code of Federal Regulations Part 401, the Government receives a royalty-free license for its use, reserves the right to require the patent holders to license others in certain circumstances, and requires that anyone exclusively licensed to sell the invention in the United States must normally manufacture it substantially in the United States. To the extent authorized by Title 35 United States Code Section 205, the Government will not make public any information disclosing a Government-supported invention for a 4-year period to allow the awardee organization a reasonable time to file a patent application, nor will the Government release any information that is part of that application.
Grants Management Contact:
Mary Ledford
(301) 402-6446 phone
(301) 400-3780 fax
ml28g@nih.gov
Program Official Contact:
Barbara Laughon, Ph.D.
(301) 402-2304
Mary Ledford, Grants Specialist
SPREADSHEET
GRANT NUMBER: 1 K43 A146040-01
P.I. ZARIF, LEILA
INSTITUTION: BIODELIVERY SCIENCES, INC.
YEAR 01
-------
Salaries and Wages...................................................... 44,294
Fringe Benefits......................................................... 9,400
Personnel Costs......................................................... 53,694
Consultant Services..................................................... 30,000
Supplies................................................................ 11,306
Travel Costs............................................................ 5,000
-------
TOTAL DO................................................................ 100,000
TOTAL P&A...............................................................
TOTAL COST.............................................................. 100,000
=======
|
****************************** NOTICE OF GRANT AWARD ***************************
SMALL BUSINESS INNOVATION RESEARCH PROG Issue Date: 9/19/2001
Department of Health and Human Services
National Institutes of Health
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
********************************************************************************
Grant Number: 2R44 A146040-02
Principal Investigator: ZARIF, LEILA PHD
Project Title: Oral AMB for the treatment of fungal infection
PRESIDENT & CHIEF EXEC OFFICER
BIODELIVERY SCIENCES, INC
UMDNJ
185 S ORANGE AVENUE, BLDG 4
NEWARK, NJ O7103
UNITED STATES
Budget Period: 09/20/2001 - 08/31/2002
Project Period: 08/01/1999 - 08/31/2004
Dear Business Official:
The National Institutes of health hereby awards a grant in the amount of $883,972 (see "Award Calculation" in Section I) to BIODELIVERY SCIENCES, INC. in support of the above referenced project. This award is pursuant to the authority of 42 USC 241 CFR PART 52 15 USC 638 and is subject to terms and conditions referenced below.
Acceptance of this award including the Terms and Conditions is acknowledged by the grantee when funds are drawn down or otherwise obtained from the grant payment system.
Award recipients are responsible for reporting inventions derived or reduced to practice in the performance of work under this grant. Rights to inventions vest with the grantee organization provided certain requirements are met and there is acknowledgement of NIH support. In addition, recipients must ensure that patent and license activities are consistent with their responsibility to make unique research resources developed under this award available to the scientific community, in accordance with NIH policy. For additional information, please visit http://www.iedison.gov. If you have any questions about this award, please contact the individual(s) referenced in the attachments.
If you have any questions about this award, please contact the individual(s) referenced in the information below.
Sincerely yours,
THERESA MERCOGLIANO
Theresa Mercogliano
Grants Management Officer
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
See additional information below
Barbara E. Laughon, Ph.D. SUMMARY STATEMENT PAGE 119 301-402-2304 (Privileged Communication) bl17u@nih.gov |
Application Number 1 R43 A146040-01
ZRG1 VR (1)
Review Group: CENTER FOR SCIENTIFIC REVIEW SEP
Meeting Dates: IRG: FEB/MARCH 1999 COUNCIL: MAY 1999 A25
Requested Start Date: 07/01/1999
ZARIF, LEILA, PND
BIODELIVERY SCIENCES, INC
111 LOCK STREET
UNIV HEIGHTS SCI PARK
NEWARK, NJ 07103
Project Title: COCHLEATE DRUG DELIVERY AGAINST FUNGAL INFECTIONS IRG: Action: Priority Score: 201 Human Subjects: 10-N0 HUMAN SUBJECTS INVOLED Animal Subject: 30-ANMLS INV.-VERIFIED, NO IRG CONCERNS OR COMMENT |
GENDER, MINORITY, & CLINICAL TRAIL CODES NOT ASSIGNED
PROJECT DIRECT COSTS DIRECT COSTS ESTIMATED
YEAR REQUESTED RECOMMENDED TOTAL COST
01 100,694 100,694 100,694
----------- ------------ ----------
TOTAL 100,694 100,694 100,694
|
RESUME AND SUMMARY OF DISCUSSION: This is an interesting proposal and one that appears to be worthy of strong support particularly in view of the survival results they present for treatment of murine candidiasis comparing amphotericin B-cochleate preparation against that of Fungizone treated mice both by the intraperitoneal route. Achieving the goals of this depends on the successful preparation and evaluation of an oral form of the amphotericin B-cochleate preparation. Concern is raised by the high calcium content that they describe will be employed. Amphotricin B, in Fungizone preparations, forms a precipitate in high salt solutions and it is recommended that solutions be prepared in distilled water. Granted the lipid vehicle as described in this proposal may circumvent this property of the polyene, there is no guarantee that such would not happen.
DESCRIPTION: Opportunistic infections are widespread in HIV infected and other immunosuppreassed individuals. Cochleate cylinders are an innovative and relatively new lipid based delivery system. The long term goals of this research program are to determine the feasibility and technical merit of drug-choleate formulations to enhance the efficacy of some currently available antimicrobials by increasing therapeutic index and patient compliance. The present application will focus on investigating the properties of amphotericin
Date Released: 05/12/1999 Date Printed: 03/12/1999
SPECIAL EMPHASIS PANEL (ZRG1-VR-01) 3 1 R43 AI 46040-01
MARCH 24-25, 1999 ZARIF
ratio of lipid/amphotericin B encochleated is highly reproducible (within 1%). A predictable problem in preparing such materials is that there is a great tendency for such lipid containing materials to aggregate. They describe their experience with one such example but also provide evidence that by altering the formulations they have reduced, but apparently not eliminated, this problem.
The applicant provides evidence using amphotericin B-rhodamine-cochleate preparations that it is taken up by C. albicans. This shows but does not prove that amphotericin B delivered in this manner actually gets to the target sterol sites. It could be that the complex simply absorbs onto the rigid cell wall. Cultured macrophages accumulate the amphotericin B-rhodamine-cochleates internally where it remains for several days and slowly transfers the fluorescent label to the membranes of the macrophage. Amphotericin B-cochleate preparations at concentrations of 500 mcg/ml did not hemolyze red blood cells over the observation period whereas amphotericin B at a concentration of 10 mcg/ml as Fungizone was highly hemolytic. Amphotericin B cochleates accumulate mainly and concentrate in the liver and spleen. The applicant also provides data on the antifungal activity of amphotericin B cochleates and show that the MIC is equivalent to that of Fungizone on a n/v against A. fumigatus. However, from the description of how the in vitro susceptibility studies were done it is somewhat confusing on how they got reproducible inocula of the A. fumigatus preparations since it is a filamentous organism and preparing uniform suspensions of hyphal elements is impossible from the description they provide on how the suspension was prepared.
CRITIQUE 2: This phase I SBIR proposal describes experiments to develop a cochleate formulation of Amphotericin B. The long-range goal is to develop a formulation that has good systemic absorption when given orally. This excellent proposal contains strong preliminary data and feasible experiments. Furthermore, there is a significant clinical need for an oral formulation of Amphotericin B with good systemic absorption.
Preliminary Data: The investigators demonstrate that they are able to synthesize a cochleate formulation of Amphotericin B. They also demonstrate that they are able to adjust the particle size of the cochleate formulation. The cochleate formulation appears to have some systemic absorption. However, with the current formulation, oral bioavailability appears to be low, as reflected by sub-microgram quantities of Amphotericin B in the liver, spleen and lung following a single oral dose. In contrast, thirty days after a ten-day course of cochleate Amphotericin B given intraperitoneally, the concentration of Amphotericin B in the liver and spleen of the mice ranged from approximately 7 to 22 micrograms. Nevertheless, the fact that at least some of the cochleate Amphotericin B was absorbed suggests that it may be feasible to enhance this bioavailability.
The investigators also demonstrate that the Amphotericin B cochleate formulation accumulates within Candida albicans and macrophages. It had no toxicity as demonstrated by the orythrocyte lysis test. However, when the Amphotericin B cochleates were given to mice intraperitoneally for ten days, there was some evidence of systemic toxicity as manifested by an approximate twenty-five percent less in body weight. The Amphotericin B cochleate demonstrated reasonable activity against at least one strain of Aspergillosis fumigatus and one strain of Candida albicans in vitro. Furthermore, it appeared
SECTION I - AWARD DATA - 2 R44 AI46040-02
AWARD CALCULATION (U.S. Dollars):
Salaries and Wages $233,000 Fringe Benefits $46,280 Personnel Costs $278,280 Equipment $35,000 Supplies $155,000 Travel Costs $10,000 Other Costs $10,000 Consortium/Contractual Cost $156,552 Federal Direct Costs $644,832 Federal F&A Costs $239,140 APPROVED BUDGET $883,972 TOTAL $883,972 |
Recommended future year total cost support, subject to the availability of funds and satisfactory progress of the project, is as follows.
03 $814,398
04 $989,352
FISCAL INFORMATION:
CPDA Number: 93.856
EIN: 1223354731A1
Document Number: R4AI46040B
IC/ CAN / FY 2001 / FY2002 / FY2003
AI/ 8425951 / 883,972 / 814,398 / 989,352
NTH ADMINISTRATIVE DATA:
PCC: A25 / OC: 41.4B / PROCESSED: MERCOGL 010917 0333
SECTION II - PAYMENT/HOTLINE INFORMATION - 2 R44 AI46040-02
For Payment and HHS Office of Inspector General Hotline Information, see the NIH Home Page at http://grants.nih.gov/grants/policy/awardconditions.htm
SECTION III - TERMS AND CONDITIONS - 2 R44 AI46040-02
This award is based on the application submitted to, and as approved by, the NIH on the above-titled project and is subject to the terms and conditions incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of
Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts,
to the extent those restrictions are pertinent to the award.
c. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the
beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://grants.nih.gov/grants/policy/awardconditions.htm for certain references cited above.)
This grant is included under Expanded Authorities.
This grant is subject to Streamlined Noncompeting Award Procedures (SNAP).
Treatment of Program Income:
Additional Costs
SECTION IV - NIAID SPECIFIC TERMS OF AWARD -
This award is subject to the Terms and Conditions of Award included in NIAID Policy on Monitoring Grants Supporting Clinical Trials and Studies (see NIH Guide for Grants and Contracts, February 24, 2000, Not AI-00-003). These terms and conditions are hereby incorporated by reference, and can be accessed via the following world wide web addresses: http.//www.niaid. nih.gov/non/pdf/clinterm.pdf.
The NIAID Point of Contact
TERMS OF AWARD FOR DAIDS GRANTTS COORDINATOR
Regulatory Operations Center
Social & Scientific Systems, Inc.
6101 Executive Boulevard
Suite 350
ROCKVILLE, MARYLAND 20852
USA
PAX: For US Institutions: 1-800-275-7619 Telephone number for US and international sites to call the coordinator for information or questions: 301-770-4550
NOTICE: Under governing regulations, Federal funds administered by the Department of Health and Human Services shall not be expanded for and individuals shall not be enrolled in research involving human subjects unless the institution has an approved Assurance of Compliance with 45 CFR 46 on file in the Office of Human Research Protections (OHRP) and the project has been reviewed and approved by the Institutional Review Board (IRB) in accordance with the requirements with the requirements in 45 CFR 46.
The present award is being made without currently valid certification of IRB approval for this project with the following restriction: Only activities which do not directly involve human subjects (i.e., are clearly severable and independent from those activities that do involve human subjects) may be conducted pending the acceptance by the National Institute of Allergy and Infectious Diseases of certifications of IRB approval.
Pending the establishment of a negotiated facilities and administrative (F&A) cost rate, this award provides an allowance of F&A costs of 10% salaries and wages ($23,200). The timeline to establish this rate is 90 days from the issuance of this Notice of Grant Award. Please contact Ms. Ruth Bishop, OFM/NIH at (301) 496-2444 for assistance. The balance of funds remains restricted ($215,940) and may not be rebudgetted or used for any other purpose.
PAYMENT INFORMATION: The awardee organization will receive information and forms from the Payment Management System of the Department of Health and Human Services regarding requests for cash, manners of payment, and associated reporting requirements. Payment may be made on a cost-reimbursement or advance basis. Cost reimbursements may be requested monthly, quarterly, or at other periodic intervals. Advance payments may be requested on a monthly basis only. The telephone number for the Payment Management System Office is (301) 443-1660.
Intellectual property rights: Normally, the awardee organization retains the principal worldwide patent rights to any invention developed with United States Government support. Under Title 37 Code of Federal Regulations Part 401, the Government receives a royalty-free license for its use, reserves the right to require the patent holder to license others in certain circumstances, and requires that anyone exclusively licensed to sell the invention in the United States must normally manufacture it substantially in the United States.
Rights and obligations related to inventions created or reduced to practice as a result of his award are detailed in 35 U.S.C. 205 and 37 CFR Part 401. These inventions must be reported to the Extramural Invention Reporting and Technology Resources Branch, OPERA, NIH, 701 Rockledge Drive, MSC 7750, Bethesdam, MD 20892-7750, (301) 435-1986. For additional
information, access the NIH link on the Interagency Edison web site (www.iedison.gov) which includes an electronic invention reporting system, reference information and the text to 37 CFR 401.
To the extent authorized by 35 U.S.C., Section 205, the Government will not make public any information disclosing an NIH-approved invention for a 4-year period to allow the awardee organization a reasonable time to file a patent application, nor will the Government release any information that is part of that patent application.
Allowable costs conducted by for-profit organizations will be determined by applying the cost principles of Contracts with Commercial Organizations set forth in 48 CFR, Subpart 31.2.
Babara E. Laughon, Program Official (301) 402-2304 bl17u@niaid.hih.gov Theresa Mercogliano, Grants Specialist (301) 402-5512 tm47o@nih.gov
SPREADSHEET
GRANT NUMBER: 2 R44 AI46040-02
P.I.: ZARIF, LEILA
INSTITUTION: BIODELIVERY SCIENCES, INC.
YEAR 02 YEAR 03 YEAR 04
------- ------- -------
Salaries and Wages.......................... 232,000 127,248 150,335
Fringe Benefits............................. 46,280 25,384 29,989
Personnel Costs............................. 278,280 152,632 180,324
Equipment................................... 35,000 65,000
Supplies.................................... 155,000 50,000 75,000
Travel Costs................................ 10,000
Other Costs................................. 10,000
Consortium/Contractual Cost................. 156,552 445,450 606,366
TOTAL FEDERAL DC............................ 644,832 713,082 861,690
TOTAL FEDERAL F&A........................... 239,140 101,316 127,662
TOTAL COST.................................. 883,972 814,398 989,352
|
YEAR 02 YEAR 03 YEAR 04
------- ------- -------
F&A Cost Rate 1............................ 50.00% 50.00% 50.00%
F&A Cost Base 1............................ 478,280 202,632 255,324
F&A Costs 1................................ 239,140 101,316 127,662
|
Exhibit 10.13
BIODELIVERY SCIENCES INTERNATIONAL, INC.
2001 INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The BioDelivery Sciences International, Inc. 2001 Incentive Plan (the "PLAN") is hereby established effective as of July 20, 2001, by adoption of the Board, provided it is approved within 12 months of this date by stockholders of the Company. Awards may be granted subject to stockholder approval, but may not be exercised or otherwise settled in the event stockholder approval is not obtained.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its shareholders by encouraging and facilitating the ownership of BioDelivery Sciences International, Inc.'s ("COMPANY") common stock by persons performing services for the Participating Company Group in order to enhance the ability of BioDelivery Sciences International, Inc. to attract, retain and reward such persons and motivate them to contribute to the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall be effective from the date that the Plan is adopted by the Board of Directors of the Company and shall continue in effect thereafter until the earlier of (a) its termination by the Board, or (b) the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed, or (c) ten (10) years from its effective date. All Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the shareholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) "AWARD" means any award or grant of Restricted Shares or Options under the Plan.
(b) "BENEFICIARY" means the person, persons, trust, or trusts entitled by will or by the laws of descent, to exercise a Participant's Option or other rights under the Plan after the Participant's death.
(c) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "BOARD" also means such Committee(s).
(d) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a "TRANSACTION") wherein the shareholders of the Company, immediately before the Transaction, do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction involving the sale,
exchange or transfer of all or substantially all of the Company's assets, the corporation or other business entity to which the assets of the Company were transferred (the "TRANSFEREE"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
(e) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
(f) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.
(g) "COMPANY" means BioDelivery Sciences International, Inc., a Florida corporation, or any successor corporation thereto.
(h) "CONSULTANT" means a person engaged to provide consulting or advisory services (other than as an employee or a director) to a Participating Company.
(i) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company.
(j) "DISABILITY" means the inability of the Participant to perform the major duties of the Participant's position with the Participating Company Group because of the sickness or injury of the Participant. The determination of whether or not a Participant is disabled for purposes of this Plan shall be made by, and at the sole discretion of, the Committee.
(k) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a director nor payment of a director's fee shall alone be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the sole exercise of its discretion, whether an individual has become, or has ceased to be, an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.
(l) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse. If the Stock is not trading over a public exchange, the "fair market value" shall take into account the latest private transaction in which the Company sold stock to an informed and willing buyer, if any such transaction exists. If the Stock is listed for trading over a public market, "fair market value" of the Stock on a given day shall be the mean between the highest and lowest quoted selling prices, regular way, of the Stock on the NASDAQ or the exchange on which the Stock is listed, and if no trading occurs on such date, the mean between the highest and lowest prices on the nearest trading day before such date.
(m) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement), and which qualifies as, an incentive stock option within the meaning of Section 422(b) of the Code.
(n) "NONQUALIFIED STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option.
(o) "OFFICER" means any person designated by the Board as an officer of the Company.
(p) "OPTION" means a right to purchase Stock pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option.
(q) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions pertaining to the Option granted to the Optionee and to any shares of Stock acquired upon the exercise thereof.
(r) "OPTIONEE" means a Participant who has been awarded one or more Options.
(s) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
(t) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code.
(u) "PARTICIPANT" means any employee, consultant or director to whom an Award has been made under the Plan.
(v) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation.
(w) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies.
(X) "RESTRICTED SHARES" means shares awarded pursuant to a "RESTRICTED SHARE AGREEMENT" between the Company and Participant setting forth the terms, conditions or restrictions applicable to an Award of shares of Stock under the Plan.
(y) "SERVICE" means a Participant's employment or service with the Participating Company Group, whether in the capacity of an employee, a director or a consultant. A Participant's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant's Service. Furthermore, a Participant's Service with the Participating Company Group shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Participant's Service shall be deemed to have terminated unless the Participant's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as service for purposes of determining vesting under the Participant's Option or Restricted Shares Agreement. The Participant's Service shall be deemed to have terminated either upon an actual termination of service or upon the corporation for which the Participant performs services ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant's Service has terminated and the effective date of such termination.
(z) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. Such Stock may be unrestricted or, at the sole discretion of the Board, be made subject to restrictions relating to employment and transferability.
(aa) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code.
(bb) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code.
(cc) "VEST" or "VESTING", with respect to Options, means the date, event, or act prior to which an Award is not, in whole or in part, exercisable except at the sole discretion of the Board. With respect to Restricted Shares, "Vest" or "Vesting" shall mean the date, event, or act prior to which an Award is, in whole or in part, forfeitable.
2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option, Restricted Share, or other right awarded hereunder shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or in such Option or right.
3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of, or which is allocated to, the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion to:
(a) determine the persons to whom, and the time or times at which Awards shall be granted, the types of Awards to be granted, and the number of shares of Stock to be subject to each Award;
(b) determine the terms, conditions and restrictions applicable to Awards; approve one or more forms of Option, or Restricted Share Agreements;
(c) amend, modify, extend, cancel or renew any Option or waive any restrictions or conditions applicable to any Option or applicable to any shares of Stock awarded or acquired upon the exercise thereof;
(d) correct any defect, supply any omission, or reconcile any inconsistency in the and take such other actions with respect to the Plan as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two million five hundred thousand (2,500,000) and shall consist of authorized but unissued or reacquired shares of Stock, treasury shares, or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise or Award of an Option or Restricted Share Agreement subject to a Company repurchase option and are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, in the Share Issuance Limit set forth in Section 4.1, in the exercise price per share of any outstanding Options.
5. ELIGIBILITY AND LIMITATIONS.
5.1 PERSONS ELIGIBLE. Awards may be granted only to Employees, Consultants, and Directors. For purposes of the foregoing sentence, "Employees," "Consultants", and "Directors" shall include prospective Employees, prospective Consultants, and prospective Directors to whom Options and Restricted Shares may be awarded in connection with written offers of an employment or other service relationship with the Participating Company Group.
5.2 OPTION AWARD RESTRICTIONS. Any person who is not an Employee on the effective date of the Award of an Option to such person may be awarded only a Nonqualified Stock Option. An Incentive Stock Option awarded to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences Service with a Participating Company.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that Options designated
as Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for Stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such Options which exceed such amount shall be treated as Nonqualified Stock
Options. For purposes of this Section 5.3, Options designated as Incentive Stock
Options shall be taken into account in the order in which they were awarded, and
the Fair Market Value of Stock shall be determined as of the time the Option
with respect to such Stock was awarded. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonqualified Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED SHARES.
6.1 AWARD AGREEMENTS. Options shall be evidenced by Option Agreements specifying the nature and number of shares of Stock covered thereby, and shall exist in such form as the Board shall from time to time establish. An Award of Restricted Shares shall be evidenced by a Restricted Share Agreement specifying the number of shares issued and the restrictions thereon, and shall exist in such form as the Board shall, from time to time, approve. Such Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions herein.
6.2 OPTION VESTING AND EXERCISE PRICE. Each Option Agreement shall include a vesting schedule describing the date, event, or act upon which an Option shall vest, in whole or in part, with respect to all or a specified portion of the shares covered by such Option. Each Option Agreement shall also convey the exercise price for each Option or the means by which such price shall be established, with such exercise price or method of establishment being
established in the discretion of the Board; provided, however, that: (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (b) no Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option.
6.3 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that: (a) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option awarded to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, or (c) no Option awarded to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences Service with a Participating Company.
6.4 PAYMENT OF OPTION EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED.
(i) Payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made in cash, by check or cash equivalent by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a cashless exercise.
(ii) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company.
6.5 TAX WITHHOLDING. Upon the exercise of an Option or upon the vesting of Restricted Shares, the Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Restricted Stock, Option, or the Stock acquired upon the exercise thereof. Alternatively or in addition, in its discretion, the Company shall have the right to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Restricted Stock, Option, or the shares acquired upon the exercise thereof. The Fair Market Value of any shares of
Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to any Agreement entered hereunder until the Participating Company Group's tax withholding obligations have been satisfied by the Participant.
6.6 STOCK RESTRICTIONS. Shares issued under the Plan shall be subject to a right of first refusal, one or more repurchase options, and such other conditions and restrictions as determined by the Board in its discretion at the time an Option or Restricted Share Award is made.
(a) REPURCHASE RIGHTS. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
(b) SERVICE VESTING AND TRANSFERABILITY. The Company shall have the right, at the time of the Award, to place restrictions on Awards including upon shares issued upon the exercise of an Option.
(c) RESTRICTED SHARE AWARDS. Subject to and consistent with the provisions of this Plan, each Restricted Share shall be evidenced by a written Agreement setting forth the terms and conditions pertaining to such Award, including the number of shares awarded. Unless otherwise required by statute, Restricted Shares may be awarded with or without payment of consideration by the Participant. Each Restricted Share Agreement shall include a vesting schedule describing the date, event, or act upon which Restricted Shares shall vest, in whole or in part, with respect to all or a specified portion of the Shares covered by the Award. No Restricted Share not yet vested is assignable or transferable and any attempt at transfer or assignment of such Share, and any attempt by a creditor to attach such Share, shall be null and void. Until the date a Stock certificate is issued to a Participant, a Participant will have no rights as a stockholder of the Company. No adjustments shall be made for dividends of any kind or nature, distributions, or other rights for which the record date is prior to the date such stock certificate is issued. Consistent with the provisions of this Plan, the Board may in its discretion modify, extend, or renew any Restricted Share Agreement, or accept cancellation of same in exchange for the granting of a new Award. The preceding not withstanding, no modification of a Restricted Share Agreement which is not vested shall, absent the consent of the Participant, alter or impair any rights or obligations with respect to such Agreement.
6.7 EFFECT OF TERMINATION OF SERVICE.
(a) RESTRICTED SHARES. If a Participant's Service terminates for any reason other than as a result of a Change in Control, such Participant's Restricted Shares which are not vested at the time of Service termination shall be forfeited. If a Participant's service terminates because of a Change of Control and if an amount to be received by a Participant from this Plan would otherwise constitute a "parachute payment" as defined in section 280G(b)(2) of the Code, then
any accelerated vesting due to a Change of Control or subsequent termination of the Participant's Service shall be limited to the amount of vesting that permits the Participant to receive, after application of the excise tax imposed by section 4999 of the Code, the greater of: (1) A total parachute payment that equals 2.99 times the Participant's base amount, as determined under section 280G of the Code; or (2) full vesting of all unvested Restricted Shares as of the date of the Participant's termination of employment.
(b) OPTIONS. Subject to earlier termination of the Option as otherwise provided herein, and unless otherwise provided by the Board in an Award and set forth in the Agreement related thereto, an Option shall be exercisable after a Participant's termination of Service only during the applicable time period determined in accordance with the following provisions of this Section 6.10(b) and thereafter shall terminate:
(i) DISABILITY. If the Participant's Service
terminates because of the Disability of the Participant, an Option, to the
extent unexercised and exercisable on the date on which the Participant's
Service terminated, may be exercised by the Participant (or the Participant's
guardian or legal representative) at any time prior to the expiration of twelve
(12) months after the date on which the Participant's Service terminated, but in
any event no later than the date of expiration of the Option's term as set forth
in the Agreement evidencing such Option (the "EXPIRATION DATE").
(ii) DEATH. If the Participant's Service terminates because of the death of the Participant, an Option, to the extent unexercised and exercisable on the date on which the Participant's Service terminated, may be exercised by the Participant's legal representative or other person who acquired the right to exercise the Option or Right by reason of the Participant's death at any time prior to the expiration of twelve (12) months after the date on which the Participant's Service terminated, but in any event no later than the Expiration Date. The Participant's Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months (or such longer period of time as determined by the Board, in its discretion) after the Participant's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the Participant's Service terminates for any reason, except Disability or death, an Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant's Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Participant's Service terminated, but in no event any later than the Expiration Date.
(c) RESERVATION OF RIGHTS. The grant of Awards under the Plan shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
6.8 TRANSFERABILITY OF OPTIONS. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or by the Participant's guardian or legal representative. No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Board, in its sole discretion, and as set forth in the Option Agreement evidencing such Option, a Nonqualified Stock Option shall be assignable or transferable.
7. CHANGE IN CONTROL.
7.1 EFFECT OF CHANGE IN CONTROL ON OPTIONS AND STOCK APPRECIATION RIGHTS. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"), may, without the consent of any Participant, either assume the Company's rights and obligations under outstanding Options and Stock Appreciation Rights or substitute for such outstanding Options and Rights substantially equivalent options or rights for, or in relation to, the Acquiring Corporation's stock.
7.2 EFFECT OF CHANGE OF CONTROL ON RESTRICTED SHARE RIGHTS.
(a) Restricted Shares outstanding under the Plan at the time of a Change in Control shall automatically Vest in full immediately prior to the effective date of such Change in Control and will no longer be subject to forfeiture risk or to any repurchase right. However, Restricted Shares shall not vest on an accelerated basis as a result of a Change in Control if and to the extent:
(i) such Restricted Share Award, having been assumed by the successor corporation (or parent thereof), is replaced with shares of the capital stock of the successor corporation subject to substantially equivalent restrictions or is otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, and any repurchase rights of the Company with respect to any unvested Restricted Shares are concurrently assigned to such successor corporation (or parent thereof) or otherwise continued in effect; or
(ii) such Restricted Shares are to be replaced with a cash incentive program of the Company or any successor corporation which preserves the value existing on the unvested Restricted Shares at the time of the Change in Control and provides for subsequent payout in accordance with the same Vesting schedule applicable to those unvested Restricted Shares; or
(iii) the acceleration of such Restricted Share is subject to other limitations imposed by the Plan Administrator at the time of the Restricted Share grant.
(b) Should, in the course of a Change in Control, the actual holders of the Company's outstanding Stock receive cash consideration in exchange for such Stock, the successor corporation may, in connection with the replacement of the outstanding Restricted Shares under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Stock in such Change in Control and subject to substantially equivalent restrictions as were in effect for the Restricted Shares immediately before the Change in Control.
(c) The foregoing notwithstanding, the Board shall have the discretion, exercisable either at the time the Restricted Shares are granted or at any time while the Restricted Shares remain unvested, to structure one or more Restricted Shares so that those Restricted Shares shall automatically accelerate and Vest in full upon the occurrence of a Change in Control. The Board shall also have full power and authority, exercisable either at the time the
Restricted Shares are granted or at any time while the Restricted Shares remain unvested, to structure such Restricted Share so that the shares will automatically Vest on an accelerated basis should the Participant's employment or service terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which the Restricted Shares do not otherwise Vest. In addition, the Plan Administrator may provide that one or more of the Company's outstanding repurchase rights with respect to Restricted Shares held by the Participant at the time of such Involuntary Termination shall immediately terminate on an accelerated basis, and the Restricted Shares subject to those terminated rights shall accordingly Vest at that time.
(i) For purposes of this Section 8.2(c), an "INVOLUNTARY TERMINATION" shall mean the termination of the Participant's service which occurs by reason of: (1) such individual's involuntary dismissal or discharge by the Company for reasons other than Misconduct, or (2) such individual's voluntary resignation following (A) a change in his or her position with the Company which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (3) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected without the individual's consent.
(ii) "MISCONDUCT" shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company or any other intentional misconduct by such person adversely affecting the business or affairs of the Company in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company may consider as grounds for the dismissal or discharge of any Participant or other person in the Company's service.
8. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and income statement for the just completed fiscal year shall be made available to each Participant.
9. TERMINATION OR AMENDMENT OF PLAN.
The Plan shall terminate ten (10) years from its effective date. The Board may terminate or amend the Plan at any time. No termination or amendment of the Plan shall affect any then outstanding Award unless expressly provided by the Board.
10. REPURCHASE AND FIRST REFUSAL RIGHTS.
10.1 REPURCHASE RIGHTS. Should the Participant cease to be employed by or provide services to the Company while holding one or more shares of Stock issued pursuant to the exercise of an Option granted under this Plan or pursuant to a Stock Award under the Plan, then those shares, to the extent any Restricted Shares are no longer subject to forfeiture, shall be subject to repurchase by the Company, at the Company's sole discretion, at the Fair Market Value of such shares on the date of such repurchase and the Participant shall have no further shareholder rights with respect to those shares. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for exercise) shall be established by the Board.
10.2 FIRST REFUSAL RIGHTS. If imposed in the agreement, the Company shall have the right of first refusal with respect to any proposed sale or other disposition by the holder of any shares of Stock issued pursuant to an Award granted under the Plan. Such right of first refusal shall be exercisable in accordance with terms and conditions established by the Board.
11. MISCELLANEOUS PROVISIONS.
11.1 NO RIGHTS OF SHAREHOLDER. Prior to the date on which an Option is exercised, neither the Participant, nor a Beneficiary or any other successor in interest will be, or will have any of the rights and privileges of, a shareholder with respect to any Stock issuable upon the exercise of such Option.
11.2 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein shall be deemed to give any person any right to employment by the Company or by a Participating Company, or to interfere with the right of the Company or a Participating Company to discharge any person at any time without regard to the effect that such discharge will have upon such person's rights or potential rights, if any, under the Plan. The provisions of the Plan are in addition to, and not a limitation on, any rights a Participant may have against the Company or a Participating Company by reason of any employment or other agreement with the Company or a Participating Company.
11.3 SEVERABILITY. If any provision of this Plan is held to be illegal or invalid for any reason, the remaining provisions are to remain in full force and effect and are to be construed and enforced in accordance with the purposes of the Plan as if the illegal or invalid provision or provisions did not exist.
IN WITNESS WHEREOF, the undersigned Secretary and Chairman of the Company certifies that the foregoing sets forth the BioDelivery Sciences International, Inc. 2001 Incentive Plan as duly adopted by the Board on July 20, 2001.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated June 6, 2001 and December 15, 2000, accompanying the financial statements of BioDelivery Sciences International, Inc. as of and for the year ended December 31, 2000 and BioDelivery Sciences, Inc. for the year ended December 31, 1999 and the nine-months ended September 30, 2000, respectively, contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports in the Registration Statement and prospectus, and to the use of our name as it appears under the caption "Experts".
/s/GRANT THORNTON LLP Tampa, Florida January 28, 2002 |
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our report dated January 5, 2000 relating to the financial statements of BioDelivery Sciences International, Inc. as of December 31, 1999.
/s/STARK WINTER SCHENKEIN & CO., LLP Certified Public Accountants Denver, Colorado January 22,2002 |