UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 27, 2007
eXegenics Inc.
(Exact Name of Registrant as Specified in Charter)
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Delaware
(State or other
jurisdiction of
incorporation)
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000-26648
(Commission
File Number)
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75-2402409
(IRS Employer
Identification No.)
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4400 Biscayne Blvd
Suite 900
Miami, Florida
(Address of Principal Executive Offices)
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33137
(Zip Code)
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Registrants telephone number, including area code: (305) 575-6015
1250 Pittsford-Victor Road
Building 200, Suite 280
Pittsford, New York, 14534
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement
The disclosures set forth in Item 2.01 to this Current Report are incorporated into this item
by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On March 27, 2007, we completed an acquisition of (a) Froptix Corporation, a privately held
Florida corporation (Froptix), and (b) Acuity Pharmaceuticals, Inc., a privately held Delaware
corporation (Acuity), pursuant to a merger agreement and plan of reorganization, dated as of
March 27, 2007 (referred to as the Merger Agreement), by and among eXegenics, Froptix, Acuity,
e-Acquisition Company I-A, LLC, a Delaware limited liability company wholly owned by us, and
e-Acquisition Company II-B, LLC, a Delaware limited liability company wholly owned by us.
The
Merger Agreement provided for the merger of Froptix with and into
e-Acquisition Company I-A, LLC, with e-Acquisition
Company I-A, LLC surviving as our wholly-owned subsidiary (referred to
as the Froptix Merger) and the merger of Acuity with and into e-Acquisition Company II-B, LLC,
with e-Acquisition Company II-B, LLC surviving as our wholly-owned subsidiary (referred to as the
Acuity Merger and, with the Froptix Merger, the Mergers). In connection with the consummation
of the Mergers (1) e-Acquisition Company I-A, LLC changed its name to Froptix, LLC, (2)
e-Acquisition Company II-B, LLC changed its name to Acuity Pharmaceuticals, LLC and (3) we became
the parent company of these two wholly-owned operating subsidiaries. We incurred normal
acquisition related costs in connection with these transactions. Our trading symbol is EXEG.OB.
We intend to change our name to Opko Corporation in connection with our plan to apply for listing
on the American Stock Exchange.
At the closing of the Mergers, the former stockholders of Froptix and Acuity received shares
of our common stock and preferred stock as well as warrants to purchase our common stock in
exchange for all of their shares of Froptix and Acuity.
As
a result, at the closing of the Mergers, we issued (a) an aggregate of 61,775,002 shares of
our common stock to the former holders of Froptix common stock,
(b) an aggregate of 14,835,979
shares of our common stock to the former holders of Acuity common stock and Acuity Series A
preferred stock, and (c) an aggregate of 457,584 shares of our Series C preferred stock,
convertible into 45,758,400 shares of our common stock, to the former holders of Acuity Series B
preferred stock. We also granted 21,144,114 warrants to purchase shares of our common stock to
former stockholders of Froptix and Acuity.
Accounting Treatment
The accounting treatment of the acquisition of Froptix and Acuity by eXegenics was viewed to
be a two-step process. In step one Froptix was deemed to be the accounting acquirer of eXegenics
in what was accounted for as a reverse acquisition. In step two eXegenics acquired Acuity in a normal business
combination.
Treatment of Warrants and Options
In connection with the Mergers, we assumed the obligations under outstanding warrants
previously granted by Acuity to purchase 1,247,271 shares of Acuity common stock and 325,000 shares
of Acuity Series B preferred stock and, in connection therewith, we issued warrants to purchase
7,214,730 shares of our common stock and 16,866 shares of Series C preferred stock to such Acuity
warrant holders, convertible into 1,686,600 shares of our common stock.
Immediately before the closing of the Mergers, Froptix had outstanding options to purchase 65
shares of Froptix common stock and Acuity had outstanding options to purchase 2,191,619 shares of
Acuity common stock and options to purchase 141,000 shares of Acuity Series B preferred stock.
Pursuant to the terms of the Merger Agreement, the Company assumed all of the outstanding
obligations under such options and, accordingly, the Company
anticipates issuing 11,373,186 shares
of its common stock and 7,317 shares of its Series C preferred
stock, convertible into 731,700
shares of our common stock, upon the exercise of such options in lieu of shares of common stock of
Froptix or common stock and/or preferred shares of Acuity.
Our board of directors plans to adopt and implement a new stock incentive plan within the
coming months.
Escrow Agreement
As security for the respective customary indemnification obligations of Froptix and Acuity to
the Company, 11.5% of the Company shares and warrants issued in connection with the Mergers will be
held in escrow by us until March 25, 2008 such shares shall
thereafter be released to the extent no claims for indemnification
against such shares have been made.
Lock-Up Agreements
In connection with the Mergers, all of the former stockholders of Froptix and certain
significant former stockholders of Acuity entered into lock-up agreements. Each lock-up agreement
provides that the shares of the Company issued in the Mergers may not be, directly or indirectly,
sold for a period of two years following completion of the Mergers. Restrictions under the lock-up
agreements lapse with respect to one-third of the shares subject to the lock-up agreement on the
first anniversary of the lock-up agreement and with respect to an additional one-third six months
thereafter.
Registration Rights
Some of the former stockholders of Froptix and Acuity were granted certain rights with respect
to the registration under the Securities Act of the sale of their shares issued in the Mergers.
These rights may be triggered beginning on the first anniversary of the date of the Merger
Agreement if we propose to register any of our securities under the Securities Act, either for our
own account or for the account of other security holders exercising registration rights. Upon such
registration, such holders will be entitled to notice of such registration and to include shares in
the registration. These rights are subject to customary restrictions and exclusions as described
in the Registration Rights Agreement.
Entry
into Credit Agreement.
In connection with the consummation of the Mergers, we assumed the rights and obligations of
Acuity under a line of credit that Acuity had with The Frost Group, LLC, a Florida limited
liability company whose members include a trust controlled by Dr. Phillip Frost, who is the
Companys Chief Executive Officer and Chairman of the board of directors, Dr. Jane H. Hsiao and
Steven D. Rubin, directors of the Company. We also amended and restated this line of credit to provide
additional available borrowing capacity. Under this amended and restated line of credit, we gained
access to $8,000,000 in available borrowings and we assumed Acuitys existing obligation to repay
$4,000,000 previously drawn down under the line of credit. The Company is obligated to pay
interest on outstanding borrowings under the line of credit at a 10% annual rate. In connection
with the assumption and amendment of the line of credit, the Company
granted warrants to purchase 4,000,000 shares of eXegenics
common stock to
The Frost Group, LLC.
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FORM 10 DISCLOSURES
As disclosed elsewhere in this report, on March 27, 2007, we acquired Froptix and Acuity in the Mergers. Item 2.01(f) of Form 8-K states that if the registrant was a shell
company, as we were immediately before the Mergers disclosed under Item 2.01, then the registrant
must disclose the information that would be required if the registrant were filing a general form
for registration of securities on Form 10 under the Securities Exchange Act of 1934, as amended.
Accordingly, we provide below the information that would be included in Form 10. Please note
that the information provided below relates to the combined company after the acquisition of the
Mergers, except that information relating to periods before the date
of the Mergers only relates to
eXegenics, unless otherwise specifically indicated.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K , including the disclosures in accordance with Form 10,
contain forward-looking statements, as that term is defined under Private Securities Reform Act
of 1995 (the PSLRA). Forward-looking statements include statements about our expectations, beliefs or
intentions regarding our product development efforts, business, financial condition, results of
operations, strategies or prospects. You can identify forward-looking statements by the fact that
these statements do not relate strictly to historical or current matters. Rather, forward-looking
statements relate to anticipated or expected events, activities, trends or results as of the date
they are made. Because forward-looking statements relate to matters that have not yet occurred,
these statements are inherently subject to risks and uncertainties that could cause our actual
results to differ materially from any future results expressed or implied by the forward-looking
statements. Many factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements. These factors include those
described under the caption
Risk Factors
in Item 1A of these Form 10 disclosures, which are
briefly listed below. We do not undertake any obligation to update forward-looking statements. We
intend that all forward-looking statements be subject to the
safe-harbor provisions of PSLRA. These forward-looking statements are only predictions
and reflect our views as of the date they are made with respect to future events and financial
performance.
Risks and uncertainties, the occurrence of which could adversely affect our business, include
the following:
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We have a history of operating losses and we do not expect to become profitable in
the near future.
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Our technologies are in an early stage of development and is unproven.
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Our drug research and development activities may not result in commercially viable
products.
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We are highly dependent on the success of our lead product candidate, bevasiranib,
and we cannot give any assurance that it will receive regulatory approval or be
successfully commercialized.
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The results of previous clinical trials may not be predictive of future results, and
our current and planned clinical trials may not satisfy the
requirements of the U.S. Food and Drug Administration (the
FDA) or
other non-U.S. regulatory authorities.
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We will require substantial additional funding, which may not be available to us on
acceptable terms, or at all.
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If our competitors develop and market products that are more effective, safer or
less expensive than our future product candidates, our commercial opportunities will be
negatively impacted.
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Our drug development activities could be delayed or stopped.
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The regulatory approval process is expensive, time consuming and uncertain and may
prevent us or our collaboration partners from obtaining approvals for the
commercialization of some or all of our product candidates.
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Failure to recruit and enroll patients for clinical trials may cause the development
of our product candidates to be delayed.
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Even if we obtain regulatory approvals for our product candidates, the terms of
approvals and ongoing regulation of our products may limit how we manufacture and
market our product candidates, which could materially impair our ability to generate
anticipated revenues.
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Even if we receive regulatory approval to market our product candidates, the market
may not be receptive to our products.
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If we fail to attract and retain key management and scientific personnel, we may be
unable to successfully develop or commercialize our product candidates.
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As we evolve from a company primarily involved in development to a company also
involved in commercialization, we may encounter difficulties in managing our growth and
expanding our operations successfully.
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If we fail to acquire and develop other products or product candidates at all or on
commercially reasonable terms, we may be unable to diversify or grow our business.
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We rely on third parties to manufacture and supply our product candidates.
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We currently have limited marketing staff and no sales or distribution organization.
If we are unable to develop our sales and marketing and distribution capability on our
own or through collaborations with marketing partners, we will not be successful in
commercializing our product candidates.
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Independent clinical investigators and contract research organizations that we
engage to conduct our clinical trials may not be diligent, careful or timely.
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The success of our business may be dependent on the actions of our collaborative
partners.
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If we are unable to obtain and enforce patent protection for our products, our
business could be materially harmed.
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If we are unable to protect the confidentiality of our proprietary information and
know-how, the value of our technology and products could be adversely affected.
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We will rely heavily on licenses from third parties.
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We license patent rights to certain of our technology from third party owners. If
such owners do not properly maintain or enforce the patents underlying such licenses,
our competitive position and business prospects will be harmed.
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Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties.
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The Medicare prescription drug coverage legislation and future legislative or
regulatory reform of the health care system may affect our ability to sell our products
profitably.
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Failure to obtain regulatory approval outside the United States will prevent us from
marketing our product candidates abroad.
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Non-U.S. governments often impose strict price controls, which may adversely affect
our future profitability.
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Our business may become subject to economic, political, regulatory and other risks
associated with international operations.
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The market price of our common stock may fluctuate significantly.
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Trading of our common stock is limited and trading restrictions imposed on us by
applicable regulations and by lockup agreements we have entered unto with our principal
stockholders may further reduce our trading, making it difficult for our stockholders
to sell their shares.
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Because our common stock may be a penny stock, it may be more difficult for
investors to sell shares of our common stock, and the market price of our common stock
may be adversely affected.
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Directors, executive officers, principal stockholders and affiliated entities own a
significant percentage of our capital stock, and they may make decisions that you do
not consider to be in your best interests or in the best interests of our stockholders.
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Compliance with changing regulations concerning corporate governance and public
disclosure may result in additional expenses.
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Except where the context otherwise requires, the terms, we, us, our, the Company, or
eXegenics refer to the business of eXegenics Inc. and its consolidated subsidiaries: Froptix or
Froptix, LLC refers to the business of Froptix, LLC, our wholly-owned subsidiary and, Acuity or
Acuity Pharmaceuticals refers to the business of Acuity Pharmaceuticals, LLC, our wholly-owned
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subsidiary. Froptix and Acuity are the Companys two operating subsidiaries and comprise all
of the operations of the Company as of the date of this Current Report.
Item 1. Business.
eXegenics was incorporated in the State of Delaware in November 1991. eXegenics was
previously involved in the research, creation, and development of drugs for the treatment and/or
prevention of cancer and infectious diseases. Before the consummation of the Mergers, we ceased
all operations relating to our historical business and adopted, upon consummation of the Mergers,
the business plan of Froptix and Acuity, each of which is now a wholly-owned subsidiary of ours.
Set forth below in this section entitled Business is a description of our new businesses. You
should read the following discussion in conjunction with our Consolidated Financial Statements and
the related Notes, the Financial Statements of Froptix, the Financial Statements of Acuity and the pro
forma financial statements contained in this Current Report on Form 8-K.
Company Overview
We are a clinical-stage biopharmaceutical company focused on the development of innovative
therapies for the treatment and prevention of ophthalmic disease. To date, we have concentrated
our resources to address ophthalmic disease in large and growing markets by employing a powerful
and rapidly progressing technology, known as RNA Interference (RNAi), to develop our lead product
candidate, bevasiranib sodium (referred to herein as bevasiranib and formerly known as Cand5).
Bevasiranib is a small interfering RNA (siRNA) therapeutic targeting vascular endothelial growth
factor (VEGF), which we are developing as an intravitreal injection for the treatment of wet
age-related macular degeneration (Wet AMD) and other related ocular conditions.
We have utilized our expertise in ophthalmology and RNAi to take bevasiranib from the
laboratory through animal models and rapidly, efficiently and safely move it into clinical trials.
We have completed a Phase II clinical trial studying the use of bevasiranib as a treatment for Wet
AMD. Bevasiranib demonstrated safety and an efficacy profile in our Phase II clinical trial for
Wet AMD in 129 patients. Top-line results showed bevasiranib to be safe and well tolerated, with a
dose-related effect evident across multiple endpoints including near vision, lesion size (CNV) and
time to rescue. Based on the results of this trial, we expect to begin the next stage of clinical
trials in 2007.
Significant scientific evidence suggests that the presence in the eye of elevated levels of
VEGF plays an important role in causing abnormal blood vessel growth and blood vessel leakage. We
believe that bevasiranib will be competitive with existing and anticipated therapies for Wet AMD as
it addresses the underlying source of VEGF production, rather than neutralizing existing VEGF that
has already been active in the disease pathogenesis. We are also developing product candidates for
the treatment of Wet AMD, which target other pathways involved in the pathogenesis of Wet AMD,
including HIF-1
α
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We have licensed a novel formulation of an antimicrobial compound which has been tested in
early stage clinical trials. We plan to pursue additional clinical trials in patients with viral
conjunctivitis this year.
We are also in the early stages of developing treatments for two other retinal degenerative
diseases: dry age-related macular degeneration (Dry AMD) and retinitis pigmentosa (RP). We
plan to develop therapeutic products to arrest and potentially reverse vision loss resulting from
Dry AMD and RP.
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We plan to leverage our strengths to further develop a pipeline of product candidates for
ophthalmic indications that will employ RNAi and other novel technologies. Among the indications
that we may pursue are ocular inflammatory disorders, including uveitis, glaucoma, and cataracts.
We also plan on using our expertise and resources to expand our business to include other
types of ophthalmic products beyond therapeutics. These efforts may lead to our acquiring or
developing products which aid in the treatment and diagnosis of diseases of the eye to improve
vision health of patients. The product types may include diagnostic retina imaging instruments and
other ophthalmic devices.
Market Opportunity
Ophthalmic diseases can be caused by many factors and can affect both the front and back of
the eye. In the developed world, the major ophthalmic diseases that result in loss of vision
include cataracts, glaucoma, Age Related Macular Degeneration (AMD), and Diabetic Retinopathy.
There are two forms of AMD, termed wet and dry. Dry AMD affects over 35 million patients in
developed countries and many of these patients risk vision loss directly or may progress to Wet AMD
with resulting risk of loss of vision. Additionally, RP, fortunately a rarer disease, frequently
afflicts patients in their youth and causes progressive total loss of vision. Loss of vision has a
major impact on the quality of life and independence for those afflicted, causing both economic and
personal hardship on those afflicted and their families. Many significant ophthalmic disorders are
age dependent.
The ophthalmic therapeutic market is driven by:
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An aging population with vision destroying disorders;
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Diabetes (Type I and II) growing at epidemic proportions;
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An active and increased life expectancy among the aging baby-boomer generation;
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Sub-optimal and ineffective therapies;
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Emerging technologies to treat ophthalmic diseases; and
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Activist patients and physicians seeking alternatives to currently available treatments.
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We have prioritized the opportunities within ophthalmology that we believe combine attractive
markets with an emerging understanding of disease pathways. We have found that five of these
pathways cross many of the largest and fastest growing ophthalmic indications. These pathways
include angiogenesis, infection, fibrosis, inflammation and drusen. Within these pathways, we have
identified molecular targets which we believe are susceptible to therapeutic intervention.
Dry AMD is much more common than Wet AMD and is characterized by the presence of drusen and
loss of retinal pigment epithelial (RPE) cells in the retina. Drusen are small, yellowish deposits
that form within the layers of the retina. It is estimated that 10% of the patients with Dry AMD
develop into the wet form. Both forms of AMD can eventually lead to blindness. Currently there is
no known proven pharmaceutical therapy for Dry AMD.
There are an estimated 12 to 15 million patients in the United States, and over 35 million
patients in developed countries, with Dry AMD with no treatment options. Age is the main risk
factor for AMD, and the number of cases of AMD is expected to increase significantly as the
population ages. It is estimated that more than 2.8 million Americans will suffer from visual
impairment as a result of AMD by
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the year 2030, approximately double the number today. Untreated AMD can significantly decrease
the affected individuals quality of life.
RP is a group of inherited eye diseases that cause the degeneration of cells in the retina. As
these cells degenerate and die, patients experience progressive vision loss. RP is relatively rare.
It affects 50,000 to 100,000 people in the United States. Worldwide, approximately 1.5 million
people are afflicted.
Bevasiranib for Wet AMD
We have an exclusive license to commercialize bevasiranib, which is an siRNA that works to
silence the gene that promotes the overgrowth of blood vessels that leads to vision loss in Wet
AMD, a leading cause of adult blindness in the developed world. Bevasiranib is a synthetic double
stranded RNA (dsRNA) oligonucleotide. We believe that bevasiranib selectively inhibits the
production of all isoforms of VEGF by efficiently and effectively halting the production of the
protein on the mRNA level. VEGF has been shown to be the central stimulus in the development of
ocular neovascularization. Bevasiranib is administered locally to the eye via an intravitreal
injection, a common office procedure performed by retinal specialists.
We believe that bevasiranib may contribute to better patient outcomes and compliance than
would be achieved with the current antagonist-based standard of care alone. Bevasiranib has been
shown to proactively shut down the production of VEGF and we believe that it will have safety and
efficacy advantages over other therapies, which inhibit VEGF only after it has already been
produced in the eye. Based on our bevasiranib Phase II clinical trial results, we envision three
potential therapeutic profiles for bevasiranib in the marketplace, including maintenance and
combination therapy, monotherapy and prophylactic treatment. We are currently planning the Phase
III clinical trials for bevasiranib, designed to target an initial label for maintenance therapy.
Clinical Results and Program Status of Bevasiranib
We completed a Phase II clinical trial for the use of bevasiranib in the treatment of Wet AMD.
The following table summarizes the status of our material clinical trials of bevasiranib to date:
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Number of
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Enrollment
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Indication
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Trial Name
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Phase
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Objectives
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Patients
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Status
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Wet AMD
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CARE Trial
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Phase II
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Safety
Dosage
Efficacy
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129
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Complete
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Wet AMD
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NA
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Phase I
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Safety
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15
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Complete
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DME
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RACE Trial
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Phase II
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Safety
Dosage
Efficacy
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48
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Complete
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Total
research and development expenses were $8,534,000, $8,482,000, and
$3,604,000 during 2006, 2005 and 2004 respectively, and primarily
related to the development of bevasiranib.
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Clinical Trials for the Treatment of Wet AMD
C.A.R.E. Trial Phase II Clinical Trial for Wet AMD
. The Cand5 Anti-VEGF RNAi Evaluation
(CARE study), our 129 patient Phase II clinical study in patients with predominantly and minimally
classic Wet AMD was completed successfully. The outcome of this Phase II was positive and
represents what we believe to be the first clinical proof of concept of an siRNA based therapy.
The results of the CARE study demonstrated that bevasiranib is safe and well tolerated for
doses up to 3.0 mg/eye. Visual acuity outcomes taken both at distance and near, as well the
inhibition of the growth of CNV (choroidal neovascularization), demonstrated the biological effects
of RNA interference based VEGF suppression. All three dose levels of bevasiranib demonstrated
efficacy as determined by comparisons to the expected natural history of disease progression as
found in untreated patients in previous clinical trials with a similar patient population, however
no statistical significance for dose response was observed for changes in distance visual acuity
from baseline in this trial. There were trends across multiple endpoints that showed a dose
dependent effect. While these initial findings remain to be expanded and confirmed in Phase III
clinical trials, we found that bevasiranib was safe at doses up to 3.0 mg per eye.
Phase I Clinical Trial for Wet AMD
. Our Phase I trial was an open label, dose escalation
study that included 15 patients and tested five dose levels administered by intravitreal injection
at six-week intervals. Bevasiranib was shown to be safe and well tolerated following repeat
administration of the escalating dose levels, up to 3.0 mg per eye.
This study was also the first for an ocular anti-VEGF agent to include a pharmacokinetic
analysis indicating that the study drug was not present in the plasma of any of the patients at any
of the doses tested. This absence of systemic exposure to bevasiranib is significant because VEGF
antagonists have been shown to have the potential for systemic side effects.
Clinical Trials for the Treatment of DME
R.A.C.E. Trial Phase II Clinical Trial for DME
. The RNAi Assessment of bevasiranib in
Diabetic Macular Edema, or R.A.C.E. trial, was a pilot phase II investigation of the safety and
preliminary efficacy of bevasiranib in patients with DME. This 48 patient multi-center,
double-masked and randomized trial studied three dose levels of bevasiranib.
Commercial Potential
Based on our bevasiranib Phase II clinical trial results, we believe there are three potential
therapeutic profiles for bevasiranib in the marketplace, including (1) maintenance and combination
therapy, (2) monotherapy treatment and (3) prophylactic treatment.
Maintenance and Combination Therapy
. We anticipate bevasiranib being used by itself or in
combination with other therapies sequentially following an initiation therapy with an approved VEGF
antagonist drug. After the antagonist has absorbed extracellular VEGF, bevasiranib could be used in
order to suppress the formation of new VEGF and maintain a patients vision. When used in
combination with other therapies, bevasiranibs sustained VEGF suppression may add to antagonists
activity, and provide a better outcome than that on VEGF antagonist alone.
Monotherapy
. It is possible that not all patients will require the VEGF antagonist initiation
regimen due to low VEGF load at time of diagnosis. These patients may get the full benefit from
bevasiranib alone.
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Prophylactic Therapy
. Certain patients who do not yet have the wet form of AMD may be
determined by their physician as being at high risk for progressing to the wet form. Future studies
may show that bevasiranib could prevent these high risk patients from progressing to the wet form
of AMD.
ACU-NCT-001 for Viral Conjunctivitis
We have a worldwide exclusive license to commercialize ophthalmic indications using
ACU-NCT-001. This is a proprietary formulation of the N-chloro derivative of the amino acid
taurine (referred to herein as NCT). NCT is a naturally occurring microbicidal oxidant that is
produced by stimulated granulocytes and monocytes via the enzyme myeloperoxidase. Researchers in
Austria have completed pilot clinical trials using NCT where it has been shown to have promising
antiseptic activity for viral conjunctivitis and to be safe and well-tolerated. Pre-clinical
studies have shown that ACU-NCT-001 will enhance NCTs activity against bacteria, virus and fungi
and its penetration of activity through the cornea. ACU-NCT-001 is designed to combine
broad-spectrum anti-infective activity with very good tolerability, and its natural sterility and
absence of preservatives make it a good candidate for ocular applications. The first indication we
plan to pursue for ACU-NCT-001 is viral conjunctivitis.
ACU-HHY-011 for Wet AMD
We have a worldwide exclusive license to commercialize ACU-HHY-011, which is an siRNA
targeting HIF-1
α
, believed to be the most important transcription factor involved in the cellular
response to hypoxia, a key step in the neovascularization process which occurs in Wet AMD. HIF-1
α
is upstream of the target for bevasiranib and preclinical data suggests that targeting HIF-1
α
may
have advantages over other approaches to treating Wet AMD. HIF-1
α
modulates the expression of more
than 60 genes, including multiple angiogenic factors under hypoxic conditions, such as VEGF,
angiopoietin-1, angiopoietin-2, placental growth factor and platelet-derived growth factor-B.
ACU-XSP-001 for Uveitis
We have entered into an option agreement to acquire an exclusive license in the field of
ophthalmology to commercialize ACU-XSP-001. ACU-XSP-001 is an siRNA that silences the syk-kinase
gene, a key cell-signaling molecule that has been shown to be central in initiating critical
elements of the inflammatory response in a number of disease models. Syk-kinase is essential for
the activation of signaling pathways that lead to the release of allergic mediators such as
cytokines and histamine that cause an inflammatory response. We believe that ACU-XSP-001 will have
utility in the treatment of inflammatory conditions of the eye, including uveitis and allergic
conjunctivitis, and that it also may have the potential to prevent the inflammation that
contributes to vision loss in conditions such as Wet AMD. The siRNA has been tested extensively by
its inventors in animal models of asthma and pulmonary inflammation via intranasal delivery where
it inhibited inflammation and bronchoconstriction.
ACU-HTR-00X for Anti-Fibrosis
We have a worldwide exclusive license in the field of ophthalmology to commercialize siRNAs
targeting transforming growth factor-
b
receptor Type II (T
b
RII), which is an important mediator of
wound healing and has been shown to play a significant causative role in ocular inflammation and
scarring.
Compounds for Dry AMD and RP
We have a worldwide exclusive license to commercialize compounds from the University of
Florida Research Foundation which have potential to treat Dry AMD by eliminating disease-causing
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accumulations of protein molecules at the back of the eye. Proteins must fold into their
correct three-dimensional conformation to achieve their biological function. Protein aggregation
and misfolding are contributors to many human diseases, such as autosomal dominant retinitis
pigmentosa, Alzheimers disease, and cystic fibrosis. The loss of vision associated with Dry AMD
is thought to be caused by the destructive effects of the misfolded protein and debris aggregates
likes lipofuscin. Autophagy is a cellular process by which cellular protein aggregates and
dysfunctional organelles like mitochondria are degraded. If methods for increasing autophagy were
available, they might enhance the elimination of misfolded proteins, and eliminate the destructive
effects associated with their accumulation. These compounds may mitigate retinal degeneration,
particularly retinal and macular degeneration as demonstrated in experiments demonstrating their
ability of preserving healthy cells at the back of the eye.
Our licensed technology from the University of Florida Research Foundation also includes small
molecules that can recruit bone marrow-derived stem cells to the eye. These drug candidates may be
administered intraocularly or systemically. Our lead compound induces the expression of a potent
cytokine that causes the recruitment of stem cells to various organs including the eye. Clinical
studies have shown that elderly patients have reduced levels of bone marrow-derived stem cells in
their circulation. These cells may be mobilized from the bone marrow to enter the systemic
circulation for recruitment to the retina. Using our compounds, it might be possible to initiate
cellular repair of the cell layers at the back of the eye. This type of cellular therapy may
represent a practical treatment for Dry AMD and RP.
Intellectual Property
We believe that technology innovation is driving breakthroughs in vision healthcare. We have
adopted a comprehensive intellectual property strategy which blends the efforts to innovate in a
focused manner with the efforts of our business development activities to strategically in-source
intellectual property rights.
We develop, protect and defend our own intellectual property rights as dictated by the
developing competitive environment. We value our intellectual property assets and believe we have
benefited from early and insightful efforts at understanding the interface between the ophthalmic
pathophysiology and the molecular basis of potential pharmaceutical intervention.
In total, we own or have exclusively licensed more than six issued patents in the United
States and three foreign patents, as well as more than 100 U.S.,
foreign patent
applications.
We have exclusively licensed technology, patents and patent applications from the University
of Pennsylvania related to siRNA directed to specific mRNA targets for therapeutic use. These
applications include targeting vascular endothelial growth factor (VEGF), hypoxia-inducible factor
1 alpha (HIF-1
α
), and intracellular adhesion molecules (ICAM), among other therapeutic targets.
We have exclusively licensed technology, patents and patent applications from Intradigm
Corporation related to the treatment of ophthalmic diseases characterized by excessive
neovascularization, angiogenesis or leakage and drug delivery technology.
We have exclusively licensed patent applications from Pathogenics, Inc. related to
N-chlorotaurine.
We have also exclusively licensed U.S. and foreign patent applications from the University of
Illinois related to siRNA targeting
TGF-
b
RII for the treatment of ophthalmic diseases.
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We have exclusively licensed technology and patent applications from the University of Florida
Research Foundation related to the use of compounds to treat certain ophthalmic disorders including
Dry AMD and RP.
We also have an option to acquire an exclusive license in the field of ophthalmic diseases in
humans to an additional five U.S. patents, one U.S. patent application, as well as five foreign
patents and ten foreign patent applications related to syk-kinase.
Licenses and Collaborative Relationships
Our strategy is to develop a portfolio of product candidates through a combination of internal
development and external partnerships. Collaborations are key to our strategy and we continue to
build relationships and forge partnerships with companies both inside and outside of ophthalmology.
Over the past 36 months, we have completed strategic deals with the Trustees of the University of
Pennsylvania, the University of Illinois, the University of Florida Research Foundation, Intradigm
Corporation, and Pathogenics, Inc. We have also entered into an option agreement to acquire
exclusive licenses in the field of ophthalmology from ZaBeCor Pharmaceutical Company.
The Trustees of the University of Pennsylvania
: In March 2003, we entered into two world-wide
exclusive license agreements with The Trustees of the University of Pennsylvania (the University
of Pennsylvania) to commercialize siRNA targeting VEGF,
HIF-1
α
, ICAM and other therapeutic
targets. In consideration for the licenses, we are obligated to make certain milestone payments to
the University of Pennsylvania. We also agreed to pay the University of Pennsylvania earned
royalties based on the number of products we sell that use the inventions claimed in the licensed
patents. We agreed to use commercially reasonable efforts to develop, commercialize, market and
sell such products covered by the license agreements.
The term of the agreements is for the later of the expiration or abandonment of the last
patent or ten years after the first commercial sale of the first licensed product. We may
terminate either of the agreements upon sixty days prior written notice. The University of
Pennsylvania may terminate either of the agreements if we are more than ninety days late in a
payment owed to the University of Pennsylvania, we breach the agreements and do not cure within
ninety days after receiving written notice from the University of Pennsylvania, if we become
insolvent or we are involved in bankruptcy proceedings.
Intradigm Corporation
: In June 2005, we entered into a license and collaboration agreement
with Intradigm Corporation (Intradigm) for intellectual property covering the treatment of
ophthalmic diseases characterized by excessive neovascularization, angiogenesis or leakage. Under
the terms of the agreement, we have agreed to develop a topical siRNA pursuant to a mutually
agreeable research and development plan under the direction of a joint development committee (JDC).
Each party agreed to commit personnel, equipment, and resources to perform its obligations under
the research and development plan.
After the topical siRNA compound is selected by the JDC, we are obligated to use commercially
reasonable efforts to obtain regulatory approval for the topical siRNA in the United States and any
foreign country we choose, at our sole discretion and sole expense. We are also obligated to
use commercially reasonable efforts to market, distribute and sell the topical siRNA in the United
States and any selected foreign country. We have agreed to pay to Intradigm certain milestone
payments upon the achievement of specified milestones and royalty payments on all net sales of the
topical siRNA and other licensed products.
The term of the agreement is twenty years, unless earlier terminated in accordance with the
agreement. Either party may terminate upon mutual written consent, upon written notice by a party
if the
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other party dissolves or enters into bankruptcy or insolvency proceedings, or upon ninety days
prior written notice of a material breach of the agreement without cure.
Pathogenics, Inc
.: In April 2006, we entered into a world wide license agreement with
Pathogenics, Inc. (Pathogenics) to commercialize N-chlorotaurine for the treatment of ophthalmic
disease or infection. We were also granted non-exclusive rights to all data resulting from a Phase
I clinical trial with N-chlorotaurine in Austria. We agreed to use commercially reasonable efforts
to develop and commercialize the licensed product, including commercially reasonable efforts to
initiate pre-clinical activities necessary to file an IND with the U.S. Food and Drug
Administration, or FDA, to initiate a Phase I clinical trial for N-chlorotaurine for an ophthalmic
indication. Pathogenics will have a non-exclusive right to such information for the treatment of
non-ophthalmic diseases or infections.
We are obligated to pay to Pathogenics certain milestone payments and royalty payments on net
sales of licensed products. We are also obligated to pay Pathogenics an annual minimum payment if
the total payments made for such year are less than a specified minimum amount. The term of the
agreement is for the shorter of twenty years or the last to expire of the Pathogenics intellectual
property. We may terminate the agreement for any reason upon written notice. The agreement may be
terminated upon mutual written consent of the parties, by either party upon written notice if
either party dissolves or is involved in a bankruptcy or insolvency proceeding or upon ninety days
prior written notice if the other party is in material breach and fails to cure.
The Board of Trustees of the University of Illinois
: In August 2006, we entered into an
exclusive world wide license agreement with The Board of Trustees of the University of Illinois
(the University of Illinois) to commercialize intellectual property related to ophthalmic siRNA
targeting TGF-
b
RII for the treatment of ophthalmic disease. The license agreement obligates
us to pay to the University of Illinois certain milestone payments and royalty payments on all net
sales of licensed products and an annual license fee payment.
ZaBeCor Pharmaceutical Company
: In June 2006, we entered into a material transfer agreement
with ZaBeCor Pharmaceutical Company, LLC (ZaBeCor) under which ZaBeCor provided us with
instructions to make a certain siRNA therapeutic directed to syk-kinase and granted us the right to
evaluate the potential use of the siRNA derived therapeutic for the treatment of ophthalmic
diseases in humans for the period of one year. We were also granted a one-year option to acquire
an exclusive license to certain of ZaBeCors patents related to the siRNA therapeutic for the
therapy of ophthalmic diseases in humans. If we enter into the license agreement, we will be
obligated to pay to ZaBeCor certain milestone payments in cash and common stock and royalty
payments on all net sales of licensed products.
University of Florida Research Foundation.
In April 2006, we entered into three world-wide
exclusive license agreements with the University of Florida Research Foundation. The license
agreements obligate us to pay to University of Florida Research Foundation royalty payments on all
net sales of licensed products. We agreed to use our commercially reasonable activities to
commercialize products. The technology licensed from the University of Florida Research Foundation
includes autophagy inducing compounds which are designed to enhance the elimination of misfolded
proteins, and eliminate the destructive effects associated with their accumulation, compounds that
affect important intracellular pathways which lead to the accumulation of properly folded mutant
proteins and potential drug candidates that are designed to recruit stem cells which may aid in
delaying or reversing the damage at the back of the eye associated with several retinal diseases
including Dry AMD and RP. The term of each of the agreements is for the earlier of the date that
no licensed patent remains an enforceable patent or the payment of earned royalties under the
agreement once begun, ceases for more than two calendar quarters. We may terminate any of the
agreements upon sixty days prior written notice. The University
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of Florida Research Foundation may terminate any of the agreements if we are more than sixty
days late, after written demand for a payment owed to the University of Florida Research
Foundation, if we breach the agreements and do not cure within sixty days after receiving written
notice from the University of Florida Research Foundation or if we become involved in bankruptcy
proceedings.
Concurrent with the license agreement, we entered into a sponsored research agreement with the
University of Florida pursuant to which the University of Florida, under the supervision of Dr.
Shalesh Kaushal, our Chief Scientific Officer, conducts research on our behalf, under the
technologies licensed to us from the University of Florida Research Foundation. The research
agreement obligates us to pay to the University of Florida a total of $1,500,000, payable in
bi-annual payments of $250,000. Pursuant to this research agreement, we were granted the first
option to obtain a royalty-bearing license to any intellectual property developed by the University
of Florida pursuant to this research agreement, on the same terms and conditions as the licenses
outlined above. The term of the agreement is for three years expiring on April 7, 2009 and may be
extended upon mutual agreement of the parties. Either party may terminate this agreement upon
ninety days prior written notice to the other or immediately if the other party breaches the
agreement and does not cure such breach within ninety days after receiving notice of the breach.
Competition
The Wet AMD market is highly competitive within the pharmaceutical industry due to the large
number of products competing for market share and significant levels of commercial resources being
utilized to promote those products. In addition, our ability to compete may be affected because in
some cases insurers and other third-parties may seek to encourage the use of less expensive
products. This may have the effect of making our products less attractive, from a cost perspective,
to buyers. Among the products with which we will directly compete, we expect to differentiate on
the basis of enhanced safety and tolerability. Several pharmaceutical and biotechnology companies
are actively engaged in research and development related to new treatments for Wet AMD. We cannot
predict the basis upon which we will compete with new products marketed by others. Many of our
competitors have substantially greater financial, operational, sales and marketing and research and
development resources than we have.
Government Regulation of our Drug Development Activities
The United States federal government regulates healthcare through various agencies, including
but not limited to the following: (i) the FDA, which administers the Federal Food, Drug, and
Cosmetic Act (FDCA), as well as other relevant laws; (ii) the Center for Medicare & Medicaid
Services (CMS), which administers the Medicare and Medicaid programs; (iii) the Office of Inspector
General (OIG) which enforces various laws aimed at curtailing fraudulent or abusive practices,
including by way of example, the Anti-Kickback Law, the Anti-Physician Referral Law, commonly
referred to as Stark, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws that
authorize the OIG to exclude healthcare providers and others from participating in federal
healthcare programs; and (iv) the Office of Civil Rights, which administers the privacy aspects of
the Health Insurance Portability and Accountability Act of 1996 (HIPAA). All of the aforementioned
are agencies within the Department of Health and Human Services (HHS). Healthcare is also provided
or regulated, as the case may be, by the Department of Defense through its TriCare program, the
Department of Veterans Affairs, especially through the Veterans Health Care Act of 1992, the Public
Health Service within HHS under Public Health Service Act § 340B (42 U.S.C. § 256b), the Department
of Justice through the Federal False Claims Act and various criminal statutes, and state
governments under the Medicaid and other state sponsored or funded programs and their internal laws
regulating all healthcare activities.
The testing, manufacture, distribution, advertising and marketing of drug products are subject
to extensive regulation by federal, state and local governmental authorities in the United States,
including the FDA, and by similar agencies in other countries. Any product that we develop must
receive all
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relevant regulatory approvals or clearances, as the case may be, before it may be marketed in
a particular country.
The regulatory process, which includes overseeing preclinical studies and clinical trials of
each pharmaceutical compound to establish its safety and efficacy and confirmation by the FDA that
good laboratory, clinical and manufacturing practices were maintained during testing and
manufacturing, can take many years, requires the expenditure of substantial resources, and gives
larger companies with greater financial resources a competitive advantage over us. Delays or
terminations of clinical trials that we undertake would likely impair our development of product
candidates. Delays or terminations could result from a number of factors, including stringent
enrollment criteria, slow rate of enrollment, size of patient population, having to compete with
other clinical trials for eligible patients, geographical considerations and others.
The FDA review process can be lengthy and unpredictable, and we may encounter delays or
rejections of our applications when submitted. Generally, in order to gain FDA approval, we must
first conduct preclinical studies in a laboratory and in animal models to obtain preliminary
information on a compound and to identify any safety problems. The results of these studies are
submitted as part of an IND application that the FDA must review before human clinical trials of an
investigational drug can commence.
Clinical trials are normally done in three sequential phases and generally take two to five
years or longer to complete. Phase I consists of testing the drug product in a small number of
humans, normally healthy volunteers, to determine preliminary safety and tolerable dose range.
Phase II usually involves studies in a limited patient population to evaluate the effectiveness of
the drug product in humans having the disease or medical condition for which the product is
indicated, determine dosage tolerance and optimal dosage and identify possible common adverse
effects and safety risks. Phase III consists of additional controlled testing at multiple clinical
sites to establish clinical safety and effectiveness in an expanded patient population of
geographically dispersed test sites to evaluate the overall benefit-risk relationship for
administering the product and to provide an adequate basis for product labeling. Phase IV clinical
trials may be conducted after approval to gain additional experience from the treatment of patients
in the intended therapeutic indication.
After completion of clinical trials of a new drug product, FDA and foreign regulatory
authority marketing approval must be obtained. Assuming that the clinical data support the
products safety and effectiveness for its intended use, a New Drug Application (NDA) is submitted
to the FDA for its review. Generally, it takes one to three years to obtain approval. If
questions arise during the FDA review process, approval may take a significantly longer period of
time. The testing and approval processes require substantial time and effort and we may not
receive approval on a timely basis, if at all, or the approval that we receive may be for a
narrower indication than we had originally sought, potentially undermining the commercial viability
of the product. Even if regulatory approvals are obtained, a marketed product is subject to
continual review, and later discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal sanctions. For
marketing outside the United States, we also will be subject to foreign regulatory requirements
governing human clinical trials and marketing approval for pharmaceutical products. The
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country.
None of our products under development has been approved for marketing in the United States or
elsewhere. We may not be able to obtain regulatory approval for any such products under
development in a timely manner, if at all. Failure to obtain requisite governmental approvals or
failure to obtain
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approvals of the scope requested will delay or preclude us, or our licensees or marketing
partners, from marketing our products, or limit the commercial use of our products, and thereby
would have a material adverse effect on our business, financial condition and results of
operations. See Risk FactorsThe results of previous clinical trials may not be predictive of
future results, and our current and planned clinical trials may not satisfy the requirements of the
FDA or other non-U.S. regulatory authorities.
Manufacturing
We have no manufacturing facilities and we currently do not intend to build manufacturing
facilities of our own in the foreseeable future. We have entered into agreements with various third
parties for the formulation and manufacture of our clinical supplies. These suppliers and their
manufacturing facilities must comply with FDA regulations, current good laboratory practices, or
cGLPs, and current good manufacturing practices, or cGMPs. We plan to outsource the manufacturing
and formulation of our clinical supplies.
Sales & Marketing
We currently do not have sales or marketing personnel. In order to commercialize any products
that are approved for commercial sale, we must either build a sales and marketing infrastructure or
collaborate with third parties with sales and marketing experience. We may build our own sales and
marketing infrastructure to market some of our product candidates targeting retinal specialists
either in certain regions or collaborate with a company established in this industry to market and
sell our products, if approved.
Employees
As of March 31, 2007, we have 17 full-time employees, 7 of who hold advanced degrees. We plan
to add to our headcount in key functional areas that will allow us to further the development of
our product candidates. None of our employees are represented by a collective bargaining
agreement.
Glossary of Terms
ACU-HHY-011
is an siRNA targeting HIF-1
α
, believed to be the most important transcription factor
involved in the cellular response to hypoxia, a key step in the neovascularization process which
occurs in Wet AMD.
ACU-NCT-001
is a proprietary formulation of the N-chloro derivative of the amino acid taurine
(referred to herein as NCT).
ACU-XSP-001
is an siRNA that silences the syk-kinase gene, a key cell-signaling molecule that has
been shown to be central in initiating critical elements of the inflammatory response in a number
of disease models.
AMD
is Age Related Macular Degeneration.
Bevasiranib
is a small interfering RNA (siRNA) therapeutic targeting vascular endothelial growth
factor.
Cand5 Anti-VEGF RNAi Evaluation (CARE study)
is our 129 patient Phase II clinical study in
patients with predominantly and minimally classic Wet AMD.
CNV
is choroidal neovascularization.
Dry AMD
is dry age-related macular degeneration.
dsRNA
is synthetic double stranded RNA.
HIF-1
α
is hypoxia-inducible factor 1 alpha.
ICAM
is intracellular adhesion molecules.
R.A.C.E. Trial Phase II Clinical Trial for DME
is the RNAi Assessment of bevasiranib in
Diabetic Macular Edema, or R.A.C.E..
RP
is retinitis pigmentosa.
RPE
is retinal pigment epithelial.
VEGF
is a vascular endothelial growth factor which we are developing as an intravitreal injection
for the treatment of Wet AMD.
Wet AMD
is wet age-related macular degeneration.
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Item 1A. Risk Factors.
An investment in our company involves a significant level of risk. Investors should carefully
consider the risk factors described below together with the other information included in this
Current Report on Form 8-K. If any of the risks described below occurs, or if other risks not
identified below occur, our business, financial condition, and results of operations could be
materially adversely affected.
We have a history of operating losses and we do not expect to become profitable in the near
future.
We are a clinical-stage biopharmaceutical company with a limited operating history. Our
Froptix and Acuity subsidiaries are not profitable and have incurred losses in each year since
their inception. We do not anticipate that we will generate revenue from the sale of products for
the foreseeable future. We have not yet submitted any products for approval by regulatory
authorities and we do not currently have rights to any product candidates that have been approved
for marketing in our territory. We continue to incur research and development and general and
administrative expenses related to our operations. Our net loss for our Acuity subsidiary for the
years ended December 31, 2006, 2005 and 2004 was $11,092,000, $10,100,000, and $5,382,000,
respectively. Our net loss for our Froptix subsidiary for the period ended December 31, 2006 was
$877,000. As of December 31, 2006, we had an accumulated deficit
of $57,050,000. We expect to
continue to incur losses for the foreseeable future, and we expect these losses to increase as we
continue our research activities and conduct development of, and seek regulatory approvals for, our
product candidates, and prepare for and begin to commercialize any approved products. If our
product candidates fail in clinical trials or do not gain regulatory approval, or if our product
candidates do not achieve market acceptance, we may never become profitable. Even if we achieve
profitability in the future, we may not be able to sustain profitability in subsequent periods.
Our technologies are in an early stage of development and are unproven.
We are engaged in the research and development of pharmaceutical products to employ various
technologies as therapies for ophthalmic diseases. The effectiveness of our technologies are not
well-known in, or accepted generally by, the clinical medical community. There can be no assurance
that we will be able to successfully employ our technologies as therapeutic solutions for any
ophthalmic disease. Our failure to establish the efficacy of our technologies would have a material
adverse effect on our business.
Our drug research and development activities may not result in commercially viable products.
Our product candidates are in various stages of development and are prone to the risks of
failure inherent in drug development. We will need to complete significant additional clinical
trials before we can demonstrate that our product candidates are safe and effective to the
satisfaction of the FDA and other non-U.S. regulatory authorities. Clinical trials are expensive
and uncertain processes that take years to complete. Failure can occur at any stage of the process,
and successful early clinical trials do not ensure that later clinical trials will be successful.
Product candidates in later-stage trials may fail to show desired efficacy and safety traits
despite having progressed through initial clinical trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier trials.
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We
are highly dependent on the success of our lead product candidate, bevasiranib, and we
cannot give any assurance that it will receive regulatory approval or be successfully
commercialized.
Bevasiranib has been studied in a Phase II clinical trial for the treatment of Wet AMD, and we
plan to study bevasiranib in Phase III clinical trials. Our Phase III clinical trials may not be
successful, and bevasiranib may never receive regulatory approval or be successfully
commercialized. Our clinical development program for bevasiranib may not receive regulatory
approval if we fail to demonstrate that it is safe and effective in clinical trials and
consequently fail to obtain necessary approvals from the FDA,
or similar non-U.S. regulatory agencies, or if we have inadequate financial or other resources to
advance bevasiranib through the clinical trial process. Even if bevasiranib receives regulatory
approval, we may not be successful in marketing it for a number of reasons, including the
introduction by our competitors of more clinically-effective or cost-effective alternatives or
failure in our sales and marketing efforts. Any failure to obtain approval of bevasiranib and
successfully commercialize it would have a material and adverse impact on our business.
The results of previous clinical trials may not be predictive of future results, and our
current and planned clinical trials may not satisfy the requirements of the FDA or other non-U.S.
regulatory authorities.
Positive results from pre-clinical studies and early clinical trials should not be relied upon
as evidence that later-stage or large-scale clinical trials will succeed. We will be required to
demonstrate with substantial evidence through well-controlled clinical trials that our product
candidates are safe and effective for use in a diverse population before we can seek regulatory
approvals for their commercial sale. Success in early clinical trials does not mean that future
clinical trials will be successful because product candidates in later-stage clinical trials may
fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other
non-U.S. regulatory authorities despite having progressed through initial clinical trials.
Further, our product candidates may not be approved even if they achieve their primary
endpoints in Phase III clinical trials or registration trials. The FDA or other non-U.S. regulatory
authorities may disagree with our trial design and our interpretation of data from pre-clinical
studies and clinical trials. In addition, any of these regulatory authorities may change
requirements for the approval of a product candidate even after reviewing and providing comment on
a protocol for a pivotal Phase III clinical trial that has the potential to result in FDA approval.
In addition, any of these regulatory authorities may also approve a product candidate for fewer or
more limited indications than we request or may grant approval contingent on the performance of
costly post-marketing clinical trials. In addition, the FDA or other non-U.S. regulatory
authorities may not approve the labeling claims necessary or desirable for the successful
commercialization of our product candidates.
We will require substantial additional funding, which may not be available to us on acceptable
terms, or at all.
We are advancing multiple product candidates through clinical development. We will need to
raise substantial additional capital to continue our clinical development and commercialization
activities.
Our future funding requirements will depend on many factors, including but not limited to:
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our need to expand our research and development activities;
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the rate of progress and cost of our clinical trials;
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the costs associated with establishing a sales force and commercialization capabilities;
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the costs of acquiring, licensing or investing in businesses, products, product
candidates and technologies;
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the costs and timing of seeking and obtaining FDA and other non-U.S. regulatory
approvals;
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our ability to maintain, expand and defend the scope of our intellectual property
portfolio;
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our need and ability to hire additional management and scientific and medical
personnel;
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the effect of competing technological and market developments;
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our need to implement additional internal systems and infrastructure, including
financial and reporting systems; and
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the economic and other terms and timing of our existing licensing arrangements and
any collaboration, licensing or other arrangements into which we may enter in the
future.
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Until we can generate a sufficient amount of product revenue to finance our cash requirements,
which we may never do, we expect to finance future cash needs primarily through public or private
equity offerings, debt financings or strategic collaborations. We do not know whether additional
funding will be available on acceptable terms, or at all. If we are not able to secure additional
funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our
clinical trials or research and development programs.
If our competitors develop and market products that are more effective, safer or less
expensive than our future product candidates, our commercial opportunities will be negatively
impacted.
The life sciences industry is highly competitive, and we face significant competition from
many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and
marketing products designed to address Wet AMD and other ophthalmic diseases. We are currently
developing therapeutics that will compete with other drugs and therapies that currently exist or
are being developed. Products we may develop in the future are also likely to face competition from
other drugs and therapies. Many of our competitors have significantly greater financial,
manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies,
in particular, have extensive experience in clinical testing and in obtaining regulatory approvals
for drugs. These companies also have significantly greater research and marketing capabilities than
we do. Some of the pharmaceutical companies we expect to compete with include Genentech, OSI
Pharmaceuticals, Pfizer, Novartis, Alcon, Allergan and B&L. In addition, many universities and
private and public research institutions may become active in ophthalmic disease research.
We believe that our ability to successfully compete will depend on, among other things:
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the results of our clinical trials;
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our ability to recruit and enroll patients for our clinical trials;
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the efficacy, safety and reliability of our product candidates;
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the speed at which we develop our product candidates;
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our ability to commercialize and market any of our product candidates that may
receive regulatory approval;
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our ability to design and successfully execute appropriate clinical trials;
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the timing and scope of regulatory approvals;
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adequate levels of reimbursement under private and governmental health insurance
plans, including Medicare;
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our ability to protect intellectual property rights related to our products;
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our ability to have our partners manufacture and sell commercial quantities of any
approved products to the market; and
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acceptance of future product candidates by physicians and other health care
providers.
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If our competitors market products that are more effective, safer or less expensive than our
future product candidates, if any, or that reach the market sooner than our future product
candidates, if any, we may not achieve commercial success. In addition, the biopharmaceutical
industry is characterized by rapid technological change. Because our research approach integrates
many technologies, it may be difficult for us to stay abreast of the rapid changes in each
technology. If we fail to stay at the forefront of technological change, we may be unable to
compete effectively. Technological advances or products developed by our competitors may render our
technologies or product candidates obsolete or less competitive.
Our drug development activities could be delayed or stopped.
We do not know whether our other planned clinical trials will be completed on schedule, or at
all, and we cannot guarantee that our planned clinical trials will begin on time or at all. The
commencement of our planned clinical trials could be substantially delayed or prevented by several
factors, including:
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limited number of, and competition for, suitable patients with the particular types
of ophthalmic disease required for enrollment in our clinical trials;
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limited number of, and competition for, suitable sites to conduct our clinical trials;
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delay or failure to obtain FDA approval or agreement to commence a clinical trial;
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delay or failure to obtain sufficient supplies of the product candidate for our
clinical trials;
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requirements to provide the drugs required in our clinical trial protocols at no
cost, which may require significant expenditures that we are unable or unwilling to
make;
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delay or failure to reach agreement on acceptable clinical trial agreement terms or
clinical trial protocols with prospective sites or investigators; and
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delay or failure to obtain institutional review board, or IRB, approval to conduct a
clinical trial at a prospective site.
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The completion of our clinical trials could also be substantially delayed or prevented by
several factors, including:
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slower than expected rates of patient recruitment and enrollment;
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failure of patients to complete the clinical trial;
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unforeseen safety issues;
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lack of efficacy evidenced during clinical trials;
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termination of our clinical trials by one or more clinical trial sites;
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inability or unwillingness of patients or medical investigators to follow our
clinical trial protocols; and
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inability to monitor patients adequately during or after treatment.
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Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory
authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with
respect to that site, or us. Any failure or significant delay in completing clinical trials for our
product candidates could materially harm our financial results and the commercial prospects for our
product candidates.
The regulatory approval process is expensive, time consuming and uncertain and may prevent us
or our collaboration partners from obtaining approvals for the commercialization of some or all of
our product candidates.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution
of drug products are subject to extensive regulation by the FDA and other non-U.S. regulatory
authorities, which regulations differ from country to country. We are not permitted to market our
product candidates in the United States until we receive approval of an NDA from the FDA. We have
not submitted an application for or received marketing approval for any of our product candidates.
Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition,
failure to comply with FDA, non-U.S. regulatory authorities or other applicable U.S. and non-U.S.
regulatory requirements may, either before or after product approval, if any, subject our company
to administrative or judicially imposed sanctions, including:
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restrictions on the products, manufacturers or manufacturing process;
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warning letters;
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civil and criminal penalties;
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injunctions;
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suspension or withdrawal of regulatory approvals;
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product seizures, detentions or import bans;
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voluntary or mandatory product recalls and publicity requirements;
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total or partial suspension of production;
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imposition of restrictions on operations, including costly new manufacturing
requirements; and
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refusal to approve pending NDAs or supplements to approved NDAs.
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Regulatory approval of an NDA or NDA supplement is not guaranteed, and the approval process is
expensive and may take several years. The FDA also has substantial discretion in the drug approval
process. Despite the time and expense exerted, failure can occur at any stage, and we could
encounter problems that cause us to abandon clinical trials or to repeat or perform additional
pre-clinical studies and clinical trials. The number of pre-clinical studies and clinical trials
that will be required for FDA approval varies depending on the drug candidate, the disease or
condition that the drug candidate is designed to address, and the regulations applicable to any
particular drug candidate. The FDA can delay, limit or deny approval of a drug candidate for many
reasons, including:
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a drug candidate may not be deemed safe or effective;
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FDA officials may not find the data from pre-clinical studies and clinical trials
sufficient;
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the FDA might not approve our third-party manufacturers processes or facilities; or
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the FDA may change its approval policies or adopt new regulations.
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Failure to recruit and enroll patients for clinical trials may cause the development of our
product candidates to be delayed.
We may encounter delays or rejections if we are unable to recruit and enroll enough patients
to complete clinical trials. Patient enrollment depends on many factors, including the size of the
patient population, the nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the trial. We have experienced, and expect to experience in the future,
delays in patient enrollment in our clinical trials. Any such delays in planned patient enrollment
in the future may result in increased costs, which could harm our ability to develop products.
Even if we obtain regulatory approvals for our product candidates, the terms of approvals and
ongoing regulation of our products may limit how we manufacture and market our product candidates,
which could materially impair our ability to generate anticipated revenues.
Once regulatory approval has been granted, the approved product and its manufacturer are
subject to continual review. Any approved product may only be promoted for its indicated uses. In
addition, if the FDA and/or other non-U.S. regulatory authorities approve any of our product
candidates, the labeling, packaging, adverse event reporting, storage, advertising and promotion
for the product will be subject to extensive regulatory requirements. We and the manufacturers of
our products are also required to comply with cGMP regulations, which include requirements relating
to quality control and quality assurance as well as the corresponding maintenance of records and
documentation. Further, regulatory agencies must approve these manufacturing facilities before they
can be used to manufacture our products, and these facilities are subject to ongoing regulatory
inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S.
regulatory authorities, or if previously unknown problems with our products, manufacturers or
manufacturing processes are discovered, we could be subject to administrative or judicially imposed
sanctions, including:
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restrictions on the products, manufacturers or manufacturing process;
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warning letters;
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civil or criminal penalties or fines;
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injunctions;
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product seizures, detentions or import bans;
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voluntary or mandatory product recalls and publicity requirements;
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suspension or withdrawal of regulatory approvals;
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total or partial suspension of production;
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imposition of restrictions on operations, including costly new manufacturing
requirements; and
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refusal to approve pending NDAs or supplements to approved NDAs.
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In addition, the FDA and other non-U.S. regulatory authorities may change their policies and
additional regulations may be enacted that could prevent or delay regulatory approval of our
product candidates. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or
abroad. If we are not able to
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maintain regulatory compliance, we would likely not be permitted to market our future product
candidates and we may not achieve or sustain profitability.
Even if we receive regulatory approval to market our product candidates, the market may not be
receptive to our products.
Even if our product candidates obtain regulatory approval, resulting products may not gain
market acceptance among physicians, patients, health care payors and/or the medical community. We
believe that the degree of market acceptance will depend on a number of factors, including:
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timing of market introduction of competitive products;
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safety and efficacy of our product;
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prevalence and severity of any side effects;
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potential advantages or disadvantages over alternative treatments;
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strength of marketing and distribution support;
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price of our future product candidates, both in absolute terms and relative to
alternative treatments; and
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availability of coverage and reimbursement from government and other third-party
payors.
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If our future product candidates fail to achieve market acceptance, we may not be able to
generate significant revenue or achieve or sustain profitability.
The coverage and reimbursement status of newly approved drugs is uncertain, and failure to
obtain adequate coverage and adequate reimbursement could limit our ability to market any future
product candidates we may develop and decrease our ability to generate revenue from any of our
existing and future product candidates that may be approved.
There is significant uncertainty related to the third-party coverage and reimbursement of
newly approved drugs. The commercial success of our existing and future product candidates in both
domestic and international markets will depend in part on the availability of coverage and adequate
reimbursement from third-party payors, including government payors, such as the Medicare and
Medicaid programs, managed care organizations, and other third-party payors. Government and other
third-party payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new drugs and, as a result, they may not cover or
provide adequate payment for our existing and future product candidates. These payors may conclude
that our future product candidates are less safe, less effective or less cost-effective than
existing or later introduced products, and third-party payors may not approve our future product
candidates for coverage and reimbursement. The failure to obtain coverage and adequate
reimbursement for our existing and future product candidates or health care cost containment
initiatives that limit or restrict reimbursement for our existing and future product candidates may
reduce any future product revenue.
If we fail to attract and retain key management and scientific personnel, we may be unable to
successfully develop or commercialize our product candidates.
We will need to expand and effectively manage our managerial, operational, financial,
development and other resources in order to successfully pursue our research, development and
commercialization efforts for our existing and future product candidates. Our success depends on
our
-24-
continued ability to attract, retain and motivate highly qualified management and pre-clinical
and clinical personnel. The loss of the services of any of our senior management could delay or
prevent the commercialization of our product candidates. We do not maintain key man insurance
policies on the lives of these individuals or the lives of any of our other employees. We employ
these individuals on an at-will basis and their employment can be terminated by us or them at any
time, for any reason and with or without notice. We will need to hire additional personnel as we
continue to expand our research and development activities and build a sales and marketing
function.
We have scientific and clinical advisors who assist us in formulating our research,
development and clinical strategies. These advisors are not our employees and may have commitments
to, or consulting or advisory contracts with, other entities that may limit their availability to
us. In addition, our advisors may have arrangements with other companies to assist those companies
in developing products or technologies that may compete with ours.
We may not be able to attract or retain qualified management and scientific personnel in the
future due to the intense competition for qualified personnel among biotechnology, pharmaceutical
and other businesses. If we are not able to attract and retain the necessary personnel to
accomplish our business objectives, we may experience constraints that will impede significantly
the achievement of our research and development objectives, our ability to raise additional capital
and our ability to implement our business strategy. In particular, if we lose any members of our
senior management team, we may not be able to find suitable replacements in a timely fashion or at
all and our business may be harmed as a result.
As we evolve from a company primarily involved in development to a company also involved in
commercialization, we may encounter difficulties in managing our growth and expanding our
operations successfully.
As we advance our product candidates through clinical trials, we will need to expand our
development, regulatory, manufacturing, marketing and sales capabilities or contract with third
parties to provide these capabilities for us. As our operations expand, we expect that we will need
to manage additional relationships with such third parties, as well as additional collaborators and
suppliers. Maintaining these relationships and managing our future growth will impose significant
added responsibilities on members of our management. We must be able to: manage our development
efforts effectively; manage our clinical trials effectively; hire, train and integrate additional
management, development, administrative and sales and marketing personnel; improve our managerial,
development, operational and finance systems; and expand our facilities, all of which may impose a
strain on our administrative and operational infrastructure.
Furthermore, we may acquire additional businesses, products or product candidates that
complement or augment our existing business. Integrating any newly acquired business or product
could be expensive and time-consuming. We may not be able to integrate any acquired business or
product successfully or operate any acquired business profitably. Our future financial performance
will depend, in part, on our ability to manage any future growth effectively and our ability to
integrate any acquired businesses. We may not be able to accomplish these tasks, and our failure to
accomplish any of them could prevent us from successfully growing our company.
If we fail to acquire and develop other products or product candidates at all or on
commercially reasonable terms, we may be unable to diversify or grow our business.
We intend to continue to rely on in-licensing as the source of our products and product
candidates for development and commercialization. The success of this strategy depends upon our
ability to identify,
-25-
select and acquire pharmaceutical product candidates. Proposing, negotiating and implementing
an economically viable product acquisition or license is a lengthy and complex process. We compete
for partnering arrangements and license agreements with pharmaceutical and biotechnology companies
and academic research institutions. Our competitors may have stronger relationships with third
parties with whom we are interested in collaborating and/or may have more established histories of
developing and commercializing products. As a result, our competitors may have a competitive
advantage in entering into partnering arrangements with such third parties. In addition, even if we
find promising product candidates, and generate interest in a partnering or strategic arrangement
to acquire such product candidates, we may not be able to acquire rights to additional product
candidates or approved products on commercially reasonable terms that we find acceptable, or at
all.
We expect that any product candidate to which we acquire rights will require additional
development efforts prior to commercial sale, including extensive clinical testing and approval by
the FDA and other non-U.S. regulatory authorities. All product candidates are subject to the risks
of failure inherent in pharmaceutical product development, including the possibility that the
product candidate will not be shown to be sufficiently safe and effective for approval by
regulatory authorities. Even if the product candidates are approved, we cannot be sure that they
would be capable of economically feasible production or commercial success.
We rely on third parties to manufacture and supply our product candidates.
We do not own or operate manufacturing facilities for clinical or commercial production of our
product candidates. We have no experience in drug formulation or manufacturing, and we lack the
resources and the capability to manufacture any of our product candidates on a clinical or
commercial scale. We believe we currently have, or can access, sufficient supplies of bevasiranib
to conduct and complete our planned Phase III clinical trials. If our manufacturing partners are
unable to produce bevasiranib in the amounts that we require, we may not be able to establish a
contract and obtain a sufficient alternative supply from another supplier on a timely basis and in
the quantities we require. We expect to continue to depend on third-party contract manufacturers
for the foreseeable future.
Our product candidates require precise, high quality manufacturing. Any of our contract
manufacturers will be subject to ongoing periodic unannounced inspection by the FDA and other
non-U.S. regulatory authorities to ensure strict compliance with current Good Manufacturing
Practice, or cGMP, and other applicable government regulations and corresponding standards. If our
contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with
cGMP regulations, we may experience manufacturing errors resulting in patient injury or death,
product recalls or withdrawals, delays or interruptions of production or failures in product
testing or delivery, delay or prevention of filing or approval of marketing applications for our
products, cost overruns or other problems that could seriously harm our business.
Any performance failure on the part of our contract manufacturers could delay clinical
development or regulatory approval of our product candidates or commercialization of our future
product candidates, depriving us of potential product revenue and resulting in additional losses.
In addition, our dependence on a third party for manufacturing may adversely affect our future
profit margins. Our ability to replace an existing manufacturer may be difficult because the number
of potential manufacturers is limited and the FDA must approve any replacement manufacturer before
it can begin manufacturing our product candidates. Such approval would require new testing and
compliance inspections. It may be difficult or impossible for us to identify and engage a
replacement manufacturer on acceptable terms in a timely manner, or at all.
-26-
We currently have limited marketing staff and no sales or distribution organization. If we are
unable to develop our sales and marketing and distribution capability on our own or through
collaborations with marketing partners, we will not be successful in commercializing our product
candidates.
We currently have limited marketing and no sales or distribution capabilities. If our product
candidates are approved, we intend to establish our sales and marketing organization with technical
expertise and supporting distribution capabilities to commercialize our product candidates, which
will be expensive and time consuming. Any failure or delay in the development of our internal
sales, marketing and distribution capabilities would adversely impact the commercialization of
these products. With respect to our existing and future product candidates, we may choose to
collaborate with third parties that have direct sales forces and established distribution systems,
either to augment our own sales force and distribution systems or in lieu of our own sales force
and distribution systems. To the extent that we enter into co-promotion or other licensing
arrangements, our product revenue is likely to be lower than if we directly marketed or sold our
products. In addition, any revenue we receive will depend in whole or in part upon the efforts of
such third parties, which may not be successful and are generally not within our control. If we are
unable to enter into such arrangements on acceptable terms or at all, we may not be able to
successfully commercialize our existing and future product candidates. If we are not successful in
commercializing our existing and future product candidates, either on our own or through
collaborations with one or more third parties, our future product revenue will suffer and we may
incur significant additional losses.
Independent clinical investigators and contract research organizations that we engage to
conduct our clinical trials may not be diligent, careful or timely.
We will depend on independent clinical investigators to conduct our clinical trials. Contract
research organizations may also assist us in the collection and analysis of data. These
investigators and contract research organizations will not be our employees and we will not be able
to control, other than by contract, the amount of resources, including time that they devote to
products that we develop. If independent investigators fail to devote sufficient resources to the
development of product candidates, or if their performance is substandard, it will delay the
approval and commercialization of any products that we develop. Further, the FDA requires that we
comply with standards, commonly referred to as good clinical practice, for conducting, recording
and reporting clinical trials to assure that data and reported results are credible and accurate
and that the rights, integrity and confidentiality of trial subjects are protected. If our
independent clinical investigators and contract research organizations fail to comply with good
clinical practice, the results of our clinical trials could be called into question and the
clinical development of our product candidates could be delayed. Failure of clinical investigators
or contract research organizations to meet their obligations to us or comply with good clinical
practice procedures could adversely affect the clinical development of our product candidates and
harm our business.
The success of our business may be dependent on the actions of our collaborative partners.
An element of our strategy may be to enter into collaborative arrangements with established
multinational pharmaceutical companies which will finance or otherwise assist in the development,
manufacture and marketing of products incorporating our technology. We anticipate deriving some
revenues from research and development fees, license fees, milestone payments and royalties from
collaborative partners. Our prospects, therefore, may depend to some extent upon our ability to
attract and retain collaborative partners and to develop technologies and products that meet the
requirements of prospective collaborative partners. In addition, our collaborative partners may
have the right to abandon research projects and terminate applicable agreements, including funding
obligations, prior to or upon the expiration of the agreed-upon research terms. There can be no
assurance that we will be successful in
-27-
establishing collaborative arrangements on acceptable terms or at all, that collaborative
partners will not terminate funding before completion of projects, that our collaborative
arrangements will result in successful product commercialization or that we will derive any
revenues from such arrangements. To the extent that we are not able to develop and maintain
collaborative arrangements, we would need substantial additional capital to undertake research,
development and commercialization activities on our own.
If we are unable to obtain and enforce patent protection for our products, our business could
be materially harmed.
Our success depends, in part, on our ability to protect proprietary methods and technologies
that we develop under the patent and other intellectual property laws of the United States and
other countries, so that we can prevent others from unlawfully using our inventions and proprietary
information. However, we may not hold proprietary rights to some patents required for us to
commercialize our proposed products. Because certain U.S. patent applications are confidential
until patents issue, such as applications filed prior to November 29, 2000, or applications filed
after such date which will not be filed in foreign countries, third parties may have filed patent
applications for technology covered by our pending patent applications without our being aware of
those applications, and our patent applications may not have priority over those applications. For
this and other reasons, we may be unable to secure desired patent rights, thereby losing desired
exclusivity. If licenses are not available to us on acceptable terms, we will not be able to
market the affected products or conduct the desired activities, unless we challenge the validity,
enforceability or infringement of the third party patent or otherwise circumvent the third party
patent.
Our strategy depends on our ability to rapidly identify and seek patent protection for our
discoveries. In addition, we will rely on third-party collaborators to file patent applications
relating to proprietary technology that we develop jointly during certain collaborations. The
process of obtaining patent protection is expensive and time-consuming. If our present or future
collaborators fail to file and prosecute all necessary and desirable patent applications at a
reasonable cost and in a timely manner, our business will be adversely affected. Despite our
efforts and the efforts of our collaborators to protect our proprietary rights, unauthorized
parties may be able to obtain and use information that we regard as proprietary.
The issuance of a patent does not guarantee that it is valid or enforceable. Any patents we
have obtained, or obtain in the future, may be challenged, invalidated, unenforceable or
circumvented. Moreover, the United States Patent and Trademark Office ( the
USPTO) may commence interference proceedings involving our patents or
patent applications. Any challenge to, finding of unenforceability or invalidation or circumvention
of, our patents or patent applications would be costly, would require significant time and
attention of our management and could have a material adverse effect on our business. In
addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned
by biotechnology and pharmaceutical companies.
Our pending patent applications may not result in issued patents. The patent position of
pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves
complex legal and factual considerations. The standards that the USPTO and its foreign
counterparts use to grant patents are not always applied predictably or uniformly and can change.
There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted
or allowable in pharmaceutical or biotechnology patents. Accordingly, we do not know the degree of
future protection for our proprietary rights or the breadth of claims that will be allowed in any
patents issued to us or to others. The legal systems of certain countries do not favor the
aggressive enforcement of patents, and the laws of foreign countries may not protect our rights to
the same extent as the laws of the United States. Therefore,
-28-
the enforceability or scope of our owned or licensed patents in the United States or in
foreign countries cannot be predicted with certainty, and, as a result, any patents that we own or
license may not provide sufficient protection against competitors. We may not be able to obtain or
maintain patent protection for our pending patent applications, those we may file in the future, or
those we may license from third parties, including the University of Pennsylvania, the University
of Illinois, the University of Florida Research Foundation, Intradigm, and Pathogenics.
While we believe that our patent rights are enforceable, we cannot assure you that any patents
that have issued, that may issue or that may be licensed to us will be enforceable or valid or will
not expire prior to the commercialization of our product candidates, thus allowing others to more
effectively compete with us. Therefore, any patents that we own or license may not adequately
protect our product candidates or our future products.
If we are unable to protect the confidentiality of our proprietary information and know-how,
the value of our technology and products could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including
protection of trade secrets, know-how and confidential and proprietary information. To maintain the
confidentiality of trade secrets and proprietary information, we will seek to enter into
confidentiality agreements with our employees, consultants and collaborators upon the commencement
of their relationships with us. These agreements generally require that all confidential
information developed by the individual or made known to the individual by us during the course of
the individuals relationship with us be kept confidential and not disclosed to third parties. Our
agreements with employees also generally provide that any inventions conceived by the individual in
the course of rendering services to us shall be our exclusive property. However, we may not obtain
these agreements in all circumstances, and individuals with whom we have these agreements may not
comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide meaningful protection,
particularly for our trade secrets or other confidential information. To the extent that our
employees, consultants or contractors use technology or know-how owned by third parties in their
work for us, disputes may arise between us and those third parties as to the rights in related
inventions.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our
confidential information. The disclosure of our trade secrets would impair our competitive position
and may materially harm our business, financial condition and results of operations.
We will rely heavily on licenses from third parties.
Many of the patents and patent applications in our patent portfolio are not owned by us, but
are licensed from third parties. For example, we rely on technology licensed from the University
of Pennsylvania, the University of Illinois, the University of Florida Research Foundation,
Intradigm and Pathogenics. Such license agreements give us rights for the
commercial exploitation of the patents resulting from the patent applications, subject to certain
provisions of the license agreements. Failure to comply with these provisions could result in the
loss of our rights under these license agreements. Our inability to rely on these patents and
patent applications which are the basis of our technology would have a material adverse effect on
our business.
-29-
We license patent rights to certain of our technology from third party owners. If such owners
do not properly maintain or enforce the patents underlying such licenses, our competitive position
and business prospects will be harmed.
We have obtained licenses from the University of Pennsylvania, the University of Illinois, the
University of Florida Research Foundation, Intradigm and Pathogenics. that are
necessary or useful for our business. In addition, we intend to enter into additional licenses of
third party intellectual property in the future.
Our success will depend in part on the ability of our licensors to obtain, maintain and
enforce patent protection for our licensed intellectual property and, in particular, those patents
to which we have secured exclusive rights in our field. Our licensors may not successfully
prosecute the patent applications which are licensed to us. Even if patents issue in respect of
these patent applications, our licensors may fail to maintain these patents, may determine not to
pursue litigation against other companies that are infringing these patents, or may pursue such
litigation less aggressively than we would. Without protection for the intellectual property we
have licensed, other companies might be able to offer substantially identical products for sale,
which could adversely affect our competitive business position and harm our business prospects.
Some jurisdictions may require us to grant licenses to third parties. Such compulsory licenses
could be extended to include some of our product candidates, which may limit our potential revenue
opportunities.
Many countries, including certain countries in Europe, have compulsory licensing laws under
which a patent owner may be compelled to grant licenses to third parties. In addition, most
countries limit the enforceability of patents against government agencies or government
contractors. In these countries, the patent owner may be limited to monetary relief and may be
unable to enjoin infringement, which could materially diminish the value of the patent. Compulsory
licensing of life-saving products is also becoming increasingly popular in developing countries,
either through direct legislation or international initiatives. Such compulsory licenses could be
extended to include some of our product candidates, which may limit our potential revenue
opportunities.
Our commercial success depends significantly on our ability to operate without infringing the
patents and other proprietary rights of third parties.
Other entities may have or obtain patents or proprietary rights that could limit our ability
to manufacture, use, sell, offer for sale or import products or impair our competitive position. In
addition, to the extent that a third party develops new technology that covers our products, we may
be required to obtain licenses to that technology, which licenses may not be available or may not
be available on commercially reasonable terms, if at all. If licenses are not available to us on
acceptable terms, we will not be able to market the affected products or conduct the desired
activities, unless we challenge the validity, enforceability or infringement of the third party
patent or circumvent the third party patent, which would be costly and would require significant
time and attention of our management. Third parties may have or obtain valid and enforceable
patents or proprietary rights that could block us from developing products using our technology.
Our failure to obtain a license to any technology that we require may materially harm our business,
financial condition and results of operations.
Additionally, RNA interference is a relatively new scientific field that has generated many
different patent applications from organizations and individuals seeking to obtain important
patents in the field. These applications claim many different methods, compositions and processes
relating to the discovery, development and commercialization of RNAi therapeutics. Because the
field is so new, very
-30-
few of these patent applications have been fully processed by government patent offices around
the world, and there is a great deal of uncertainty about which patents will issue, when, to whom,
and with what claims. It is likely that there will be significant litigation and other
proceedings, such as interference and opposition proceedings in various patent offices, relating to
patent rights in the RNAi field. Others may attempt to invalidate our intellectual property rights.
Even if our rights are not directly challenged, disputes among third parties could impact our
intellectual property rights.
If we become involved in patent litigation or other proceedings related to a determination of
rights, we could incur substantial costs and expenses, substantial liability for damages or be
required to stop our product development and commercialization efforts.
Third parties may sue us for infringing their patent rights. Likewise, we may need to
resort to litigation to enforce a patent issued or licensed to us or to determine the scope and
validity of proprietary rights of others. In addition, a third party may claim that we have
improperly obtained or used its confidential or proprietary information. Furthermore, in
connection with our third-party license agreements, we generally have agreed to indemnify the
licensor for costs incurred in connection with litigation relating to intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual property rights,
even if resolved in our favor, could be substantial, and the litigation would divert our
managements efforts. Some of our competitors may be able to sustain the costs of complex patent
litigation more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of any litigation could limit our
ability to continue our operations.
If any parties successfully claim that our creation or use of proprietary technologies
infringes upon their intellectual property rights, we might be forced to pay damages, potentially
including treble damages, if we are found to have willfully infringed on such parties patent
rights. In addition to any damages we might have to pay, a court could require us to stop the
infringing activity or obtain a license. Any license required under any patent may not be made
available on commercially acceptable terms, if at all. In addition, such licenses are likely to be
non-exclusive and, therefore, our competitors may have access to the same technology licensed to
us. If we fail to obtain a required license and are unable to design around a patent, we may be
unable to effectively market some of our technology and products, which could limit our ability to
generate revenues or achieve profitability and possibly prevent us from generating revenue
sufficient to sustain our operations.
The Medicare prescription drug coverage legislation and future legislative or regulatory
reform of the health care system may affect our ability to sell our products profitably.
In the United States, there have been a number of legislative and regulatory proposals, at
both the federal and state government levels, to change the healthcare system in ways that could
affect our ability to sell our products profitably, if approved. For example, the Medicare
Prescription Drug and Modernization Act of 2003 (referred to as the MMA), went into effect on
January 1, 2006 and has changed the types of drugs covered by Medicare, and the methodology used to
determine the price for such drugs. Our business could be harmed by the MMA, by the possible
effect of this legislation on amounts that private payors will pay and by other healthcare reforms
that may be enacted or adopted in the future.
We are unable to predict what additional legislation or regulation, if any, relating to the
health care industry or third-party coverage and reimbursement may be enacted in the future or what
effect such legislation or regulation would have on our business. Any cost containment measures or
other health care system reforms that are adopted could have a material adverse effect on our
ability to commercialize our existing and future product candidates successfully.
-31-
Failure to obtain regulatory approval outside the United States will prevent us from marketing
our product candidates abroad.
We intend to market certain of our existing and future product candidates in non-U.S. markets.
In order to market our existing and future product candidates in the European Union and many other
non-U.S. jurisdictions, we must obtain separate regulatory approvals. We have had limited
interactions with non-U.S. regulatory authorities, and the approval procedures vary among countries
and can involve additional testing, and the time required to obtain approval may differ from that
required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory
authorities in other countries, and approval by one or more non-U.S. regulatory authorities does
not ensure approval by regulatory authorities in other countries or by the FDA. The non-U.S.
regulatory approval process may include all of the risks associated with obtaining FDA approval. We
may not obtain non-U.S. regulatory approvals on a timely basis, if at all. We may not be able to
file for non-U.S. regulatory approvals and may not receive necessary approvals to commercialize our
existing and future product candidates in any market.
Non-U.S. governments often impose strict price controls, which may adversely affect our future
profitability.
We intend to seek approval to market certain of our existing and future product candidates in
both the United States and in non-U.S. jurisdictions. If we obtain approval in one or more non-U.S.
jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our
product. In some countries, particularly in the European Union, prescription drug pricing is
subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of marketing approval for a drug
candidate. To obtain reimbursement or pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost-effectiveness of our existing and future product
candidates to other available therapies. If reimbursement of our future product candidates is
unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be
unable to achieve or sustain profitability.
Our business may become subject to economic, political, regulatory and other risks associated
with international operations.
Our business is subject to risks associated with conducting business internationally, in part
due to a number of our suppliers being located outside the United States. Accordingly, our future
results could be harmed by a variety of factors, including:
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difficulties in compliance with non-U.S. laws and regulations;
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|
changes in non-U.S. regulations and customs;
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|
changes in non-U.S. currency exchange rates and currency controls;
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|
changes in a specific countrys or regions political or economic environment;
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|
|
trade protection measures, import or export licensing requirements or other
restrictive actions by U.S. or non-U.S. governments;
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negative consequences from changes in tax laws; and
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|
difficulties associated with staffing and managing foreign operations, including
differing labor relations.
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-32-
The market price of our common stock may fluctuate significantly.
The market price of our common stock may fluctuate significantly in response to numerous
factors, some of which are beyond our control, such as:
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the announcement of new products or product enhancements by us or our competitors;
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|
developments concerning intellectual property rights and regulatory approvals;
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variations in our and our competitors results of operations;
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|
changes in earnings estimates or recommendations by securities analysts, if our
common stock is covered by analysts;
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|
developments in the biotechnology industry;
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|
the results of product liability or intellectual property lawsuits;
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|
future issuances of common stock or other securities;
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the addition or departure of key personnel;
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announcements by us or our competitors of acquisitions, investments or strategic
alliances; and
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general market conditions and other factors, including factors unrelated to our
operating performance.
|
Further, the stock market in general, and the market for biotechnology companies in
particular, has recently experienced extreme price and volume fluctuations. Continued market
fluctuations could result in extreme volatility in the price of our common stock, which could cause
a decline in the value of our common stock. Price volatility of our common stock might be worse if
the trading volume of our common stock is low.
Some or all of the restricted shares of our common stock issued to former stockholders of
Froptix and Acuity in connection with the Mergers or held by other of our stockholders may be
offered from time to time in the open market pursuant to an effective registration statement or
Rule 144, and these sales may have a depressive effect on the market for our common stock.
Trading of our common stock is limited and trading restrictions imposed on us by applicable
regulations and by lockup agreements we have entered into with our principal shareholders may
further reduce our trading, making it difficult for our stockholders to sell their shares.
Trading of our common stock is currently conducted on the National Association of Securities
Dealers, Inc.s, OTC Bulletin Board, or OTC BB. The liquidity of our common stock is limited,
not only in terms of the number of shares that can be bought and sold at a given price, but also as
it may be adversely affected by delays in the timing of transactions and reduction in security
analysts and the medias coverage of us, if at all.
Approximately 68% of the outstanding shares of our common stock (including outstanding shares
of our preferred stock on an as converted basis) are subject to lockup agreements which limit sales
for a two-year period. These factors may result in lower prices for our common stock than might
otherwise be obtained and could also result in a larger spread between the bid and ask prices for
our common stock. In addition, without a large float, our common stock is less liquid than the
stock of companies with broader public ownership and, as a result, the trading prices of our common
stock may be more volatile. In the absence of an active public trading market, an investor may be
unable to liquidate his investment in our
-33-
common stock. Trading of a relatively small volume of our common stock may have a greater
impact on the trading price of our stock than would be the case if our public float were larger.
We cannot predict the prices at which our common stock will trade in the future.
Because our common stock may be a penny stock, it may be more difficult for investors to
sell shares of our common stock, and the market price of our common stock may be adversely
affected.
Our common stock may be a penny stock if, among other things, the stock price is below $5.00
per share, it is not listed on a national securities exchange or approved for quotation on the
Nasdaq Stock Market or any other national stock exchange or it has not met certain net tangible
asset or average revenue requirements. Broker-dealers who sell penny stocks must provide
purchasers of these stocks with a standardized risk-disclosure document prepared by the Securities
and Exchange Commission. This document provides information about penny stocks and the nature and
level of risks involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a suitable
investment for the purchaser, and obtain the purchasers written agreement to the purchase.
Broker-dealers must also provide customers that hold penny stock in their accounts with such
broker-dealer a monthly statement containing price and market information relating to the penny
stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor
may be able to cancel its purchase and get its money back.
If applicable, the penny stock rules may make it difficult for investors to sell their shares
of our common stock. Because of the rules and restrictions applicable to a penny stock, there is
less trading in penny stocks and the market price of our common stock may be adversely affected.
Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors
may not always be able to resell their shares of our common stock publicly at times and prices that
they feel are appropriate.
Directors, executive officers, principal stockholders and affiliated entities own a
significant percentage of our capital stock, and they may make decisions that you do not consider
to be in the best interests of our stockholders.
As of the closing of the Mergers, our directors, executive officers, principal stockholders
and affiliated entities beneficially owned, in the aggregate, approximately 65% of our outstanding
voting securities. As a result, if some or all of them acted together, they would have the ability
to exert substantial influence over the election of our board of directors and the outcome of
issues requiring approval by our stockholders. This concentration of ownership may also have the
effect of delaying or preventing a change in control of our company that may be favored by other
stockholders. This could prevent transactions in which stockholders might otherwise recover a
premium for their shares over current market prices.
Compliance with changing regulations concerning corporate governance and public disclosure may
result in additional expenses.
There have been changing laws, regulations and standards relating to corporate governance and
public disclosure, including the Sarbanes-Oxley Act, new regulations promulgated by the Securities
and Exchange Commission and rules promulgated by the American Stock Exchange, the other national
securities exchanges and the NASDAQ. These new or changed laws, regulations and standards are
subject to varying interpretations in many cases due to their lack of specificity, and, as a
result, their application in practice may evolve over time as new guidance is provided by
regulatory and governing bodies, which could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
As a result, our efforts to
comply with evolving laws, regulations and standards are likely to continue to result in
increased general and administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. Our board members, Chief Executive Officer
and Chief Accounting Officer could face an increased risk of personal liability in connection with
the performance of their duties. As a result, we may have difficulty attracting and retaining
qualified board members and executive officers, which could harm our business. If our efforts to
comply with new or changed laws, regulations and standards differ from the activities intended by
regulatory or governing bodies, we could be subject to liability under applicable laws or our
reputation may be harmed.
-34-
Item 2. Financial Information.
The following selected financial data of eXegenics should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations for
eXegenics and the Companys financial statements and the notes to those statements and other
financial information appearing elsewhere in this Report and in the
Company's Form 10-K for the year ending December 31, 2006.
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Year Ended December 31,
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2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Statement of Operations Data
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,000
|
|
|
$
|
562,000
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
154,000
|
|
|
|
3,948,000
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|
General and administrative expenses
|
|
|
1,117,000
|
|
|
|
1,438,000
|
|
|
|
2,051,000
|
|
|
|
2,938,000
|
|
|
|
4,770,000
|
|
Expenses related to strategic redirection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
653,000
|
|
|
|
864,000
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|
Merger, tender offers and consent
solicitation expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,233,000
|
|
|
|
2,010,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,117,000
|
)
|
|
|
(1,438,000
|
)
|
|
|
(2,051,000
|
)
|
|
|
(5,965,000
|
)
|
|
|
(11,030,000
|
)
|
Gain on disposition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Gain on sale of investments (net)
|
|
|
|
|
|
|
1,064,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
469,000
|
|
|
|
190,000
|
|
|
|
127,000
|
|
|
|
174,000
|
|
|
|
686,000
|
|
Interest expense
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax benefit
|
|
|
(648,000
|
)
|
|
|
(186,000
|
)
|
|
|
(1,926,000
|
)
|
|
|
(5,793,000
|
)
|
|
|
(10,358,000
|
)
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(648,000
|
)
|
|
|
(186,000
|
)
|
|
|
(1,926,000
|
)
|
|
|
(5,793,000
|
)
|
|
|
(10,358,000
|
)
|
Preferred stock
dividend
|
|
|
(238,000
|
)
|
|
|
(234,000
|
)
|
|
|
(223,000
|
)
|
|
|
(207,000
|
)
|
|
|
(169,000
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(886,000
|
)
|
|
$
|
(420,000
|
)
|
|
$
|
(2,149,000
|
)
|
|
$
|
(6,000,000
|
)
|
|
$
|
(10,527,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,752,000
|
|
|
$
|
9,000,000
|
|
|
$
|
10,071,000
|
|
|
$
|
11,342,000
|
|
|
$
|
17,515,000
|
|
Working capital
|
|
|
8,078,000
|
|
|
|
8,723,000
|
|
|
|
9,829,000
|
|
|
|
10,296,000
|
|
|
|
15,924,000
|
|
Stockholders equity
|
|
$
|
8,078,000
|
|
|
$
|
8,723,000
|
|
|
$
|
9,832,000
|
|
|
$
|
10,304,000
|
|
|
$
|
16,074,000
|
|
-35-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EXEGENICS
The following discussion should be read in conjunction with, and is qualified in its entirety
by, the financial statements and the notes thereto included with this Current report and in the Companys Report on Form 10-K for the
year ended December 31, 2006. This Managements
Discussion and Analysis of Financial Condition and Results of Operations of eXegenics section of
this Current Report contains certain forward-looking statements as that term is defined in the Private
Securities Litigation Reform of 1995. Such statements are based on managements current
expectations and are subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking statements. When used
herein, the words anticipate, believe, estimate, expect and similar expressions as they
relate to our management or us are intended to identify such forward-looking statements. Our actual
results, performance or achievements could differ materially from those expressed in, or implied
by, these forward-looking statements. Historical operating results are not necessarily indicative
of the trends in operating results for any future period.
The discussion and analysis of our financial condition and results of operations are based
upon our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to investments, intangible assets, income taxes,
contingencies and litigation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Overview
Immediately prior to the consummation of the Mergers, eXegenics had no business operations.
eXegenics was formerly known as Cytoclonal Pharmaceutics, Inc. and was involved in the research,
creation and development of drugs for the treatment and prevention of cancer and infectious
diseases. Historically, eXegenics operated as a drug discovery company, exploiting new enabling
technologies to advance and shorten the new drug development cycle. Commencing in 2003, eXegenics
began terminating its research and related activities. Since then, all of our scientific staff and
administrative positions have been eliminated and all of our research and development activities
have been terminated. As such, eXegenics was a holding company with a portfolio of marketable
securities and no operations.
Since the termination of operations, the board of directors of eXegenics and management have
been focused on redeploying the remaining residual assets of eXegenics. The board established a
committee the Business Opportunities Search Committee to study strategic direction and identify
potential business opportunities. The objective of eXegenics was to redeploy its assets and
actively pursue new business opportunities.
On February 9, 2007, eXegenics completed its sale of 19,440,491 shares of eXegenics common
stock, constituting approximately 51% of the issued and outstanding shares of eXegenics capital
stock, on a fully diluted basis, to a small group of investors led by The Frost Group, LLC, a
private equity firm controlled by Dr. Phillip Frost, our chief executive officer and chairman, and
Dr. Jane Hsiao and Steve Rubin, two of our directors. The stock sale was made pursuant to the
terms of a previously announced stock purchase agreement dated August 14, 2006, as amended as of
November 30, 2006. The investors
-36-
paid eXegenics an aggregate purchase price of $8,613,000 at the closing, which is subject to
adjustment based on eXegenics stockholders equity at the closing.
Critical Accounting Policies
We believe the following critical accounting policies affect managements more significant
judgments and estimates used in the preparation of our financial statements.
We consider all non-restrictive, highly liquid short-term investments purchased with an
original maturity of three months or less to be cash equivalents. Investments consist of equity
securities and are classified as available for sale and reported at their fair values. The realized
gains and losses from these investments are reported in current earnings. Unrealized gains and
losses from these securities are reported as a separate component of stockholders equity and
excluded from current earnings.
In
May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Statement Accounting Standards No. 154,
Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement
No. 3 (SFAS 154). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 requires
retrospective application to prior periods financial statements for changes in accounting
principle, unless it is impractical to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that a change in depreciation,
amortization, or depletion method for long, non-financial assets be accounted for as a change in
accounting estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15,
2005. Adoption of the provisions of SFAS 154 did not have a material effect on
our financial condition.
In
July 2006, the FASB issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined.
FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition
and measurement related to accounting for income taxes. We do not expect the interpretation will
have a material impact on our financial condition.
In September 2006, the FASB issued statement No. 157, Fair Value Measurements, (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with
accounting principles generally accepted in the United States, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, with
earlier application encouraged. Any amounts recognized upon adoption as a cumulative effect
adjustment will be recorded to the opening balance of retained earnings in the year of adoption. We
have not yet determined the impact of this Statement on its financial condition.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized. While we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize deferred tax assets in the future in
excess of its net recorded amount, an adjustment to the net deferred tax asset would increase
income in the period such determination was made. Likewise, should we determine that we would not
be able to realize all or part of our net deferred tax asset in the future, an adjustment to the
net deferred tax asset would be charged to income in the period such determination was made.
-37-
Results of Operations
Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005
Revenues
eXegenics recognized $0 from license, research and development revenues during fiscal 2006 and
2005. There was no license, research and development revenue as a result of eXegenics exit from
the drug discovery business and termination of related research and development activities.
eXegenics had no operations in 2006.
Research and Development Expenses
eXegenics incurred research and development expenses of $0 during fiscal 2006 and fiscal 2005.
This was a result of eXegenics exit from the drug discovery business and termination of related
research and development activities.
General and Administrative Expenses
General and administrative expenses for fiscal 2006 were $1,117,000 compared to $1,438,000 for
fiscal 2005, a decrease of $321,000 or 22%. General and administrative expenses decreased primarily
as a result of the reduction in payroll and related expenses. Significant variances in fiscal 2006,
compared to fiscal 2005, were as follows: headcount related expenses, primarily salaries, travel
and entertainment, health insurance, employee relations and office expenses declined by $288,000;
investor and public relations expense declined by $5,000; insurance, primarily directors and
officers liability insurance expense declined by $78,000; audit fees declined by $49,000; leased
equipment expenses declined by $46,000; board of director travel expenses declined by $4,000 and
miscellaneous expenses declined $86,000. The decrease in general and administrative expenses was
partially offset by the following: a $180,000 increase in legal expenses (primarily attributable to
the increase in the reserve for on ongoing litigation with Dr. Labidi), an increase in professional
consulting fees of $25,000 and a $30,000 increase in board of director compensation.
Merger, Tender Offers and Consent Solicitation Expenses
In 2006 and 2005, eXegenics incurred no expenses related to failed merger, tender offers and
consent solicitation activities. In 2006, in anticipation of the transactions completed by the
Stock Purchase Agreement previously discussed, eXegenics incurred approximately $56,000 in legal,
accounting and other related costs.
Expenses Related to Terminating the Drug Discovery Operations
As a result of eXegenics decision to terminate its drug discovery operations, in fiscal 2006
and 2005 we incurred no costs associated with expenses from terminated operations. No expenses were
recognized in 2006 or 2005 for eXegenics strategic redirection.
Interest Income
Interest income for fiscal 2006 was $469,000 as compared to $190,000 for fiscal 2005, an
increase of $279,000 or 68%. The increase in interest income was due to higher interest rates.
-38-
Other Income and Expenses
Other income and expenses was $0 during fiscal 2006 and a profit of $1,062,000 during fiscal
2005. The decrease was due to the appreciation and sale, by eXegenics of Javelin Pharmaceuticals,
Inc. common stock in 2005.
Net Loss
eXegenics incurred net losses of $648,000 during fiscal 2006 and $186,000 during fiscal 2005.
The increase in net loss of $462,000 or 60% is a result of the aforementioned sale of investments
in 2005. Net loss per common share for fiscal 2006 was $0.04 and for fiscal 2005 was $0.03.
Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004
Revenues
eXegenics recognized $0 from license, research and development revenues during fiscal 2005 and
2004. There was no license, research and development revenue as a result of eXegenics exit from
the drug discovery business and termination of related research and development activities. There
were no operations in 2005.
Research and Development Expenses
eXegenics incurred research and development expenses of $0 during fiscal 2005 and fiscal 2004.
This was a result of eXegenics exit from the drug discovery business and termination of related
research and development activities.
General and Administrative Expenses
General and administrative expenses for fiscal 2005 were $1,438,000 compared to $2,051,000 for
fiscal 2004, a decrease of $613,000 or 42%. General and administrative expenses decreased primarily
as a result of the termination of drug discovery operations. Significant variances in fiscal 2005,
compared to fiscal 2004, were as follows: professional consulting fees declined by $60,000;
headcount related expenses, primarily salaries, travel and entertainment, health insurance,
employee relations and office expenses declined by $210,000; investor and public relations expense
declined by $44,000; insurance, primarily directors and officers liability insurance expense
declined by $435,000, primarily as a result of a change in insurance carriers; tax expense, mainly
franchise tax, declined by $49,000; legal fees declined by $61,000; leased equipment declined by
$60,000; board of directors fees and travel expenses declined by $110,000; and audit fees declined
by $35,000. The increase of $250,000 is for the reserve established in connection with the lawsuit
with Dr. Labidi, which reserve reflects a reasonable estimate of eXegenics obligations to pay
under the judgment; and an increase of $201,000 for the allowance recorded against the
subscriptions receivable reflects eXegenics uncertainty as to its collectability.
Merger, Tender Offers and Consent Solicitation Expenses
In 2005 and 2004, eXegenics recognized an aggregate of $0 in expenses related to merger,
tender offers and consent solicitation activities.
-39-
Expenses Related to Terminating the Drug Discovery Operations
As a result of eXegenics decision to terminate its drug discovery operations, in fiscal 2005
and 2004 eXegenics incurred $0 and $5,000, respectively, in costs associated with expenses from
terminated operations. Cash disbursements made during fiscal 2004 against a previously established
restructuring reserve included $90,000 for severance payments, $87,000 for terminated operating
lease obligations, and $16,000 for equipment and facilities relocation. No expenses were recognized
in 2005 and 2004 for eXegenics strategic redirection.
Interest Income
Interest income for fiscal 2005 was $190,000 as compared to $127,000 for fiscal 2004, an
increase of $63,000 or 50%. The increase in interest income was due to higher interest rates and
increased investable balances resulting from the appreciation in value and ultimate sale of Javelin
Pharmaceuticals, Inc. common stock.
Other Income and Expenses
Other income and expenses was a profit of $1,062,000 during fiscal year 2005 and $2,000 during
fiscal year 2004. The increase was due to the appreciation and sale by eXegenics of Javelin
Pharmaceuticals, Inc. common stock.
Net Loss
eXegenics incurred net losses of $186,000 during fiscal 2005 and $1,926,000 during fiscal
2004. The decrease in net loss of $1,740,000 or 90% is a result of the aforementioned sale of
investments. Net loss per common share for fiscal 2005 was $0.03 and for fiscal 2004 was $0.13.
Liquidity and Capital Resources
At December 31, 2006 eXegenics had cash, cash equivalents and investments of approximately
$8,596,000. During 2006, eXegenics used approximately $305,000 to fund its operating activities.
Restricted cash was pledged as collateral in support of leases of laboratory equipment. In
connection with the termination of eXegenics drug discovery research programs, eXegenics
repurchased equipment subject to a capital lease agreement. However, in 2003, when eXegenics was in
the process of exiting from the drug discovery business, it was not able to terminate its
contractual obligations; it was not able to terminate its lease obligations until August 2005. In
August 2005, in conjunction with the return of remaining lease obligations, the lessor of this
equipment released $175,000 of restricted cash that was pledged as collateral. In addition, in 2005
eXegenics received proceeds of approximately $1,064,000 from the sale of shares of Javelin
Pharmaceuticals, Inc common stock. The impact of maintaining its lease obligations through August
2005, was $46,000 in 2005 and $106,000 in 2004.
-40-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FROPTIX AND ACUITY
You should read the following discussion and analysis of the financial condition and results
of operations of the Froptix and Acuity subsidiaries of the Company, which now represent our
ongoing business operations, together with the financial statements and the related notes appearing
at the end of this report. Some of the information contained in this
discussion and analysis or set forth elsewhere in this report, including information with respect
to our plans and related financing, includes forward-looking statements that involve risks and
uncertainties. You should read the Risk Factors section of this report for a discussion of
important factors that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.
The discussion and analysis of our financial condition and results of operations are based on
our financial statements, which we have prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as the reported
revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such
estimates and judgments, including those described in greater detail below. We base our estimates
on historical experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
The following discussion and analysis excludes the impact of eXegenics financial condition
and results of operations prior to the Mergers because they were not material for any of the
periods presented. Specifically, for the years ended December 31, 2006, 2005 and 2004, eXegenics
had no revenue, expenses consisting solely of general and administrative expenses (i.e., legal,
accounting and other professional fees) in the amount of $1,117,000, $1,438,000 and $2,051,000,
respectively, and other income (i.e., amounts earned from investing available cash in a money
market account) in the amount of $469,000, $1,252,000 and $125,000, respectively.
eXegenics balance sheet as of December 31, 2006 consisted solely of total current assets
equal to $8,752,000 (which consisted of cash and cash equivalents, prepaid expenses and other
current assets) and total liabilities equal to $674,000. During these periods, eXegenics had no
sources of cash and its sole use of cash was payment of the aforementioned professional fees and
other costs associated with complying with eXegenics reporting obligations under the rules and
regulations promulgated by the SEC and consummating the Mergers with Froptix and Acuity. A
discussion of eXegenics financial condition prior to the Mergers is included above in Managements
Discussion and Analysis of Financial Condition and Results of Operations of eXegenics.
Overview
We are a clinical-stage biopharmaceutical company focused on the development of innovative
therapies for the treatment and prevention of ophthalmic disease. We have concentrated our
resources to address ophthalmic disease in large and growing markets by employing a powerful and
rapidly progressing technology, known as RNA Interference (RNAi), to develop its lead product
candidate, bevasiranib sodium (referred to herein as bevasiranib and formerly known as Cand5).
Bevasiranib is a small interfering RNA (siRNA) therapeutic targeting vascular endothelial growth
factor (VEGF), which
-41-
we are developing as an intravitreal injection for the treatment of wet age-related macular
degeneration (Wet AMD) and diabetic macular edema (DME).
Our Froptix and Acuity operating subsidiaries have not generated any revenues from operations,
except for interest income. Since its inception in March 2003, Acuity has generated significant
losses in connection with the research and development of its technology, including the clinical
development of bevasiranib, and has accumulated a deficit equal to $32.7 million. Since its
inception on June 23, 2006, Froptix has generated losses in connection with the research and
development of its technology and has accumulated a deficit equal to $877,000. Since we do not
generate revenue from any of our product candidates, we expect to continue to generate losses in
connection with the clinical development of bevasiranib and the research and development activities
relating to its technology and other drug candidates. As a result, we believe that our operating
losses are likely to be substantial over the next several years. Such losses may fluctuate
significantly from quarter to quarter and are expected to increase as we expand our research and
development programs, including preclinical studies and clinical trials for our pharmaceutical
product candidates under development. We will need to obtain additional funds to finish clinical
testing of bevasiranib and to further develop our research and development programs.
Critical Accounting Estimates and Policies
While our significant accounting policies are more fully described in Note 3 to our financial
statements appearing at the end of this Current Report on Form 8-K, we believe that the following
accounting policies are the most critical for one to fully understand and evaluate our financial
condition and results of operations.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for
Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, then an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. As of December 31, 2006, management
believes that no revision of the remaining useful lives or write-down of long-lived assets is
required.
Stock-Based Compensation
Before January 1, 2006, Acuity applied the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB No. 25), and related interpretations including FASB Interpretation No. 44, (FIN 44),
Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion
No. 25
, to account for its fixed-plan stock options. Under the intrinsic-value-based method,
compensation expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price.
Effective January 1, 2006, Acuity, and, effective as of June 23, 2006 (the date of inception)
Froptix, adopted SFAS No. 123(R),
Share-Based Payments
SFAS No. 123(R) replaces SFAS No. 123,
Accounting for Stock-Based Compensation
, and supersedes APB No. 25. SFAS No. 123(R) requires that
all stock-based compensation be recognized as an expense in the financial statements and that such
cost be measured at the fair value of the award. Acuity had adopted the prospective transition
method provided for under SFAS No. 123(R) for private companies and, consequently, did not restate
its results
-42-
from prior periods. Under this transition method, compensation cost recognized in 2006
associated with stock options includes (i) amortization related to all stock option awards
granted/modified on or subsequent to January 1, 2006, based on the estimated grant date fair value
using the Black-Scholes option-pricing model, and (ii) amortization of the intrinsic value recorded
as deferred compensation for options granted prior to January 1, 2006 being accounted for under APB
Opinion No. 25. Option awards granted prior to adoption of SFAS No. 123(R) continue to follow the
provisions of APB Opinion No. 25 and FIN 44 until modified and or settled.
Prior to the adoption of SFAS No. 123(R), Acuity presented all tax benefits resulting from the
exercise of stock options as operating cash flows in the statements of cash flows. SFAS No. 123(R)
requires that cash flows resulting from tax deductions in excess of the cumulative compensation
cost recognized for options exercised (excess tax benefits) be classified as financing cash flows.
We have sufficient net operating loss carryforwards to generally eliminate cash payments for
income taxes. Therefore, no cash has been retained as a result of excess tax benefits relating to
share based payments made to directors and employees.
Results of Operation
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenues
Neither Acuity nor Froptix had any revenues for the year ended December 31, 2006 or since
inception.
Research and Development Expenses
Research
and development expenses were $8,534,000 for the years ended
December 31, 2006, an increase of $52,000, or 1% from $8,482,000
for the year ended December 31, 2005.
General and Administrative Expenses
General
and administrative expenses were $3,073,000 for the year ended December 31, 2006, an
increase of $1,384,000, or 82%, from $1,689,000 for the year ended
December 31, 2005. The increase was principally due to
stock-based compensation.
Financial Expenses and Income
Total net interest expense was $361,000 for the year ended December 31, 2006, compared to net
interest income of $71,000 for the year ended December 31, 2005. The decrease resulted primarily
from the lower balance of cash and cash equivalents held by Acuity during such periods and the
incurrence by Acuity of interest expense in connection with the amortization of the warrant costs associated with the Acuity convertible notes.
Year Ended December 31, 2005 compared to Year Ended December 31, 2004
Revenues
Acuity had no revenues for the year ended December 31, 2005.
-43-
Research and Development Expenses
Research
and development expenses were $8,482,000 for the year ended December 31, 2005, an
increase of $4,879,000, or 135%, from $3,603,000 for the year ended December 31, 2004. The
increase related to an increase in costs associated with the clinical trial expenses of Acuity
during 2005.
General and Administrative Expenses
General
and Administrative expenses were $1,689,000 for the year ended December 31, 2005, an
increase of $349,000, or 26%, from $1,340,000 for the year ended December 31, 2004.
Financial Expenses and Income
Total net interest income was $71,000 for the year ended December 31, 2005, compared to net
interest expense of $439,000 for the year ended December 31, 2004. The decrease resulted primarily
from the higher balance of cash and cash equivalents held by Acuity during 2005.
Liquidity and Capital Resources
As a result of its significant research and development expenditures and the lack of any
approved products to generate product sales revenue, Acuity has not been profitable and has
generated operating losses since its inception. From inception through December 31, 2006, Acuity
has funded its operations primarily with proceeds equal to $1.3 million from the sale of common
stock, $1.5 million from the sale of Series A preferred stock, $16.4 million from the same of
Series B preferred stock, $1,000,000 from the sale of convertible notes and $4,000,000 from the
issuance of a term note. Froptix has also not been profitable and has generated operating losses
since its inception. From inception through December 31, 2006, Froptix has funded its operations
primarily with proceeds equal to $639,000 from the sale of common stock.
On March 27, 2007, in connection with the Mergers, the Company entered into a line of credit
agreement with The Frost Group, LLC, a Florida limited liability company controlled by certain of
our directors. The line of credit provides the Company with the right to draw up to $12,000,000 in
available funds for working capital and to fund operations. The Company assumed the $4,000,000
previously drawn on the line of credit by Acuity and has an additional $8,000,000 available for
borrowing. The Company pays interest of 10% on borrowing made under the line of credit.
Immediately
following consummation of the Mergers, the Company has $16,250,000 in
cash and cash equivalents and access to an additional $8,000,000 under the assumed line of credit.
Funding Requirements
We expect to incur losses from operations for the foreseeable future. We expect to incur
increasing research and development expenses, including expenses related to the hiring of personnel
and additional clinical trials. We expect that general and administrative expenses will also
increase as we expand our finance and administrative staff, add infrastructure, and incur
additional costs related to being an operating public company in the United States, including the
costs of directors and officers insurance, investor relations programs, and increased
professional fees. Our future capital requirements will depend on a number of factors, including
the continued progress of its research and development of
-44-
product candidates, the timing and outcome of clinical trials and regulatory approvals, the
costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent
claims and other intellectual property rights, the acquisition of licenses to new products or
compounds, the status of competitive products, the availability of financing, and our success in
developing markets for our product candidates.
We do not anticipate that we will generate product revenues for at least the next several
years. In the absence of additional funding, we expect continuing operating losses to result in
increases in our cash used in operations over the next several years. To the extent that our
capital resources are insufficient to meet our future capital requirements, we will need to finance
our future cash needs through public or private equity offerings, debt financings, or corporate
collaboration and licensing arrangements. We currently have no commitments for future external
funding other than as described above. We may need to raise additional funds more quickly if one
or more of our assumptions prove to be incorrect or if we choose to expand our product development
efforts more rapidly than we presently anticipate, and we may decide to raise additional funds even
before we need them if the conditions for raising capital are favorable.
We may seek to sell additional equity or debt securities or obtain a bank credit facility.
The sale of additional equity or debt securities may result in dilution to our stockholders. The
incurrence of indebtedness would result in increased fixed obligations and could also result in
covenants that would restrict our operations. Additional equity or debt financing, grants, or
corporate collaboration and licensing arrangements may not be available on acceptable terms, if at
all. If adequate funds are not available, we may be required to delay, reduce the scope of or
eliminate our research and development programs, reduce our planned commercialization efforts or
obtain funds through arrangements with collaborators or others that may require us to relinquish
rights to certain product candidates that we might otherwise seek to develop or commercialize
independently.
Contractual Obligations
The following table summarizes our principal contractual obligations immediately upon
consummation of the Mergers.
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|
|
|
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|
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|
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Payments Due By Period
|
|
Contractual Obligations
|
|
Total
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|
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Less than 1 year
|
|
|
1-3 years
|
|
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3-5 years
|
|
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More than 5 years
|
|
Long-term Debt Obligations (1)
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$
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8,000,000
|
|
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$
|
1,667,000
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|
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$
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6,333,000
|
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|
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|
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Capital Lease Obligations
|
|
|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
Operating Lease Obligations (2)
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|
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356,000
|
|
|
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59,000
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|
|
|
210,000
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|
|
|
87,000
|
|
|
|
|
|
Research License Agreement
Obligations (3)
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5,125,000
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|
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575,000
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1,050,000
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2,100,000
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|
|
|
1,400,000
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|
Purchase
Obligations (4)
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|
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144,000
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|
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144,000
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Total
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$
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13,625,000
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$
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2,445,000
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$
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7,593,000
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|
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$
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2,187,000
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|
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$
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1,400,000
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|
-45-
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(1)
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Our long-term debt obligations referred to in the table above are amounts that are
required to be paid under our term loan with Horizon Technology Funding Company LLC and our
line of credit with The Frost Group, LLC.
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(2)
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Includes remaining lease payments for lab equipment and Morristown, New Jersey office
space.
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(3)
|
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Includes minimum annual payments under Pathogenics and the
University of Illinois licensing agreements and the
University of Florida research agreement.
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(4)
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Includes open purchase orders.
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The preceding table does not include information with respect to the following contractual
obligations because the amounts of the obligations are currently not determinable: contractual
obligations in connection with clinical trials, which are payable on a per-patient basis, royalty
obligations, which are payable based on the sales levels of some of our biopharmaceutical products
and milestone payments which are payable upon the achievement of certain conditions.
Off-Balance Sheet Arrangements
We
have no off-balance sheet arrangements as of December 31, 2006
and 2005 and as of the
consummation of the Mergers.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of doing business we are exposed to the risks associated with foreign
currency exchange rates and changes in interest rates. We do not engage in trading market risk
sensitive instruments or purchasing hedging instruments or other than trading instruments that
are likely to expose us to significant market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk.
Our exposure to market risk relates to our cash and investments and to our borrowings. We
maintain an investment portfolio of money market funds and qualified purchaser funds. The
securities in our investment portfolio are not leveraged, and are, due to their very short-term
nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure.
Because of the short-term maturities of our investments, we do not believe that a change in market
rates would have a significant negative impact on the value of our investment portfolio.
The primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To achieve this objective, we invest
our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations,
repurchase agreements and high-quality corporate issuers, and, by policy, restrict our exposure to
any single corporate issuer by imposing concentration limits. To minimize the exposure due to
adverse shifts in interest rates, we maintain investments at an average maturity of generally less
than one month.
-46-
Item 3. Properties.
Our principal corporate office is now located at 4400 Biscayne Blvd, Suite 900, Miami,
Florida. We rent this space from Frost Real Estate Holdings, LLC which is a company controlled by
Dr. Phillip Frost, our chief executive officer and chairman.
We currently lease approximately 4,000 square feet of lab and office space in Philadelphia,
Pennsylvania. This facility includes corporate offices and laboratory space and is rented on a
month-to-month basis. Administrative services, preclinical research and development, project
management, and pharmacology are all based at the Philadelphia, PA location. We also currently
lease approximately 2,000 square feet of office space in Morristown, New Jersey. Clinical Research
and Development are based at the Morristown, New Jersey location.
We have an office located at 1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford,
New York 14534 that consists of approximately 500 square feet of office space. The Company sublets
this office space from RFG Associates, a general partnership in which John A. Paganelli, our
interim chief executive officer and secretary of the Company, is a partner. Monthly rent is $625 and
the sublease may be terminated by either party upon thirty (30) days notice. We have provided
notice of our intention to terminate this lease. eXegenics paid an aggregate of $10,000 in rent
expenses in fiscal 2006.
-47-
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following tables set forth information, as of the closing date of the Mergers, regarding
beneficial ownership of our common stock to the extent known to us by:
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Each person who is known by us to own beneficially more than 5% of our common stock;
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Each director;
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Our Chief Executive Officer and our three most highly compensated officers other
than our Chief Executive Officer who served in such capacities in 2006 (collectively,
the Named Executive Officers); and
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All of our directors and Named Executive Officers collectively.
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Unless otherwise noted, we believe that all persons named in the table have sole voting and
investment power with respect to all shares of our common stock beneficially owned by them.
For purposes of these tables, a person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from the date hereof upon exercise of options,
warrants and convertible securities. Each beneficial owners percentage ownership is determined by
assuming that options, warrants and convertible securities that are held by such person (but not
those held by any other person) and that are exercisable within 60 days from March 30, 2007 have
been exercised. The percentage of outstanding common shares have been calculated based upon
113,116,350 shares of common stock outstanding on March 30, 2007.
Security Ownership of Certain Beneficial Owners
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Percentage of
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Title of
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Name and Address of
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Outstanding Common
|
Class
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|
Beneficial Owner
|
|
Number of Shares
|
|
Shares
|
Common Stock
|
|
The Frost Group, LLC (1)
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4400 Biscayne Blvd.
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Suite 1500
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Miami, Florida 33137
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20,286,704
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17.93
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%
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Common Stock
|
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Frost Gamma Investments Trust (2)
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4400 Biscayne Blvd.
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Suite 1500
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Miami, Florida 33137
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66,047,216
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58.39
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%
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Common Stock
|
|
Johnson and Johnson Development
|
|
|
|
|
|
|
|
|
|
|
Corporation (3)
|
|
|
|
|
|
|
|
|
|
|
One Johnson & Johnson Plaza
|
|
|
|
|
|
|
|
|
|
|
New Brunswick, NJ 08933
|
|
|
16,125,775
|
|
|
|
14.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Psilos Group Partners II-S (4)
|
|
|
|
|
|
|
|
|
|
|
625 Avenue of the Americas
|
|
|
|
|
|
|
|
|
|
|
4th Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10011
|
|
|
11,284,283
|
|
|
|
9.98
|
%
|
|
|
|
(1)
|
|
The Frost Group, LLC holds 15,490,546 shares of the Companys common stock, warrants to
purchase 6,487 shares of the Companys Series C Preferred Stock, convertible into 648,700
|
-48-
|
|
|
|
|
shares of the Companys common stock. The Frost Group, LLC also holds 4,147,458 warrants to
purchase common stock.
|
|
(2)
|
|
The Frost Gamma Investments Trust holds 36,518,923 shares of the Companys common stock and
warrants to purchase 9,241,589 shares of common stock. The number of shares included above
also includes 12,697,601 shares of Common Stock, warrants to purchase 3,399,671 shares of
common stock and warrants to purchase 5,317 shares of the Companys Series C preferred stock,
convertible into 531,700 shares of the Companys common stock, owned directly by The Frost
Group, LLC. Frost Gamma Investments Trust is a principal member of The Frost Group, LLC.
Frost Gamma Investments Trust disclaims beneficial ownership of these shares of common stock,
except to the extent of any pecuniary interest therein.
|
|
(3)
|
|
Johnson and Johnson Development Corporation holds 129,736 shares of the Companys Series C
preferred stock, convertible into 12,973,600 shares of the Companys common stock. Johnson
and Johnson Development Corporation also holds 2,949,141 warrants to purchase common stock and
203,034 options to purchase shares of common stock.
|
|
(4)
|
|
Psilos Group Partners II-S holds 90,815 shares of the Companys Series C preferred stock,
convertible into 9,081,500 shares of the Companys common stock. Psilos Group Partners II
SBIC also holds 2,064,399 warrants to purchase common stock and 138,384 options to purchase
shares of common stock.
|
Security Ownership of Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
all Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
Number of
|
|
Percentage of
|
|
Preferred Stock
|
Title of
|
|
Name of
|
|
Outstanding Shares
|
|
Outstanding
|
|
into Common
|
Class
|
|
Beneficial Owner
|
|
Beneficially Owned
|
|
Common Shares
|
|
Stock
|
Common Stock
|
|
Phillip Frost, M.D.
|
|
|
66,047,216
|
(1)
|
|
|
58.39
|
%
|
|
|
41.57
|
%
|
Common Stock
|
|
Jane H. Hsiao, Ph.D., MBA
|
|
|
14,540,724
|
(2)
|
|
|
12.85
|
%
|
|
|
9.15
|
%
|
Common Stock
|
|
David Eichler
|
|
|
11,284,283
|
(3)
|
|
|
9.98
|
%
|
|
|
7.10
|
%
|
Common Stock
|
|
Steven D. Rubin
|
|
|
5,132,021
|
(4)
|
|
|
4.54
|
%
|
|
|
3.23
|
%
|
Common Stock
|
|
Dale Pfost, Ph.D.
|
|
|
4,753,246
|
(5)
|
|
|
4.20
|
%
|
|
|
2.99
|
%
|
Common Stock
|
|
Samuel Reich
|
|
|
1,373,539
|
(6)
|
|
|
1.21
|
%
|
|
|
0.86
|
%
|
Common Stock
|
|
Michael Reich
|
|
|
649,145
|
(7)
|
|
|
*
|
|
|
|
*
|
|
Common Stock
|
|
Denis OShaughnessy, Ph.D.,
|
|
|
194,066
|
(8)
|
|
|
*
|
|
|
|
*
|
|
Common Stock
|
|
Robert Baron
|
|
|
186,339
|
(9)
|
|
|
*
|
|
|
|
*
|
|
Common Stock
|
|
John A. Paganelli
|
|
|
155,000
|
(10)
|
|
|
*
|
|
|
|
*
|
|
Common Stock
|
|
Adam Logal
|
|
|
16,216
|
(11)
|
|
|
*
|
|
|
|
*
|
|
Common Stock
|
|
Richard A. Lerner, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Melvin L. Rubin, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
All Executive Officers and
Directors as a group (12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
persons)
|
|
|
104,267,256
|
|
|
|
92.18
|
%
|
|
|
65.63
|
%
|
|
|
|
*
|
|
less than 1%.
|
|
(1)
|
|
The number of shares beneficially owned by Dr. Frost includes shares of common stock and
warrants to purchase shares of common stock held by or beneficially owned by Frost Gamma
Investments Trust, of which Frost Gamma Limited Partnership is the sole and exclusive
beneficiary. Dr. Frost is one of two limited partners of Frost Gamma, L.P. The general partner of
Frost Gamma, L.P. is Frost Gamma, Inc. and the sole shareholder of Frost Gamma, Inc. is
Frost-Nevada Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation.
The Frost Gamma Investments Trust holds 36,518,923 shares of the Companys common stock and
warrants to purchase 9,241,589 shares of common stock. The number of shares included above
also includes 15,490,546 shares of common stock, warrants to purchase 4,147,458 shares of
common stock and warrants to purchase 6,487 shares of the Companys Series C preferred stock,
convertible into 648,700 shares of the Companys common stock, owned directly by The Frost
Group, LLC. Frost
|
-49-
|
|
|
(2)
|
|
Dr. Hsiao is a member of The Frost Group, LLC. Dr. Hsiao disclaims beneficial ownership of the
securities held by The Frost Group, except to the extent of her pecuniary interest therein.
|
|
(3)
|
|
Includes 11,145,899 shares and warrants and 138,384 options that are exercisable as of March
30, 2007 or will become exercisable on or before May 30, 2007 and which are held by Psilos
Group Partners II-S, LP, an entity with which Mr. Eichler is affiliated. Mr. Eichler
disclaims beneficial ownership of all such shares, warrants and options.
|
|
(4)
|
|
Mr. Rubin is a member of The Frost Group, LLC. Mr. Rubin disclaims beneficial ownership of
the securities held by The Frost Group, except to the extent of his pecuniary interest
therein.
|
|
(5)
|
|
Includes 1,543,961 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
|
(6)
|
|
Includes 837,968 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007. Excludes 330,254 shares
beneficially owned by Ilana K. Reich, of which Mr. Samuel J. Reich disclaims beneficial
ownership.
|
|
(7)
|
|
Includes 256,875 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
|
(8)
|
|
Includes 194,066 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
|
(9)
|
|
Includes
55,000 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
|
(10)
|
|
Includes
55,000 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
|
(11)
|
|
Includes 16,216 shares which are the subject of stock options that are exercisable as of
March 30, 2007 or will become exercisable on or before May 30, 2007.
|
-50-
Item 5. Directors and Executive Officers.
The following table sets forth information concerning our executive officers and directors,
including their ages, as of March 31, 2007:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
Phillip Frost, M.D.
|
|
|
70
|
|
|
Chief Executive Officer and Chairman of the Board
|
Dale Pfost, Ph.D.
|
|
|
49
|
|
|
President
|
Samuel J. Reich
|
|
|
32
|
|
|
Executive Vice President and Secretary
|
Denis OShaughnessy, Ph.D.
|
|
|
56
|
|
|
Senior Vice President of Clinical Development
|
Adam Logal
|
|
|
29
|
|
|
Executive Director of Finance,
Chief Accounting Officer and Treasurer
|
John A. Paganelli
|
|
|
72
|
|
|
Director
|
David A. Eichler
|
|
|
36
|
|
|
Director
|
Michael Reich
|
|
|
63
|
|
|
Director
|
Jane H. Hsiao, Ph.D., MBA
|
|
|
59
|
|
|
Director
|
Steven D. Rubin
|
|
|
46
|
|
|
Director
|
Robert Baron
|
|
|
66
|
|
|
Director
|
Richard A. Lerner, M.D.
|
|
|
68
|
|
|
Director
|
Melvin L. Rubin, M.D.
|
|
|
75
|
|
|
Director
|
Phillip Frost, M.D.
Dr. Frost became the CEO and Chairman of our board of directors
after consummation of the Mergers on March 27, 2007. Dr. Phillip Frost was named the Vice Chairman
of the Board of Teva Pharmaceutical Industries, Limited (Teva) in January 2006 when Teva acquired
IVAX Corporation (IVAX). Dr. Frost had served as Chairman of the board of directors and Chief
Executive Officer of IVAX Corporation since 1987. Dr. Frost was named Chairman of the Board of
Ladenburg Thalmann & Co., Inc., an American Stock Exchange-listed investment banking and securities
brokerage firm, in July 2006 and has been a director of Ladenburg Thalmann since March 2005. He
serves on the Board of Regents of the Smithsonian Institution, a member of the Board of Trustees of
the University of Miami, a Trustee of each of the Scripps Research Institutes, the Miami Jewish
Home for the Aged, and the Mount Sinai Medical Center and is Vice Chairman of the Board of
Governors of the American Stock Exchange. Dr. Frost is also a director of Protalix
BioTherapeutics, Inc., an American Stock Exchange-listed biotech pharmaceutical company,
Continucare Corporation, an American Stock Exchange-listed provider of outpatient healthcare and
home healthcare services, Northrop Grumman Corp., a New York Stock Exchange-listed global defense
and aerospace company, Castle Brands, Inc., an American Stock Exchange-listed developer and
marketer of alcoholic beverages, and Cellular Technical Services, Inc., a provider of products and
services for the telecommunications industry.
Dale Pfost, Ph.D.
Dr. Dale Pfost became our President after consummation of the Mergers on
March 27, 2007. Previously, Dr. Pfost served as the President, CEO and Chairman of Acuity
Pharmaceuticals and was one of the members of the founding management team from 2003 through March
2007. Dr. Pfost served as President, CEO and Chairman of Orchid BioSciences from 1996 through 2002
and was the founding CEO. From 1988 until 1996 Dr. Pfost served as President, CEO and Managing
Director of Oxford GlycoSciences, where he was the founding CEO. Dr. Pfost was the founder and
President of Infitek, Inc. from 1982 through 1984 until it was acquired by SmithKline Beckman where
Dr. Pfost served in varying levels of increasing responsibilities through 1988.
Samuel J. Reich.
Mr. Samuel Reich became our Executive Vice President after consummation of
the Mergers on March 27, 2007. Prior to joining us, Mr. Reich served as Executive Vice President,
-51-
Research and Development and was a co-founder of Acuity. Mr. Reich co-founded Acuity in 2002
where he served in capacities of increasing responsibility from 2002 to March 2007. Prior to
founding Acuity, Mr. Reich was a doctoral candidate at the University of Pennsylvania Medical
School, where his doctoral research involved recognizing and pioneering the opportunity in RNAi
therapeutics for treating ophthalmic diseases from 2001 until 2002.
John A. Paganelli
.
Mr. Paganelli served as our Interim Chief Executive Officer and Secretary
from June 29, 2005 through the consummation of the Mergers, and Chairman of the eXegenics Board of
Directors from December 2003 through the consummation of the Mergers. Mr. Paganelli served as
President and Chief Executive Officer of Transamerica Life Insurance Company of New York from 1992
to 1997. Since 1987, Mr. Paganelli has been a partner in RFG Associates, a financial planning
organization. Mr. Paganelli is the Managing Partner of Pharos Systems Partners, LLC, a company
formed to raise capital to purchase the controlling interest in Pharos Systems International, a
software development company. Mr. Paganelli is Chairman of the Board of Pharos Systems
International. He was Vice President and Executive Vice President of PEG Capital Management, an
investment advisory organization, from 1987 until 2000. From 1980 to January 2003, Mr. Paganelli
was an officer and director-shareholder of Mike Barnard Chevrolet, Inc., an automobile dealership.
Mr. Paganelli was on the Board of Directors of Mid Atlantic Medical Services, Inc. from 1999 until
2005. Mid Atlantic was listed on the New York Stock Exchange and through its wholly owned
subsidiaries is in the business of selling various forms of health insurance. Mr. Paganelli was
also on the Board of Directors of Mid Atlantics subsidiary, MAMSI Life and Healthy Insurance
Company. Mr. Paganelli holds an A.B. from Virginia Military Institute. In 2005 Mid Atlantic Medical
Services, Inc. was acquired by UnitedHealth Group, Inc.
Denis OShaughnessy, Ph.D
., Dr. Denis OShaughnessy became out Senior Vice President of
Clinical Development upon consummation of the Mergers on March 27, 2007. Prior to joining us, Dr.
OShaughnessy served as Senior Vice President of Clinical Development for Acuity from October 2006
to March 2007. From 2005 to October 2006, Dr. OShaughnessy was an independent clinical research
consultant. From 2000 to 2005, Dr. OShaughnessy was a founding member of Eyetech Pharmaceuticals
and served as Senior Vice President of Clinical Development. From 1990 to 2000 Dr. OShaughnessy
was employed by Hoffmann-La Roche with increasing levels of responsibility, most recently as
Director of Clinical Operations. From 1980 through 1990, Dr. OShaughnessy served at several
pharmaceutical companies in various roles of increasing responsibility most recently as Head of
Clinical Research for Celltech Ltd.
Adam Logal
. Mr. Logal became out Director of Finance and Chief Accounting Officer after
consummation of the Mergers on March 27, 2007. Prior to joining the Company, Mr. Logal served in
various finance capacities at Nabi Biopharmaceuticals, most recently as Sr. Director, Accounting
and Reporting. From March 2006 to June 2006, Mr. Logal served as Chief Financial Officer, Chief
Accounting Officer and Treasurer and from November 2002 to June 2006 Mr. Logal served in various
roles of increasing responsibility within the Finance Department. Prior to Nabi
Biopharmaceuticals, Mr. Logal served from May 2001 to November 2002 as a tax accountant at Spherion
Corporation, a recruiting and staffing company. From November 2000 to May 2001, Mr. Logal served as
a staff accountant for Dunn & Co., CPAs PA, a public accounting firm.
Board of Directors
Jane H. Hsiao, Ph.D., MBA
.
Dr. Hsiao has served as a director of the Company since February
2007. Dr. Hsiao served as the Vice Chairman-Technical Affairs of IVAX from 1995 to January 2006,
when Teva acquired IVAX. Dr. Hsiao served as IVAXs Chief Technical Officer since 1996, and as
Chairman, Chief Executive Officer and President of IVAX Animal Health, IVAXs veterinary products
subsidiary, since 1998. From 1992 until 1995, Dr. Hsiao served as IVAXs Chief Regulatory Officer
and
-52-
Assistant to the Chairman. Dr. Hsiao served as Chairman and President of DVM Pharmaceuticals
from 1998 through 2006 and is also a director of Protalix BioTherapeutics, Inc., an American Stock
Exchange-listed biotech pharmaceutical company, and Cellular Technical Services Company, Inc., a
provider of products and services for the telecommunications industry.
Steven D. Rubin
.
Mr. Rubin has served as a director of the Company since February 2007. Mr.
Rubin served as the Senior Vice President, General Counsel and Secretary of IVAX from August 2001
until September 2006. Prior to joining IVAX, Mr. Rubin was Senior Vice President, General Counsel
and Secretary with privately held Telergy, Inc., a provider of business telecommunications and
diverse optical network solutions, from early 2000 to August 2001. In addition, he was with the
Miami law firm of Stearns Weaver Miller Weissler Alhadeff & Sitterson from 1986 to 2000, in the
Corporate and Securities Department. Mr. Rubin had been a shareholder of that firm since 1991 and a
director since 1998. Mr. Rubin currently serves on the board of directors of Dreams, Inc., a
vertically integrated licenses sports products company.
David A. Eichler
. Mr. Eichler is a Managing Director of Psilos Group, a New York-based
venture capital firm specializing in healthcare investments. Mr. Eichler joined Psilos in 1999 and
focuses on investments in the specialty pharmaceutical, medical technology, healthcare services and
healthcare IT sectors. Mr. Eichler has served on the board of directors of several Psilos
portfolio companies, and has extensive experience as an advisor to senior management on M&A,
financial restructuring and capital raising transactions. Mr. Eichler has been a director of
Acuity since 2004 and also currently serves as Chairman of Caregiver Services, Inc., a leading
provider of in-home care services. Prior to joining Psilos, Mr. Eichler was an investment banker
at Wasserstein Perella & Co. where he was a member of the firms Healthcare Group.
Michael Reich
. Mr. Michael Reich is a proprietor of a commercial property development
company. Previously, Mr. Reich was chief executive officer of Cosrich, Inc., a manufacturer of
popularly priced cosmetics and toiletries, including numerous well known brands. Mr. Reichs area
of expertise is in operations, finance and marketing. Prior to the Mergers, Mr. Reich had been a
board member of Acuity since 2003.
Robert A. Baron
. Mr. Baron has served on the board of directors of the company since
2003. Previously, Mr. Baron served as the President of Cash City, Inc. from 1999 to 2003. Cash
City is a payday advance and check cashing business. From 1997 to 1999 Mr. Baron was the President
of East Coast Operations for CSS/TSC, Inc., a distributor of blank t-shirts and fleece and
accessories and a subsidiary of Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron
was the chairman of T shirt City, Inc., a privately held company. From 1993 to 1997, Mr. Baron was
a member of the board of directors of Suburban Bank Corp. When Mr. Baron was on Suburbans board,
its common stock was traded on NASDAQ. Mr. Baron is also a director of Hemobiotech, Inc., a
development stage biopharmaceutical company, and Andover Medical, Inc., a medical equipment
distributor.
Richard A. Lerner, M.D.
Dr. Lerner has been President of The Scripps Research Institute, a
private, non-profit biomedical research organization, since 1986. Dr. Lerner is a member of
numerous scientific associations, including the National Academy of Science and the Royal Swedish
Academy of Sciences. Dr. Lerner serves as director of Kraft Foods, Inc. He is also on the board of
directors for Xencor and Intra-Collular Therapies, two privately held biotechnology companies, and
serves on the scientific advisory boards of Dyadic, a biotechnology company.
Melvin L. Rubin, M.D.
Dr. Rubin is member of the faculty at the University of Florida
Department of Ophthalmology where he holds the titles of Professor and Chairman Emeritus of
Ophthalmology and Shaler Richardson Eminent Scholar Emeritus. He has been a member of the
University of Florida Department of Ophthalmology faculty since 1963. He has served national
ophthalmology on the board of directors and as president of the
American Academy of Ophthalmology (the AAO)
-53-
and later, president of the Foundation of the AAO. He has also been trustee and president of
the Association for Research in Vision and Ophthalmology, and on the board of directors and
chairman of the American Board of Ophthalmology.
Item 6. Executive Compensation.
Compensation Discussion and Analysis
The primary goals of our board of directors with respect to executive compensation will be to
attract and retain talented and dedicated executives, to tie annual and long-term cash and stock
incentives to achievement of specified performance objectives, and to create incentives which will
result in stockholder value creation. To achieve these goals, we plan to form a compensation
committee to recommend executive compensation packages to our board of directors that are generally
based on a mix of salary, discretionary bonus and equity awards. Although we have not adopted any
formal guidelines for allocating total compensation between equity compensation and cash
compensation, we intend to implement and maintain compensation plans that tie a substantial portion
of our executives overall compensation to achievement of corporate goals.
Benchmarking of Cash and Equity Compensation
We have not retained a compensation consultant to review our policies and procedures with
respect to executive compensation. We have, in the past, conducted an annual benchmark review of
the aggregate level of our executive compensation, as well as the mix of elements used to
compensate our executive officers. This review is based on a survey of executive compensation paid
by peer companies in the pharmaceutical industry of similar size and stage of development. In
addition, we have historically taken into account input from other independent members of our board
of directors and publicly available data relating to the compensation practices and policies of
other companies within and outside our industry.
We may retain the services of third-party executive compensation specialists from time to time
in connection with the establishment of cash and equity compensation and related policies.
Elements of Compensation
We will evaluate individual executive performance with a goal of setting compensation at
levels the board or any applicable committee thereof believes are comparable with executives in
other companies of similar size and stage of development while taking into account our relative
performance and our own strategic goals. The compensation received by our executive officers
consists of the following elements:
Base Salary
. Base salaries for our executives are established based on the scope of their
responsibilities and individual experience, taking into account competitive market compensation
paid by other companies for similar positions within the pharmaceutical industry. Our current
senior vice president of clinical development was hired in November 2006 at an annual base salary
of $265,000. Our current executive director of finance and chief accounting officer was hired in
March 2007 at an annual base salary of $140,000. In connection with the consummation of the
Mergers, we increased the base salary of our executive vice president to $210,000.
Discretionary Annual Bonus
. In addition to base salaries, our compensation committee has the
authority to award discretionary annual bonuses to our executive officers. The annual incentive
bonuses
-54-
are intended to compensate officers for achieving corporate goals and value-creating
milestones. Each executive officer is eligible for a discretionary annual bonus up to an amount
equal to a specified percentage of such executive officers salary.
Long-Term Incentive Program
. We believe that long-term performance is achieved through an
ownership culture that encourages such performance by our executive officers through the use of
stock and stock-based awards. We believe that the use of equity and equity-based awards offers the
best approach to achieving our compensation goals. We have not adopted formal stock ownership
guidelines.
Our board of directors plans to adopt and implement a new stock incentive plan within the
coming months.
Severance and Change-in-Control Benefits
. Certain of our named executive officers are entitled
to certain severance and change of control benefits, the terms of which are described below under
Employment Agreements and Change in Control Arrangements. We believe these severance and
change-in-control benefits are an essential element of our executive compensation package and
assist us in recruiting and retaining talented individuals.
Restricted Stock Grants or Awards
. We did not grant any restricted stock or restricted stock
awards pursuant to our equity benefit plans to any of our executive officers in the year ended
December 31, 2006. However, our compensation committee, in its discretion, may in the future elect
to make such grants to our executive officers if it deems it advisable.
Other Compensation
. We intend to continue to maintain the current benefits and perquisites for
our executive officers; however, our compensation committee, in its discretion, may in the future
revise, amend or add to the benefits and perquisites of any executive officer if it deems it
advisable. The material terms of our employment agreements with our named executive officers are
described below under Employment Agreements and Change in Control Arrangements.
Summary Compensation Table
The following table sets forth a summary for the fiscal year ended December 31, 2006 of the
cash and non-cash compensation awarded, paid or accrued by the Company to our Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary($)
|
|
|
Bonus($)
|
|
|
Award(s)($)
|
|
|
Award(s) ($)
|
|
|
Compensation($)
|
|
|
Total($)
|
|
John A. Paganelli (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim Chief Executive Officer
|
|
|
2006
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
|
|
75,000
|
(2)
|
|
|
100,810
|
|
Phillip Frost, M.D. (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dale Pfost, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
(4)
|
|
|
2006
|
|
|
|
280,000
|
|
|
|
84,000
|
|
|
|
|
|
|
|
359,982
|
|
|
|
|
|
|
|
723,982
|
|
Adam Logal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Director of Finance and Chief Accounting
Officer
(5)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel J. Reich
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President (
6)
|
|
|
2006
|
|
|
|
172,000
|
|
|
|
51,600
|
|
|
|
|
|
|
|
193,470
|
|
|
|
|
|
|
|
417,070
|
|
Denis OShaughnessy (7) (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President of Clinical Development
|
|
|
2006
|
|
|
|
47,702
|
|
|
|
45,520
|
|
|
|
|
|
|
|
21,564
|
|
|
|
|
|
|
|
114,786
|
|
|
|
|
(1)
|
|
Mr. Paganelli served as the Companys interim Chief Executive Officer from June 29, 2005
and he resigned from this position upon the consummation of the Mergers.
|
-55-
|
|
|
(2)
|
|
Includes $75,000 of director fees for Mr. Paganelli.
|
|
(3)
|
|
Dr. Frost became the Companys Chief Executive Officer upon consummation of the Mergers.
|
|
(4)
|
|
Dr. Pfost served as the President and Chief Executive Officer of Acuity prior to the Mergers
and was appointed to be the Companys President on March 29, 2007.
|
|
(5)
|
|
Mr. Logal served as the Executive Director of Finance and Chief Accounting Officer of Acuity
prior to the Mergers and was appointed to be the Companys Executive Director of Finance,
Chief Accounting Officer and Treasurer on March 29, 2007.
|
|
(6)
|
|
Samuel Reich served as the Executive Vice President of Acuity prior to the Mergers and was
appointed to be the Companys Executive Vice President and Secretary on March 29, 2007.
|
|
(7)
|
|
Dr. OShaughnessy served as the Senior Vice President of Clinical Development of Acuity prior
to the Mergers and was appointed to be the Companys Senior Vice President of Clinical
Development on March 29, 2007.
|
|
(8)
|
|
Dr. OShaughnessy commenced employment with Acuity on November 13, 2006.
|
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information with respect to the Named Executive Officers
concerning equity awards granted by the Company as of December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
Number of Shares or
|
|
|
Market Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
Units of Stock That
|
|
|
Shares or Units of
|
|
|
|
Unexercised Options (#)
|
|
|
Unexercised Options (#)
|
|
|
Option Exercise
|
|
|
Option Expiration
|
|
|
Have Not
|
|
|
Stock That Have Not
|
|
Name
|
|
Exercisable (1)
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)
|
|
|
Vested ($)
|
|
Phillip Frost, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dale Pfost, Ph.D.
|
|
|
77,841
|
|
|
|
233,524
|
|
|
|
0.05
|
|
|
|
01/01/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
90,815
|
|
|
|
220,550
|
|
|
|
0.05
|
|
|
|
11/01/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
608,138
|
|
|
|
689,223
|
|
|
|
0.04
|
|
|
|
02/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
(2)
|
|
|
|
|
|
|
0.04
|
|
|
|
09/24/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
323,042
|
|
|
|
107,680
|
|
|
|
0.04
|
|
|
|
12/11/2013
|
|
|
|
|
|
|
|
|
|
John A. Paganelli
|
|
|
25,947
|
|
|
|
|
|
|
|
0.08
|
|
|
|
07/01/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
25,947
|
|
|
|
|
|
|
|
0.08
|
|
|
|
04/01/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
25,947
|
|
|
|
|
|
|
|
0.08
|
|
|
|
01/01/2016
|
|
|
|
|
|
|
|
|
|
Adam Logal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel J. Reich
|
|
|
71,920
|
|
|
|
215,766
|
|
|
|
0.05
|
|
|
|
01/01/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
83,907
|
|
|
|
203,778
|
|
|
|
0.05
|
|
|
|
11/01/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
214,063
|
|
|
|
242,605
|
|
|
|
0.04
|
|
|
|
02/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
131,360
|
|
|
|
102,169
|
|
|
|
0.04
|
|
|
|
09/21/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
194,603
|
|
|
|
64,867
|
|
|
|
0.04
|
|
|
|
12/11/2013
|
|
|
|
|
|
|
|
|
|
Denis OShaughnessy
|
|
|
32,433
|
|
|
|
745,980
|
|
|
|
0.06
|
|
|
|
10/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
259,471
|
(3)
|
|
|
|
|
|
|
0.06
|
|
|
|
10/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Except as noted below, all options vest in 48 equal monthly installments beginning on the
date of grant.
|
|
(2)
|
|
This option was fully vested on the grant date.
|
|
(3)
|
|
This option was fully vested on the grant date.
|
Director Compensation
The following table sets forth information with respect to compensation of directors of the
Company during fiscal year 2006.
-56-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid
|
|
|
|
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
|
|
in Cash
|
|
|
Stock Award
|
|
|
Awards
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Robert Baron
|
|
|
50,000
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,810
|
|
David A, Eichler
|
|
|
|
|
|
|
|
|
|
|
13,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,815
|
|
Michael Reich (1)
|
|
|
|
|
|
|
|
|
|
|
46,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,960
|
|
Steven D. Rubin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jane H. Hsiao, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At December 31, 1006, Michael Reich had outstanding options to purchase 291,644 shares of
our Common Stock.
|
We are currently considering compensation policies for directors of the Company. In the
future, we may adopt a policy of paying independent directors an annual retainer and a fee for
attendance at board and committee meetings. We anticipate reimbursing each director for reasonable
travel expenses related to such directors attendance at board of directors and committee meetings.
Employment Agreements and Change in Control Arrangements
Dale R. Pfost, Ph.D.
We are employing Dale R. Pfost as our President. Under his employment
agreement, Dr. Pfost receives an annual base salary, subject to increases upon an annual review by
our board of directors. Dr. Pfosts current salary is $280,000. The agreement provides for a
discretionary annual bonus based on Dr. Pfosts performance and our business results as determined
by our board of directors. Under the agreement, either we or Dr. Pfost may terminate his
employment at any time, subject to continuation of salary payment and benefits for 12 months if we
terminate Dr. Pfosts employment without cause, if Dr. Pfost terminates his employment for good
reason or we give Dr. Pfost notice of our intention not to renew the term of the agreement prior to
its expiration. The employment period will automatically be extended for one additional year
unless either the Company or Dr. Pfost shall have given to the other party written notice of
non-extension at least thirty (30) days prior to such anniversary. In addition, all unvested
options to acquire shares of the Companys capital stock will vest immediately upon a change in
control.
Samuel J. Reich.
We are employing Samuel J. Reich as our Executive Vice President and
Secretary. Under his employment agreement, Mr. Reich receives an annual base salary, subject to
increases upon an annual review by our board of directors. Mr. Reichs current salary is $210,000.
The agreement provides for a discretionary annual bonus based on Mr. Reichs performance and our
business results as determined by our board of directors. Under the agreement, either we or Mr.
Reich may terminate his employment at any time, subject to continuation of salary payment and
benefits for 12 months if we terminate Mr. Reichs employment without cause, if Mr. Reich
terminates his employment for good reason or if we give Mr. Reich notice of our intent not to renew
the agreement after the initial year of his employment with the Company. The employment period
will automatically be extended for one additional year unless either the Company or Mr. Reich shall
have given to the other party written notice of non-extension at least thirty (30) days prior to
such anniversary. We have agreed to grant Mr. Reich an option to purchase 500,000 shares of our
common stock upon subject to the adoption of and approval by our stockholders of a new equity
incentive plan.
-57-
Denis OShaughnessy, Ph.D
. We are employing Dr. OShaughnessy as our Senior Vice President of
Clinical Development. We have entered into a severance agreement with Dr. OShaughnessy which
provides that if terminate his employment without cause during his first year of employment, we are
obligated to pay him severance equal to three months salary following termination. The severance
period increases by three months after each year of employment up to twelve months. We have also
agreed to continue vesting of his options during the applicable severance period.
Adam Logal
.
We are employing Adam Logal as our Executive Director of Finance, Chief
Accounting Officer and Treasurer. We have agreed to enter into a severance agreement with Mr.
Logal to provide that: Mr. Logal will receive four months of paid salary and continued benefits if
he is terminated without cause or he reasons for good reason. Upon such termination, we have
agreed to accelerate the vesting of all unvested stock options granted to Mr. Logal in connection
with the commencement of his employment.
If we terminated our named executive officers without cause or they resigned for good reason
on December 31, 2006, we would have to make the payments set forth in the following chart:
|
|
|
|
|
|
|
|
|
|
|
Cash Payments upon
|
|
|
|
|
|
|
Termination without
|
|
|
|
|
|
|
Cause or
|
|
|
|
|
|
|
Resignation for
|
|
|
|
|
Name and Principal Position
|
|
Good Reason
|
|
|
Vesting of Stock Options
|
|
John A. Paganelli (1)
Interim Chief Executive Officer
|
|
None
|
|
None
|
Phillip Frost, M.D.
Chief Executive Officer
|
|
None
|
|
None
|
Adam
Logal
Executive Director of Finance, Chief Accounting Officer and Treasurer
|
|
$
|
46,667
|
|
|
|
389,207
|
|
Dale Pfost, Ph.D.
President
|
|
$
|
280,000
|
|
|
|
587,702
|
|
Samuel J. Reich
Executive Vice President and Secretary
|
|
$
|
210,000
|
|
|
|
376,394
|
|
Denis OShaughnessy
Senior Vice President of
Clinical Development
|
|
$
|
88,333
|
|
|
|
48,650
|
|
Stock Option Plans
Immediately prior to the closing of the Mergers, Acuity had options to purchase 2,191,619
shares of common stock and options to purchase 141,000 shares of its Series B preferred stock.
Immediately prior to the closing of the Mergers, Froptix had options to purchase 65 shares of
common stock. Pursuant to the terms of Merger Agreement, we assumed all of the outstanding Froptix
and Acuity options and, accordingly, we anticipate issuing 15,810,064 shares of our common stock
and 7,317 shares of our Series C preferred stock, which will be convertible into 731,700 shares of
our common stock, upon the exercise of such options.
Immediately prior to the closing of the Mergers, we had outstanding options to purchase
240,000 shares of common stock under our Amended and Restated 2000 Stock Option Plan.
-58-
New Incentive Plan to be Adopted
Our board of directors plans to adopt and implement a new stock incentive plan within the
coming months.
Corporate Governance
The Company currently trades its shares on the National Association of Securities Dealers,
Inc.s, OTC Bulletin Board, or OTCBB. Accordingly, we are not required to have an audit,
compensation or nominating committee. However, we plan to submit a listing application to list our
shares on the American Stock Exchange. We cannot assure you that we will be successful in listing
our shares with the American Stock Exchange. We currently monitor developments in the area of
corporate governance to ensure we will be in compliance with the standards and regulations required
by the American Stock Exchange. A summary of our corporate governance measures follows:
Independent Directors
We believe a majority of the members of our board of directors are independent from
management. When making determinations from time to time regarding independence, the board of
directors will reference the listing standards adopted by the American Stock Exchange as well as
the independence standards set forth in the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated by the SEC under that Act. In particular, our audit committee will
periodically evaluate and report to the board of directors on the independence of each member of
the Board. Our audit committee will analyze whether a director is independent by evaluating, among
other factors, the following:
|
1.
|
|
Whether the member of the board of directors has any material relationship with
us, either directly, or as a partner, stockholder or officer of an organization that
has a relationship with us;
|
|
|
2.
|
|
Whether the member of the board of directors is a current employee of our
company or our subsidiaries or was an employee of our company or our subsidiaries
within three years preceding the date of determination;
|
|
|
3.
|
|
Whether the member of the board of directors is, or in the three years
preceding the date of determination has been, affiliated with or employed by (i) any of
our present internal or external auditors or any affiliate of such auditor, or (ii) any
of our former internal or external auditors or any affiliate of such auditor, which
performed services for us within three years preceding the date of determination;
|
|
|
4.
|
|
Whether the member of the board of directors is, or in the three years
preceding the date of determination has been, part of an interlocking directorate, in
which any of our executive officers serve on the compensation committee of another
company that concurrently employs the member as an executive officer;
|
|
|
5.
|
|
Whether the member of the board of directors receives any compensation from us,
other than fees or compensation for service as a member of the board of directors and
any committee of the board of directors and reimbursement for reasonable expenses
incurred in connection with such service and for reasonable educational expenses
associated with board of directors or committee membership matters;
|
|
|
6.
|
|
Whether an immediate family member of the member of the board of directors is
|
-59-
|
|
|
currently or was an executive officer of ours within three years preceding the date
of determination;
|
|
|
7.
|
|
Whether an immediate family member of the member of the board of directors is,
or in the three years preceding the date of determination has been, affiliated with or
employed in a professional capacity by (i) any of our present internal or external
auditors, or (ii) any of our former internal or external auditors which performed
services for us within three years preceding the date of determination; and
|
|
|
8.
|
|
Whether an immediate family member of the member of the board of directors is,
or in the three years preceding the date of determination has been, part of an
interlocking directorate, in which any of our executive officers serve on the
compensation committee of another company that concurrently employs the immediate
family member of the member of the board of directors as an executive officer.
|
The above list is not exhaustive and we anticipate that the audit committee will consider all
other factors which could assist it in its determination that a director will have no material
relationship with us that could compromise that directors independence.
Our non-management directors will hold formal meetings, separate from management, at least two
times per year.
We have no formal policy regarding attendance by our directors at annual stockholders
meetings, although we encourage such attendance and anticipate most of our directors will attend
these meetings.
Steven D. Rubin has participated in discussions with our named executive officers regarding
their employment agreements and the terms of their employment.
Personal Loans to Executive Officers and Directors
We currently prohibit extensions of credit in the form of a personal loan from us to our
directors and executive officers.
Communications with the Board of Directors
Anyone who has a concern about our conduct, including accounting, internal accounting controls
or audit matters, may communicate directly with the audit committee. These communications may be
confidential or anonymous, and may be mailed, e-mailed, submitted in writing or reported by phone.
All of these concerns will be forwarded to the appropriate directors for their review.
Item 7. Certain Relationships and Related Transactions, and Director Independence.
Jane H. Hsiao and Steven D. Rubin, two of our directors, and a trust controlled by Dr. Phillip
Frost, our Chief Executive Officer and Chairman of the board of directors are members of The Frost
Group, LLC, an entity which controls approximately 13.3% of our outstanding voting securities.
Furthermore, the trust that is a member of the Frost Group owns 39% of our outstanding voting
securities and 55.16% of our outstanding common stock. We are parties to a credit agreement with
the Frost Group under which we have access to a line of credit with available borrowings of $12.0
million. To date, $4.0 million has been drawn under the line of credit by Acuity prior to the
Mergers and the obligation to repay this amount was assumed by us as a result of the Mergers. We
are obligated to pay interest at a 10%
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annual rate on the borrowings on the line of credit. In connection with the entering into the
line of credit, we have granted 4,000,000 warrants to purchase shares of common stock to The Frost
Group, LLC.
Our principal corporate office is now located at 4400 Biscayne Blvd, Suite 900, Miami,
Florida. We rent this space from Frost Real Estate Holdings, LLC, which is a company controlled by
Dr. Phillip Frost, our chief executive officer and chairman.
Until a formal policy is established, the independent members of the our board of directors
will review and approve all future transactions that would be required to be reported under Item
404(a) of Regulation S-K.
Registration Rights Agreement
Pursuant to the Merger Agreement, certain of our stockholders are entitled to certain rights
with respect to the registration of the shares of our capital stock. Under the terms of these
registration rights, if we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other security holders, such holders are entitled
to notice of such registration and are entitled to include up to fifty percent (50%) of the shares
of our common stock held by such stockholders in the registration.
Item 8. Legal Proceedings.
None.
Item 9. Market Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters.
The Registrants common stock is traded on the OTCBB under the symbol EXEG.OB. We issued
76,610,981 shares of our common stock pursuant to the Mergers and, accordingly, there are currently
113,116,350 shares of common stock outstanding. As of March 29, 2007, the closing price for our
common stock was $3.57 per share. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
As of the close of business on March 29, 2007, there were approximately 210 holders of record
of our common stock.
We have no plans to declare cash dividends on our common stock in the future and have not
declared any thus far during fiscal year 2006 or during the last two completed fiscal years. There
are restrictions that limit our ability to declare cash dividends on our common stock. We have
agreed not to pay any cash dividends on our common stock pursuant to our loan agreement with
Horizon Technology Funding Company LLC. We have also agreed not to declare any dividends on our
common stock until we have paid the 2% cumulative dividend on our Series C preferred stock.
Item 10. Recent Sales of Unregistered Securities
On March 27, 2007, in connection with the Mergers, the Company entered into a $12,000,000 line
of credit with The Frost Group, LLC, a Florida limited liability company controlled by certain of
our directors. In partial consideration for the line of credit, the Company granted The Frost
Group warrants to purchase 4,000,000 shares of our common stock.
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In January 2007, Acuity issued warrants to purchase up to 125,000 shares of Series B preferred
stock and warrants to purchase 15,625 shares of its common stock to The First Group in connection
with the entry into a $7,000,000 line of credit. The warrants were assumed by us as a result of
the Mergers and now represent warrants to purchase 6,487 shares of our Series C preferred stock and
147,458 shares of our common stock.
During the second quarter of fiscal year 2006, Froptix Corporation issued 905 shares of common
stock to a group of private investors in exchange for $639,000 in the aggregate. These shares were
converted into 61,775,002 shares of our common stock and warrants to purchase 15,632,969 shares of
our common stock in the Mergers.
In September 2005, Acuity issued warrants to purchase up to 200,000 shares of Series B
preferred stock and warrants to purchase 25,000 shares of its common stock to Horizon Technology
Funding Company LLC in connection with a loan from Horizon Technology Funding Company LLC to Acuity
of $4,000,000. The warrants were assumed by us as a result of the Mergers and now represent
warrants to purchase 10,379 shares of our Series C preferred stock and 235,932 shares of our common
stock.
Between September and December 2004, Acuity issued 4,408,839 shares of its Series B preferred
stock and warrants to purchase 585,823 shares of common stock in a private placement to a group of
investors for $8,203,500. These shares of Acuity Series B preferred stock were converted into
228,792 shares of our Series C preferred stock and warrants to purchase 2,057,288 shares of our
Common stock in the Mergers. Furthermore, we assumed the Acuity warrants to purchase shares of
Acuity common stock as a result of the Mergers and these warrants now represent warrants to
purchase 3,242,788 shares of our common stock.
Between May and July 2005, Acuity issued 4,408,839 shares of its Series B preferred stock and
warrants to purchase 585,823 shares of common stock in a private placement to a group of investors
for $8,203,500. These shares of Acuity Series B preferred stock were converted into 228,792
shares of our Series C preferred stock and warrants to purchase 2,057,288 shares of our common
stock in the Mergers. Furthermore, we assumed the Acuity warrants to purchase shares of Acuity
common stock as a result of the Mergers and these warrants now represent warrants to purchase
3,242,788 shares of our common stock.
Between December 2003 and January 2004, Acuity issued 742,000 shares of its Series A preferred
stock in a private placement to a group of investors for $1,484,000. These shares were converted
into 1,925,284 shares of our common stock and warrants to purchase 350 222 shares of our common
stock in the Mergers.
Between March and July 2003, Acuity issued 1,141,015 shares of its common stock in private
placements to group of investors for $1,313,189. These shares were converted into 5,921,217 shares
of our common stock and warrants to purchase 538,537 shares of our common stock in the Mergers.
In March 2003, Acuity issued 408,334 shares of common stock to the University of Pennsylvania
in a private placement in connection with the entry into two license agreements with Acuity. These
shares were converted into 2,119,021 shares of our common stock and warrants to purchase 192,726
shares of our common stock in the Mergers.
In March 2005, Acuity issued 250,000 shares of common stock to the Intradigm Corporation in a
private placement in connection with the entry into a license and collaboration agreement with
Acuity. These shares were converted into 1,297,358 shares of our common stock and warrants to
purchase 117,995 shares of our common stock in the Mergers.
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We believe that the securities sold in the foregoing transactions were exempt from
registration under the Securities Act in reliance upon Section 4(2) or Regulation D of the
Securities Act.
From March 2003 through December 2006, Acuity granted 317,528 shares of stock to its
employees, consultants and directors. These shares were converted into 1,647,789 shares of our
common stock and warrants to purchase 149,867 shares of our common stock in the Mergers.
From March 2003 through January 11, 2007, Acuity issued options to approximately 50 employees,
consultants, and directors to purchase up to an aggregate total of 2,191,619 of its common shares,
which we have assumed in connection with the Mergers and which now represent options to purchase
11,373,186 shares of our common stock. The exercise prices per share ranged from $0.20 to $2.87
prior to the Mergers and have been proportionately adjusted based on the adjustment to the number
of shares issuable upon exercise of such options. In September 2004 Acuity issued an option to its
president to purchase 141,000 shares of its Series B preferred stock which we have assumed in
connection with the Mergers and which now represent options to purchase 7,317 shares of our Series
C preferred stock which are convertible into 731,700 shares of our common stock. The exercise
price per share was $1.65 prior to the Mergers and has been proportionately adjusted based on the
adjustment to the number of shares issuable upon exercise of such options. As of January 11, 2007,
options to purchase 29,250 shares of Acuitys common stock have been exercised by a consultant of
Acuity.
In July 2006, Froptix issued options to one of its founders to purchase up to an aggregate
total of 65 of its common shares which we have assumed in connection with the Mergers and which now
represent options to purchase 4,436,878 shares of our common stock. The exercise price per share
was $706 prior to the Mergers and has been proportionately adjusted based on the adjustment to the
number of shares issuable upon exercise of such options.
No consideration was paid to Acuity or Froptix by any recipient of any of the foregoing
options for the grant of such options. We believe that the securities sold in these transactions
were exempt from registration under the Securities Act in reliance upon Rule 701 or Regulation D of
the Securities Act.
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ITEM 11. Description of Registrants Securities.
Our authorized capital stock consists of 225,000,000 shares of common stock, par value $.01
per share, and 10,000,000 shares of preferred stock, par value $.01 per share.
Common Stock
Of the authorized common stock, 113,116,350 shares are currently outstanding and are held by
approximately 210 record holders. Subject to the prior rights of the holders of any shares of
preferred stock currently outstanding or which may be issued in the future, the holders of the
common stock are entitled to receive dividends from our funds legally available therefor when, as
and if declared by our board of directors, and are entitled to share ratably in all of our assets
available for distribution to holders of common stock upon the liquidation, dissolution or
winding-up of our affairs subject to the liquidation preference, if any, of any then outstanding
shares of preferred stock. Holders of our common stock do not have any preemptive, subscription,
redemption or conversion rights. Holders of our common stock are entitled to one vote per share on
all matters which they are entitled to vote upon at meetings of stockholders or upon actions taken
by written consent pursuant to Delaware corporate law. The holders of our common stock do not have
cumulative voting rights, which means that the holders of a plurality of the outstanding shares can
elect all of our directors. All of the shares of our common stock currently issued and outstanding
are fully-paid and nonassessable. No dividends have been paid to holders of our common stock since
our incorporation, and no cash dividends are anticipated to be declared or paid in the reasonably
foreseeable future.
Preferred Stock
Our board of directors has the authority, without further action by the holders of the
outstanding common stock, to issue preferred stock from time to time in one or more classes or
series, to fix the number of shares constituting any class or series and the stated value thereof,
if different from the par value, as to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price and the liquidation preference
of such class or series. We presently have two series of preferred stock outstanding, designated as
Series A convertible preferred stock (the Series A preferred stock) and Series C convertible
preferred stock (the Series C preferred stock). We have no present plans to issue any other
series or class of preferred stock. The designations, rights and preferences of the Series A
preferred stock and the Series C Preferred Stock are set forth in the certificate of designations
of Series A convertible preferred stock and the certificate of designations of Series C convertible
preferred stock, each of which has been filed with the Secretary of State of the State of Delaware.
Series A Preferred Stock
Of the authorized preferred stock, 4,000,000 shares have been designated Series A preferred
stock, 1,083,404 of which are currently issued and outstanding and held by 71 stockholders.
Dividends are payable on the Series A preferred stock in the amount of $.25 per share, payable
annually in arrears. At the option of our board of directors, dividends will be paid either (i)
wholly or partially in cash or (ii) in newly issued shares of Series A preferred stock valued at
$2.50 per share to the extent cash dividend is not paid.
Holders of Series A preferred stock have the right to convert their shares, at their option
exercisable at any time, into shares of our common stock on a one-for-one basis subject to
anti-dilution
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adjustments. These anti-dilution adjustments are triggered in the event of any subdivision or
combination of our outstanding common stock, any payment by us of a stock dividend to holders of
our common stock or other occurrences specified in the certificate of designations relating to the
Series A preferred stock. We may elect to convert the Series A preferred stock into common stock or
a substantially equivalent preferred stock in the case of a merger or consolidation in which we do
not survive, a sale of all or substantially all of our assets or a substantial reorganization of
us.
Each share of Series A preferred stock is entitled to one vote on all matters on which the
common stock has the right to vote. Holders of Series A preferred stock are also entitled to vote
as a separate class on any proposed adverse change in the rights, preferences or privileges of the
Series A preferred stock and any increase in the number of authorized shares of Series A preferred
stock. In the event of any liquidation or winding up of the Company, the holders of the Series A
preferred stock will be entitled to receive $2.50 per share plus any accrued and unpaid dividends
before any distribution to the holders of the common stock and any other class of series of
preferred stock ranking junior to it.
We may redeem the outstanding shares of Series A preferred stock for $2.50 per share (plus
accrued and unpaid dividends), at any time.
Series B Junior Participating Preferred Stock
Of the authorized preferred stock, 30,000 shares have been designated Series B Junior
Participating preferred stock, none of which are currently issued and outstanding.
Series C Preferred Stock
Of the authorized preferred stock, 500,000 shares have been designated Series C preferred
stock, of which 457,589 are currently issued and outstanding and held by 30 stockholders.
Cumulative dividends are payable on the Series C preferred stock in the amount of $1.54 per share
when declared by the board of directors.
Holders of our Series C preferred stock have the right to convert their shares, at their
option exercisable at any time, into shares of our common stock on a one hundred-for-one basis
subject to anti-dilution adjustments. These anti-dilution adjustments are triggered in the event of
any subdivision or combination of our outstanding common stock, any payment by us of a stock
dividend to holders of our common stock or other occurrences specified in the certificate of
designations relating to the Series C preferred stock.
The shares of Series C preferred stock will automatically convert into shares of common stock,
on a one-hundred-for-one basis (subject to adjustment as noted above), if (a) our common stock
trades above $3.83 per share on any of the specified exchanges for ten consecutive days, (b) we
raise at least $30,000,000 in proceeds at a per share valuation of at least $1.92, or (c) at least
60% of the holders of the Series C preferred stock so elect.
Each share of Series C preferred stock is entitled to 100 votes on all matters on which the
common stock has the right to vote. Holders of Series C preferred stock are also entitled to vote
as a separate class on any proposed adverse change in the rights, preferences or privileges of the
Series C preferred stock and any increase in the number of authorized shares of Series C preferred
stock. In the event of any liquidation or winding up of the Company or any change of control
transaction (including certain mergers and sales of stock or assets), the holders of our Series C
preferred stock will be entitled to receive $77.00 per share plus any accrued and unpaid dividends
before any distribution to the holders of the other classes of preferred stock or common stock.
The Series C preferred stock will be entitled
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hereafter (and after the payment of any other liquidation preference on any other class or
series of preferred stock) to share in our remaining assets on a pro-rata basis with the holders of
common stock and any other series or class of participating preferred stock.
Each holder of Series C preferred stock has a pre-emptive right to purchase a pro rata share
of any equity securities offered for sale by us in a private placement transaction for a period of
18 months following the Mergers subject to customary exceptions set forth in the certificate of
designations relating to the Series C preferred stock.
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, our By-Laws and
Delaware Law
Delaware Statute.
We are subject to Section 203 of the Delaware General Corporation law, which prohibits a
publicly held Delaware corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
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prior to such date, our board of directors approves either the business combination
or the transaction that resulted in the stockholders becoming an interested
stockholder;
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upon consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of our outstanding
voting stock, excluding shares held by directors, officers and certain employee stock
plans; or
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on or after the consummation date, the business combination is approved by our
board of directors and by the affirmative vote at an annual or special meeting of
stockholders holding of at least two-thirds of our outstanding voting stock that is not
owned by the interested stockholder.
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For purposes of Section 203, a business combination includes, among other things, a
merger, asset sale or other transaction resulting in a financial benefit to the interested
stockholder, and an interested stockholder is generally a person who, together with affiliates
and associates of such person:
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owns 15% or more of outstanding voting stock; or
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is an affiliate or associate of ours and was the owner of 15% or more of our
outstanding voting stock at any time within the prior three years.
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Certificate of Incorporation and Bylaw Provisions.
Our amended and restated certificate of incorporation and amended and restated bylaws include
provisions that, among others, could have the effect of delaying, deferring, or discouraging
potential acquisition proposals and could delay or prevent a change of control of us. The
provisions in our certificate of incorporation and bylaws that may have such effect include:
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Preferred Stock
. As noted above, our board of directors, without stockholder
approval, has the authority under our certificate of incorporation to issue preferred
stock with rights superior to the rights of the holders of common stock. As a result,
we could issue preferred stock quickly and easily, which could adversely affect the
rights of holders of
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our common stock and could be issued with terms calculated to delay or prevent a
change of control or make removal of management more difficult.
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Election and Removal of Directors
. Directors may be removed by the affirmative vote
of the holders of at least a majority of the voting power of all of
the outstanding shares of capital stock of the corporation entitled to vote thereon, voting together as
a single class.
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Stockholder Meetings
. Under our certificate of incorporation and bylaws, special
meetings of our stockholders may be called only by the vote of a majority of the entire
board. Our stockholders may not call a special meeting of the stockholders.
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Requirements for Advance Notification of Stockholder Nominations and Proposals
. Our
bylaws establish advance notice procedures with respect to stockholder proposals and
the nomination of candidates for election as directors, other than nominations made by
or at the direction of our board of directors or a committee thereof.
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ITEM 12. Indemnification of Directors and Officers.
The Delaware General Corporation Law and certain provisions of our bylaws under certain
circumstances provide for indemnification of our officers, directors and controlling persons
against liabilities which they may incur in such capacities. A summary of the circumstances in
which such indemnification is provided for is contained herein, but this description is qualified
in its entirety by reference to our bylaws and to the statutory provisions.
In general, any officer, director, employee or agent may be indemnified against expenses,
fines, settlements or judgments arising in connection with a legal proceeding to which such person
is a party, if that persons actions were in good faith, were believed to be in our best interest,
and were not unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent decision of the board of
directors, by legal counsel, or by a vote of the stockholders, that the applicable standard of
conduct was met by the person to be indemnified.
The circumstances under which indemnification is granted in connection with an action brought
on our behalf is generally the same as those set forth above; however, with respect to such
actions, indemnification is granted only with respect to expenses actually incurred in connection
with the defense or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith and in a manner believed to have been in our best interest, and have not
been adjudged liable for negligence or misconduct.
Indemnification may also be granted pursuant to the terms of agreements which may be entered
into in the future or pursuant to a vote of stockholders or directors. The statutory provision
cited above also grants the power to us to purchase and maintain insurance which protects our
officers and directors against any liabilities incurred in connection with their service in such a
position, and such a policy may be obtained by us.
A stockholders investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers as required by these indemnification
provisions. At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification by us is sought, nor are we aware
of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been
informed that, in the opinion of the SEC, this indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Items 3.02. Unregistered Sales of Equity Securities.
The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by
reference.
Item. 5.01. Changes in Control of Registrant.
As a result of the Mergers described in Item 2.01 to this Current Report on Form 8-K,
including the Form 10 disclosures, The Frost Group, LLC which beneficially owned (as such term is
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) 15,490,546 shares of
common stock of
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the Company, representing 41.27% of the then outstanding voting securities of the Company
prior to the Mergers, together with its members, now beneficially own 77,265,548 shares of common
stock, representing 48% of now outstanding voting securities of the Company.
The disclosure set forth in Item 2.01 of this Current Report on Form 8-K, including the Form
10 disclosures, is incorporated into this item by reference.
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Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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The disclosure set forth in Item 2.01 of this Current Report on Form 8-K, including the Form
10 disclosures, is incorporated into this item by reference.
Effective as at the closing of the Mergers, Subbarao Uppaluri resigned from the board of
directors of eXegenics.
At the closing of the Mergers, in accordance with our bylaws for filling newly-created board
vacancies, our directors appointed David Eichler and Michael Reich to our board of directors. On
March 29, 2007, Richard A, Lerner, M.D. and Melvin L. Rubin, M.D. were added to our board of
directors. All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors.
After the closing of the Mergers, our board of directors appointed the following persons to
serve in the offices set forth immediately after their names:
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Name
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Title
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Phillip Frost, M.D.
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Chief Executive Officer and Chairman of the Board
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Dale R. Pfost, Ph.D.
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President
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Samuel J. Reich
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Executive Vice President
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Adam Logal
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Executive Director of Finance,
Chief Accounting Officer, Treasurer and Secretary
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Shalesh Kaushal, M.D., Ph.D.
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Chief Scientific Officer
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Denis OShaughnessy, Ph.D.
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Senior Vice President of Clinical Development
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Officers serve at the discretion of our board of directors.
Item 5.06. Change in Shell Company Status.
The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by
reference. As a result of the completion of the Mergers, we believe we are no longer a Shell
Company as that term is defined in Rule 12(b)-2 of the Exchange Act.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
(b) Pro forma financial information.
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INDEX TO FINANCIAL STATEMENTS
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Froptix Corporation
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Audited Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
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F-3
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Balance Sheet as of December 31, 2006
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F-4
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Statement of Operations For the Period From June 23, 2006 (Inception) to December 31, 2006
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F-5
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Statement of Changes in Stockholders Equity For the Period From June 23, 2006 (Inception)
to December 31, 2006
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F-6
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Statement of Cash Flows For the Period From June 23, 2006 (Inception) to December 31, 2006.
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F-7
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Notes to Consolidated Financial Statements
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F-8
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Acuity Pharmaceuticals, Inc.
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Audited Consolidated Financial Statements
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Independent Auditors Report
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F-15
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Balance Sheets, December 31, 2006 and 2005
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F-16
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Statements of Operations, Years ended December 31, 2006, 2005 and 2004 and Period from
March 27, 2003 (inception) to December 31, 2006
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F-17
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Statements of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit),
Period from March 27, 2003 (inception) to December 31, 2006
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F-18
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Statements of Cash Flows, Years ended December 31, 2006, 2005 and 2004 and Period from
March 27, 2003 (inception) to December 31, 2006
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F-20
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Notes to Financial Statements
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F-21
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Pro Forma Financial Information
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F-36
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F-1
Froptix Corporation
(A Development Stage Company)
Financial Statements
Year Ended December 31, 2006
Contents
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F-3
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Financial Statements
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F-4
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F-5
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F-6
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F-7
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F-8
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F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Froptix Corporation
We have audited the accompanying balance sheet of Froptix Corporation (a Florida corporation in the
development stage) as of December 31, 2006, and the related statements of operations, changes in
stockholders equity and cash flows for the period from June 23, 2006 (inception) to December 31,
2006. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and 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 financial position of Froptix Corporation as of December 31, 2006, and the results of
its operations and its cash flows for the period from June 23, 2006 (inception) to December 31,
2006, in conformity with U.S. generally accepted accounting principles.
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Certified Public Accountants
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Miami, Florida
March 23, 2007
F-3
Froptix Corporation
(A Development Stage Company)
Balance Sheet
December 31, 2006
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Assets
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Current assets:
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Cash and cash equivalents
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$
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115,765
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Total assets
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$
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115,765
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Liabilities and stockholders equity
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Current liabilities:
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|
|
Accounts payable and accrued expenses
|
|
$
|
95,247
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders equity :
|
|
|
|
|
Common stock, $0.01 par value; authorized 1,000 shares;
issued and outstanding 905 shares
|
|
|
9
|
|
Additional paid-in capital
|
|
|
897,288
|
|
Deficit accumulated during development stage
|
|
|
(876,779
|
)
|
|
|
|
|
Total stockholders equity
|
|
|
20,518
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
115,765
|
|
|
|
|
|
See accompanying notes.
F-4
Froptix Corporation
(A Development Stage Company)
Statement of Operations
For the Period From June 23, 2006 (Inception) to December 31, 2006
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
Research and development
|
|
|
507,866
|
|
General and administrative
|
|
|
374,610
|
|
|
|
|
|
Operating loss
|
|
|
(882,476
|
)
|
|
|
|
|
Interest income
|
|
|
5,697
|
|
|
|
|
|
Loss before income taxes
|
|
|
(876,779
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(876,779
|
)
|
|
|
|
|
Basic and
diluted (loss) per share
|
|
$
|
(990
|
)
|
|
|
|
|
Basic and
diluted weighted average shares outstanding
|
|
|
885
|
|
|
|
|
|
See accompanying notes.
F-5
Froptix Corporation
(A Development Stage Company)
Statement of Changes in Stockholders Equity
For the Period From June 23, 2006 (Inception) to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
During
|
|
Total
|
|
|
Common stock
|
|
Paid-in
|
|
Development
|
|
Stockholders
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at inception at $705.89 per share
|
|
|
850
|
|
|
$
|
8
|
|
|
$
|
599,992
|
|
|
$
|
|
|
|
$
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at $705.89 per share on August
30, 2006
|
|
|
55
|
|
|
|
1
|
|
|
|
38,823
|
|
|
|
|
|
|
|
38,824
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
258,473
|
|
|
|
|
|
|
|
258,473
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(876,779
|
)
|
|
|
(876,779
|
)
|
|
|
|
Balance, December 31, 2006
|
|
|
905
|
|
|
$
|
9
|
|
|
$
|
897,288
|
|
|
$
|
(876,779
|
)
|
|
$
|
20,518
|
|
|
|
|
See accompanying notes.
F-6
Froptix Corporation
(A Development Stage Company)
Statement of Cash Flows
For the Period From June 23, 2006 (Inception) to December 31, 2006
|
|
|
|
|
Operating activities
|
|
|
|
|
Net loss
|
|
$
|
(876,779
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Stock-based compensation expense
|
|
|
258,473
|
|
Changes in operating liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
95,247
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(523,059
|
)
|
|
|
|
|
|
Financing activity
|
|
|
|
|
Proceeds from sales of common stock, net
|
|
|
638,824
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
115,765
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
115,765
|
|
|
|
|
|
See accompanying notes.
F-7
Froptix Corporation
(A Development Stage Company)
Notes to Financial Statements
For the Period From June 23, 2006 (Inception) to December 31, 2006
1. Organization and Business Activities
Froptix Corporation (the Company) was incorporated in Florida on June 23, 2006 (inception). An
affiliate of the Company assigned license and research agreements with the University of Florida to
the Company on June 23, 2006 (see Note 6). The Company is a development stage ophthalmic
pharmaceutical company engaged in the development of therapeutics to treat and prevent ophthalmic
disorders and diseases. The Company is currently devoting substantially all of its efforts toward
conducting pharmaceutical discovery and development, and negotiating strategic corporate
relationships.
2. Development Stage Risks and Liquidity
The Company has not generated any revenues and has incurred losses since its inception. There is no
assurance that profitable operations can be achieved, and, if ever achieved, can be sustained on a
continuing basis. In addition, development activities and clinical and preclinical testing and
commercialization of the Companys proprietary technology will require significant additional
financing. The Companys deficit accumulated during the development stage through December 31, 2006
is $876,779, and the Companys management expects to incur substantial and increasing losses in
future periods.
Further, the Companys future operations are dependent on, among other factors, the services of its
future employees and consultants, the success of the Companys research, development, manufacture,
and marketing activities, and, ultimately, regulatory and market acceptance of the Companys
proposed future products.
The financial statements do not include any adjustments that might result from the outcome of
above-mentioned uncertainties.
The Companys founders have committed to finance future operations with additional capital
contributions of up to $1 million. However, if additional funds are raised through a combination of
private placements of equity and/or debt, the founders may reduce their capital contribution
commitment to the extent of funds raised, dollar for dollar, up to $1 million. See Note 8.
F-8
Froptix Corporation
(A Development Stage Company)
Notes to Financial Statements (continued)
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date
of the financial statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when
purchased to be cash equivalents. As of December 31, 2006, cash and cash equivalents consists of
bank deposit accounts and money market funds.
Research and Development
Research and product development costs are charged to expense as incurred.
Income Taxes
Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and the respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in operations in the period that includes
the enactment date.
Deferred income taxes are recorded for the tax effects of temporary differences between the basis
of assets and liabilities recognized for financial reporting purposes and the tax basis, and net
operating losses and credits. The most significant component of the Companys net deferred tax
assets as of December 31, 2006 is its net operating loss carryforward. A full valuation allowance
was established for the deferred tax assets, as management of the Company does not believe
realization of the tax benefits is more likely than not.
F-9
Froptix Corporation
(A Development Stage Company)
Notes to Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Comprehensive Loss
The Companys comprehensive loss has no components other than its net loss.
Loss
Per Share
(Loss) per
share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. All
outstanding stock options and warrants are considered potential
common stock. The dilutive effect, if any, of stock options and
warrants is calculated using the treasury stock method. The
Companys stock options (discussed in Note 4) were not
included in the calculation of diluted loss per share because their
impact is antidilutive.
Stock-Based Compensation
We account for non-employee stock-based compensation in accordance with Statement of Financial
Accounting Standards No. 123R,
Accounting for Stock Based Compensation
(SFAS 123R) and Emerging
Issues Task Force No. 96-18
Accounting for Equity Instruments That are Issued to Other Employees
for Acquiring or in Conjunction with Selling Goods and Services
(EITF 96-18). SFAS 123R and EITF
96-18 require that we initially account for our stock-based compensation grants to non-employees
based on the fair value of the stock-based compensation on the date of grant with subsequent
adjustments to compensation expense as the fair value of the equity instrument changes over its
vesting period.
4. Stock-Based Compensation
SFAS 123R requires that cash flows resulting from tax deductions in excess of the cumulative
compensation cost recognized for options exercised (excess tax benefits) be classified as financing
cash flows. The Company has sufficient net operating losses to generally eliminate cash payments
for income taxes to date. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model, with the following weighted average assumptions:
expected life of ten years, expected dividend yield of zero, volatility of 35%, and risk-free
interest rate of approximately 4.5%.
During 2006, the Company entered into a stock option agreement with a consultant by granting
nonqualified stock options to purchase an aggregate of 65 shares of the Companys common stock. The
options are exercisable for a period of ten years from the date of grant and vest over four years,
and were accounted for in accordance with EITF 96-18. As of December 31, 2006, none of these
options to purchase shares of common stock were exercisable. The weighted average remaining
contractual life of these options outstanding at December 31, 2006 is 9.5 years. The fair value of
the options was determined using the Black-Scholes options pricing model. The exercise price is
$705.89. The estimated fair value of the non-employee options as of December 31, 2006 was
$2,181,000, of which $258,000 was recognized as compensation expense in the statement of operations
from inception to December 31, 2006 and the remaining
F-10
Froptix Corporation
(A Development Stage Company)
Notes to Financial Statements (continued)
4. Stock-Based Compensation (continued)
amount will be charged to expense on pro rata basis over the remaining three and one half year
vesting period. The total compensation expense will also continue to be remeasured for changes in
the fair value of the equity instrument over the vesting period of the option, which may result in
future compensation expense being significantly different than the amount estimated as of December
31, 2006.
5. Income Tax
There is no provision for or benefit from income taxes for the period from June 23, 2006
(inception) to December 31, 2006. As of December 31, 2006, the Company has federal and state net
operating loss carryforwards of approximately $0.9 million that begin to expire in 20 years.
Pursuant to the Internal Revenue Code, the annual utilization of the federal and certain state
carryforwards may be limited in terms of utilization in certain circumstances, including a change
in ownership of the Company, as defined. The Company will not recognize a tax benefit for financial
reporting purposes for net operating losses or credit carryforwards, until such time as management
believes it is more likely than not that the Companys future operations will generate sufficient
taxable income to be able to realize such benefits.
6. License and Research Agreements
In April 2006, an affiliate of the Company and the University of Florida entered into an exclusive
worldwide license agreement for certain patents and technology rights. The agreement provides for
royalty payments equal to various percentages of future commercial sales of products manufactured
using the licensed technology, as defined, if any, through the expiration of the licensed patent.
In April 2006, an affiliate of the Company entered into a research agreement with the University of
Florida to conduct research on behalf of the affiliate of the Company. Both the license agreement
and the research agreement were assigned to the Company on June 23, 2006.
As part of the research agreement, the Company has agreed to make bi-annual payments during each
budget year as follows:
Year 1: $250,000, upon full execution of the agreement and $250,000 at the six month
anniversary of the effective date of the agreement.
F-11
Froptix Corporation
(A Development Stage Company)
Notes to Financial Statements (continued)
6. License and Research Agreements (continued)
Year 2: $250,000 at the beginning of the budget year and $250,000 at the end of the sixth month
of the budget year.
Year 3: $250,000 at the beginning of the budget year and $250,000 at the end of the sixth month
of the budget year.
The agreement is a fixed price agreement and either party may terminate the agreement upon ninety
(90) days prior written notice to the other. The Company has made the first year payments totaling
$500,000 to the University of Florida in 2006.
7. Related Party Transactions
Included in the statement of operations are General and Administrative expenses of $63,000 for
consulting services provided by officers of the Company.
8. Subsequent Event
On January 11, 2007, the Company entered into an agreement with Acuity Pharmaceuticals, Inc.
(Acuity) and The Frost Group, LLC (Frost Group), whose principal shareholders are also the majority
shareholders of the Company, whereby the Frost Group will provide a subordinated secured line of
credit, up to $7,000,000 to Acuity; the Company will merge with and into a wholly-owned subsidiary
of a publicly traded shell company (Public Shell) controlled by the Frost Group and certain
affiliates and associates of the Frost Group; and Acuity will also merge with and into a
wholly-owned subsidiary of the Public Shell. The merger is expected to occur by April 30, 2007.
However, there are no assurances the merger will be achieved by April 30, 2007.
F-12
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Financial Statements
December 31, 2006 and 2005
(With Independent Auditors Report Thereon)
F-13
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Table of Contents
|
|
|
|
|
|
|
Page
|
|
Independent Auditors Report
|
|
|
F-15
|
|
Balance Sheets, December 31, 2006 and 2005
|
|
|
F-16
|
|
Statements of Operations, Years ended December 31, 2006, 2005 and 2004 and Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
F-17
|
|
Statements of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit), Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
F-18
|
|
Statements of Cash Flows, Years ended December 31, 2006, 2005 and 2004 and Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
F-20
|
|
Notes to Financial Statements
|
|
|
F-21
|
|
F-14
Independent Auditors Report
The Board
of Directors
Acuity Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Acuity Pharmaceuticals, Inc. (a
development-stage company) as of December 31, 2006 and 2005, and the related statements of
operations, redeemable convertible preferred stock and stockholders equity (deficit), and cash
flows for each of the years in the three year period ended December 31, 2006 and period from March
27, 2003 (inception) to December 31, 2006. These financial statements are the responsibility of the
Companys 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 audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, 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 Acuity Pharmaceuticals, Inc. as of December 31, 2006 and 2005,
and the results of its operations and its cash flows for each of the years in the three year period
ended December 31, 2006 and period from March 27, 2003 (inception) to December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in note 2 to the financial statements, the Company has suffered
recurring losses from operations and has a total stockholders deficit that raises substantial
doubt about its ability to continue as a going concern. Managements plans in regard to these
matters are described in note 2. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
As discussed in notes 3 and 7 to the financial statements, effective January 1, 2006, the Company
adopted the fair value method of accounting for stock-based compensation as required by Statement
of Financial Accounting Standards No. 123(R),
Share-Based Payment
.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 30, 2007
F-15
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Balance Sheets
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
210,497
|
|
|
|
8,214,989
|
|
Short-term investments
|
|
|
638,748
|
|
|
|
1,614,072
|
|
Prepaid expenses and other current assets
|
|
|
17,753
|
|
|
|
156,179
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
866,998
|
|
|
|
9,985,240
|
|
Property and equipment, net
|
|
|
90,253
|
|
|
|
74,816
|
|
Deferred financing costs
|
|
|
24,180
|
|
|
|
40,299
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
981,431
|
|
|
|
10,100,355
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock, and
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term notes payable
|
|
$
|
1,666,667
|
|
|
|
|
|
Accounts payable
|
|
|
3,136,255
|
|
|
|
1,631,358
|
|
Accrued compensation
|
|
|
298,584
|
|
|
|
186,734
|
|
Accrued expenses
|
|
|
406,692
|
|
|
|
1,090,608
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,508,198
|
|
|
|
2,908,700
|
|
Long-term notes payable, net of unamortized warrant discount of
$167,919 and $279,863 at December 31, 2006 and 2005, respectively
|
|
|
2,165,414
|
|
|
|
3,720,137
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,673,612
|
|
|
|
6,628,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Redeemable Convertible Preferred Stock, $0.01 par value;
authorized 13,255,179 shares; issued and outstanding 8,817,679
shares at December 31, 2006 and 2005 (liquidation value of
$38,148,330 at December 31, 2006)
|
|
|
25,987,978
|
|
|
|
21,081,644
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, $0.01 par value; authorized,
issued, and outstanding 742,000 shares at December 31, 2006
and 2005 (liquidation value of $1,484,000 at December 31, 2006)
|
|
|
7,420
|
|
|
|
7,420
|
|
Common stock, $0.01 par value; authorized 19,584,956 shares;
issued and outstanding 2,116,877 and 2,017,532 shares at
December 31, 2006 and 2005, respectively
|
|
|
21,169
|
|
|
|
20,175
|
|
Additional paid-in capital
|
|
|
|
|
|
|
942,639
|
|
Deferred compensation
|
|
|
|
|
|
|
(21,770
|
)
|
Deficit accumulated during development stage
|
|
|
(32,708,748
|
)
|
|
|
(18,558,590
|
)
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(32,680,159
|
)
|
|
|
(17,610,126
|
)
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock
and stockholders equity (deficit)
|
|
$
|
981,431
|
|
|
|
10,100,355
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-16
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Statements of Operations
Years ended December 31, 2006, 2005 and 2004 and
Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception) to
|
|
|
|
Year ended December 31
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
Revenues
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,027,109
|
|
|
|
8,481,971
|
|
|
|
3,603,516
|
|
|
|
21,768,369
|
|
General and administrative
|
|
|
2,698,252
|
|
|
|
1,688,903
|
|
|
|
1,340,286
|
|
|
|
7,149,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(10,725,361
|
)
|
|
|
(10,170,874
|
)
|
|
|
(4,943,802
|
)
|
|
|
(28,917,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
252,135
|
|
|
|
253,916
|
|
|
|
14,944
|
|
|
|
522,341
|
|
Interest expense, including amortization of
beneficial conversion and warrant costs of
$111,944, $32,651, $406,516, and $551,111 in
2006, 2005 and 2004 and from March 27, 2003
(inception) to December 31, 2006, respectively
|
|
|
(618,983
|
)
|
|
|
(182,753
|
)
|
|
|
(453,524
|
)
|
|
|
(1,255,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense)
|
|
|
(366,848
|
)
|
|
|
71,163
|
|
|
|
(438,580
|
)
|
|
|
(732,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,092,209
|
)
|
|
|
(10,099,711
|
)
|
|
|
(5,382,382
|
)
|
|
|
(29,650,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-17
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Statements of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit)
Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit)
|
|
|
|
Series B
|
|
|
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Redeemable
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Stock
|
|
|
during
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
subscription
|
|
|
development
|
|
|
stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
compensation
|
|
|
receivable
|
|
|
stage
|
|
|
equity (deficit)
|
|
Balance, March 27, 2003
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common stock at $0.01 per share in connection with
Ocugen merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,333
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
208
|
|
Issuance of common stock at $0.01 per share in connection with
employment and board of director agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,661
|
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
1,127
|
|
Issuance of common stock in connection with a license and
research agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408,334
|
|
|
|
4,083
|
|
|
|
608,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612,501
|
|
Issuance of common stock at $1.50 per share on May 30, 2003,
net of $17,615 in offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873,683
|
|
|
|
8,737
|
|
|
|
1,284,173
|
|
|
|
|
|
|
|
(25,500
|
)
|
|
|
|
|
|
|
1,267,410
|
|
Issuance of preferred stock at $2 per share, net of issuance
costs of $112,276
|
|
|
|
|
|
|
|
|
|
|
612,834
|
|
|
|
6,128
|
|
|
|
|
|
|
|
|
|
|
|
1,107,264
|
|
|
|
|
|
|
|
(521,200
|
)
|
|
|
|
|
|
|
592,192
|
|
Receipt of subscriptions receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,241
|
|
|
|
|
|
|
|
26,241
|
|
Issuance of common stock at $1.50 per share to vendors,
employees, and board of directors for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,032
|
|
|
|
990
|
|
|
|
147,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,547
|
|
Compensation resulting from grant of options to employees at
below fair market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,950
|
|
|
|
(31,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of options to vendors for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,100
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,076,497
|
)
|
|
|
(3,076,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
612,834
|
|
|
|
6,128
|
|
|
|
1,661,043
|
|
|
|
16,610
|
|
|
|
3,232,462
|
|
|
|
(31,122
|
)
|
|
|
(521,924
|
)
|
|
|
(3,076,497
|
)
|
|
|
(374,343
|
)
|
Issuance of Series A preferred stock at $2 per share
|
|
|
|
|
|
|
|
|
|
|
129,166
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
257,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,332
|
|
Issuance of warrants to purchase 155,300 shares of common
stock at $0.01 per share in connection with issuance of
convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,258
|
|
Beneficial conversion feature on convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,258
|
|
Issuance of 100,000 shares of Series B preferred stock, warrants
and options to purchase 141,000 shares of Series B preferred
stock at $1.65, and 43,500 and 12,500 shares of common stock
at $1.65 and $0.20, respectively, in connection with the
settlement of employment liabilities
|
|
|
100,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,600
|
|
Issuance of Series B preferred stock at $2 per share, net of
$219,072 in offering costs and a $15,000 subscription
receivable
|
|
|
4,101,750
|
|
|
|
7,969,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock in connection with the
conversion of notes payable
|
|
|
514,179
|
|
|
|
1,028,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants to purchase 512,719 shares of common
stock at $0.01 in connection with the sale of Series B
preferred stock
|
|
|
|
|
|
|
(97,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,417
|
|
Issuance of warrants to purchase 15,000 shares of common stock
at $2 in connection with the sale of Series B preferred stock
|
|
|
|
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
Issuance of common stock in connection with employment or
service agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,434
|
|
|
|
835
|
|
|
|
75,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,758
|
|
Receipt of subscriptions receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,924
|
|
|
|
|
|
|
|
521,924
|
|
Compensation resulting from grant of options to employees at
below fair market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,225
|
|
|
|
(5,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of options to vendors for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,800
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,589
|
|
|
|
|
|
|
|
|
|
|
|
12,589
|
|
Preferred stock dividend
|
|
|
|
|
|
|
192,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192,040
|
)
|
Accretion of redemption premium on Series B preferred stock
|
|
|
|
|
|
|
355,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(355,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(355,066
|
)
|
Accretion of cost incurred and warrants in connection with sale
of Series B preferred stock
|
|
|
|
|
|
|
16,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,054
|
)
|
Charge related to repricing of outstanding options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,417
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,382,382
|
)
|
|
|
(5,382,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
4,715,929
|
|
|
$
|
9,661,878
|
|
|
|
742,000
|
|
|
$
|
7,420
|
|
|
|
1,744,477
|
|
|
$
|
17,445
|
|
|
$
|
3,798,890
|
|
|
$
|
(23,758
|
)
|
|
$
|
|
|
|
$
|
(8,458,879
|
)
|
|
$
|
(4,658,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit)
|
|
|
|
Series B
|
|
|
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Redeemable
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Stock
|
|
|
during
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
subscription
|
|
|
development
|
|
|
stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
compensation
|
|
|
receivable
|
|
|
stage
|
|
|
equity (deficit)
|
|
Balance, December 31, 2004
|
|
|
4,715,929
|
|
|
$
|
9,661,878
|
|
|
|
742,000
|
|
|
$
|
7,420
|
|
|
|
1,744,477
|
|
|
$
|
17,445
|
|
|
$
|
3,798,890
|
|
|
$
|
(23,758
|
)
|
|
$
|
|
|
|
$
|
(8,458,879
|
)
|
|
$
|
(4,658,882
|
)
|
Issuance of warrants to purchase 25,000 shares of common
stock at $0.01 per share in connection with issuance of
long-term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,609
|
|
Issuance of warrants to purchase 200,000 shares of Series B
preferred stock at $2 per share in connection with issuance of
long-term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,905
|
|
Issuance of Series B preferred stock at $2 per share, net of
$60,342 in offering costs and collection of a $15,000 stock
subscription receivable
|
|
|
4,101,750
|
|
|
|
8,158,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants to purchase 512,719 shares of common
stock at $0.01 in connection with the sale of Series B
preferred stock
|
|
|
|
|
|
|
(97,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,417
|
|
Issuance of common stock in connection with a collaboration
agreement and certain service agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,500
|
|
|
|
2,555
|
|
|
|
48,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,100
|
|
Issuance of options to vendors for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,700
|
|
Exercises of common stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,555
|
|
|
|
175
|
|
|
|
3,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,511
|
|
Compensation relating to changes in fair market value
of common stock for repriced employee options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,592
|
|
|
|
(17,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation relating to changes in fair market value
of common stock for repriced options to vendors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,670
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,580
|
|
|
|
|
|
|
|
|
|
|
|
19,580
|
|
Preferred stock dividend
|
|
|
|
|
|
|
1,127,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,127,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,127,491
|
)
|
Accretion of redemption premium on Series B preferred stock
|
|
|
|
|
|
|
2,155,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,155,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,155,606
|
)
|
Accretion of cost incurred and warrants in connection with sale
of Series B preferred stock
|
|
|
|
|
|
|
75,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,928
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,099,711
|
)
|
|
|
(10,099,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
8,817,679
|
|
|
|
21,081,644
|
|
|
|
742,000
|
|
|
|
7,420
|
|
|
|
2,017,532
|
|
|
|
20,175
|
|
|
|
942,639
|
|
|
|
(21,770
|
)
|
|
|
|
|
|
|
(18,558,590
|
)
|
|
|
(17,610,126
|
)
|
Reclassification due to adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,770
|
)
|
|
|
21,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with certain service
agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
100
|
|
|
|
7,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,595
|
|
Issuance of warrants and options to vendors for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,397
|
|
Exercises of common stock options at $0.20 to $0.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,695
|
|
|
|
117
|
|
|
|
2,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,402
|
|
Exercises of common stock warrants at $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,650
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777
|
|
Compensation relating to changes in fair market value
of common stock for repriced employee options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,460
|
|
Compensation relating to option modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,379
|
|
Preferred stock dividend
|
|
|
|
|
|
|
1,558,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,558,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,558,083
|
)
|
Accretion of redemption premium on Series B preferred stock
|
|
|
|
|
|
|
3,256,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290,302
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,966,087
|
)
|
|
|
(3,256,389
|
)
|
Accretion of cost incurred and warrants in connection with sale
of Series B preferred stock
|
|
|
|
|
|
|
91,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,862
|
)
|
|
|
(91,862
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,092,209
|
)
|
|
|
(11,092,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
8,817,679
|
|
|
$
|
25,987,978
|
|
|
|
742,000
|
|
|
$
|
7,420
|
|
|
|
2,116,877
|
|
|
$
|
21,169
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(32,708,748
|
)
|
|
$
|
(32,680,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-19
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Statements of Cash Flows
Years ended December 31, 2006, 2005 and 2004 and
Period from March 27, 2003 (inception) to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception) to
|
|
|
|
Year ended December 31
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,092,209
|
)
|
|
|
(10,099,711
|
)
|
|
|
(5,382,382
|
)
|
|
|
(29,650,799
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
23,898
|
|
|
|
16,453
|
|
|
|
8,279
|
|
|
|
50,685
|
|
Amortization of debt discount and beneficial
conversion feature related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
406,516
|
|
|
|
406,516
|
|
Amortization of debt discount related to long-term
notes payable
|
|
|
111,944
|
|
|
|
32,651
|
|
|
|
|
|
|
|
144,595
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
19,580
|
|
|
|
12,589
|
|
|
|
32,997
|
|
Amortization of deferred financing costs
|
|
|
16,119
|
|
|
|
4,701
|
|
|
|
18,651
|
|
|
|
39,471
|
|
Interest expense on convertible debt
|
|
|
|
|
|
|
|
|
|
|
28,357
|
|
|
|
28,357
|
|
Option/warrant compensation employees
and vendors
|
|
|
313,371
|
|
|
|
19,700
|
|
|
|
278,400
|
|
|
|
664,571
|
|
Stock compensation employees and vendors
|
|
|
7,500
|
|
|
|
1,100
|
|
|
|
276,758
|
|
|
|
433,905
|
|
Noncash expenses on repricing of options
|
|
|
604,460
|
|
|
|
3,670
|
|
|
|
7,417
|
|
|
|
615,547
|
|
Noncash license and research expense
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
662,501
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
138,426
|
|
|
|
(126,132
|
)
|
|
|
(18,734
|
)
|
|
|
(17,753
|
)
|
Accounts payable
|
|
|
1,504,897
|
|
|
|
1,367,983
|
|
|
|
(487,010
|
)
|
|
|
3,136,255
|
|
Accrued compensation
|
|
|
111,850
|
|
|
|
92,964
|
|
|
|
(170,061
|
)
|
|
|
298,584
|
|
Accrued expenses
|
|
|
(683,916
|
)
|
|
|
899,992
|
|
|
|
170,616
|
|
|
|
406,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,943,660
|
)
|
|
|
(7,717,049
|
)
|
|
|
(4,850,604
|
)
|
|
|
(22,747,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(39,335
|
)
|
|
|
(39,635
|
)
|
|
|
(28,523
|
)
|
|
|
(140,938
|
)
|
Purchase of short-term investments
|
|
|
(5,003,676
|
)
|
|
|
(23,950,085
|
)
|
|
|
|
|
|
|
(28,953,761
|
)
|
Proceeds from sale of short-term investments
|
|
|
5,979,000
|
|
|
|
22,336,013
|
|
|
|
|
|
|
|
28,315,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
935,989
|
|
|
|
(1,653,707
|
)
|
|
|
(28,523
|
)
|
|
|
(779,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for debt issuance costs
|
|
|
|
|
|
|
(45,000
|
)
|
|
|
(18,651
|
)
|
|
|
(63,651
|
)
|
Proceeds from sale of common stock, net
|
|
|
3,179
|
|
|
|
3,511
|
|
|
|
724
|
|
|
|
1,302,400
|
|
Proceeds from sale of preferred stock, net
|
|
|
|
|
|
|
8,158,158
|
|
|
|
8,748,960
|
|
|
|
17,499,310
|
|
Proceeds from issuance of convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Proceeds from issuance of long-term notes payable
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,179
|
|
|
|
12,116,669
|
|
|
|
9,731,033
|
|
|
|
23,738,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
cash equivalents
|
|
|
(8,004,492
|
)
|
|
|
2,745,913
|
|
|
|
4,851,906
|
|
|
|
210,497
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,214,989
|
|
|
|
5,469,076
|
|
|
|
617,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
210,497
|
|
|
|
8,214,989
|
|
|
|
5,469,076
|
|
|
|
210,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-20
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
(1)
|
|
Organization and Business Activities
|
|
|
|
Acuity Pharmaceuticals, Inc. (the Company) was incorporated in Delaware on March 27, 2003
(inception). On March 31, 2003, the Company merged with Ocugen, LLC and became the surviving
company. All 133,333 common shares of Ocugen, LLC were converted to 133,333 common shares of
the Company. The Company is a development-stage ophthalmic pharmaceutical company engaged in
the development of therapeutics to treat and prevent ophthalmic disorders and diseases. The
Company is currently devoting substantially all of its efforts toward conducting
pharmaceutical discovery and development, licensing technology, planning for regulatory
approval for products under development, negotiating strategic corporate relationships,
recruiting personnel, and raising capital.
|
|
(2)
|
|
Development-Stage Risks and Liquidity
|
|
|
|
The Company has not generated any revenues and has not yet achieved profitable operations.
There is no assurance that profitable operations, if ever achieved, could be sustained on a
continuing basis. In addition, development activities and clinical and preclinical testing and
commercialization of the Companys proprietary technology will require significant additional
financing. The Companys deficit accumulated during the development stage through December 31,
2006 aggregated $32,708,748, including $3,057,949 of Series B Redeemable Convertible Preferred
Stock (Series B) accretion of the redemption premium and amortization of costs incurred, and
the Companys management expects to incur substantial and increasing losses in future periods.
Further, the Companys future operations are dependent on, among other factors, the services
of its employees and consultants, the success of the Companys research, development,
manufacture, and, ultimately, upon regulatory approval and market acceptance of the Companys
proposed future products.
|
|
|
|
The Companys future operations are dependent on the timely and successful completion of its
ongoing research and development, the development of competitive therapies by other
biotechnology and pharmaceutical companies, other treatment modalities for the Companys
targeted diseases, and ultimately, regulatory approval and market acceptance of the Companys
proposed future products.
|
|
|
|
The Company has not generated any revenues from product sales and expects to incur substantial
losses in future periods. There is no assurance that profitable operations, if ever achieved,
could be sustained on a continuing basis. In addition, development activities and clinical and
preclinical testing and commercialization of the Companys proprietary technology will require
significant additional financing. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
|
|
|
|
In order to continue as a going concern, additional funding will be required before mid-2007.
The Company plans to finance future operations with a combination of private placements;
payments from potential strategic research and development, licensing, and/or marketing
arrangements; public offerings; debt; revenues from future product sales, if any; and
potential sale of the Company. The Company has not generated positive cash flows from
operations, and there are no assurances that the Company will be successful in obtaining an
adequate level of financing for the development and commercialization of its planned products.
The ability of the Company to continue as a going concern is dependent upon the infusion of
capital. See note 12 for a discussion of subsequent events.
|
(Continued)
F-21
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
(3)
|
|
Summary of Significant Accounting Policies
|
|
(a)
|
|
Use of Estimates
|
|
|
|
|
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
|
|
|
(b)
|
|
Cash, Cash Equivalents and Investments
|
|
|
|
|
For the purpose of the statements of cash flows, the Company considers all highly liquid
investment instruments with an original maturity of three months or less when purchased
to be cash equivalents. As of December 31, 2006 and 2005, cash and cash equivalents
consist of bank deposit accounts and money market funds. Highly liquid investment
instruments with an original maturity of greater than three months are classified as
investments. Investments are considered available-for-sale and are carried at fair value
which approximates amortized cost as of December 31, 2006 and 2005.
|
|
|
(c)
|
|
Property and Equipment, net
|
|
|
|
|
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, generally five to ten
years. Expenditures for repairs and maintenance are charged to expense as incurred, while
betterments are capitalized.
|
|
|
(d)
|
|
Impairment of Long-Lived Assets
|
|
|
|
|
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting
for Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property and
equipment, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, then an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. As of December 31, 2006, management believes that no revision of
the remaining useful lives or write-down of long-lived assets is required.
|
|
|
(e)
|
|
Research and Development
|
|
|
|
|
Research and product development costs are charged to expense as incurred.
|
|
|
(f)
|
|
Income Taxes
|
|
|
|
|
Income taxes are accounted for under the asset-and-liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and the respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
|
(Continued)
F-22
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in operations in the period that includes the enactment date.
|
|
|
|
|
|
|
|
(g)
|
|
Stock-Based Compensation
|
|
|
|
|
Prior to January 1, 2006, the Company applied the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock
Issued to
|
|
|
|
|
Employees
(APB No. 25), and related interpretations including FASB Interpretation No. 44
(FIN 44),
Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25
, to account for its fixed-plan stock options. Under
the intrinsic-value-based method, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise price.
|
|
|
|
|
Effective January 1, 2006, the Company adopted SFAS No. 123(R),
Share-Based Payment
. SFAS
No. 123(R) replaces SFAS No. 123,
Accounting for Stock-Based Compensation
, and Supersedes
APB No. 25. SFAS No. 123(R) requires that all stock-based compensation be recognized as
an expense in the financial statements and that such cost be measured at the fair value
of the award. The Company has adopted the prospective transition method provided for
under SFAS No. 123(R) for private companies and, consequently, has not restated results
from prior periods. Under this transition method, compensation cost recognized in 2006
associated with stock options includes (i) amortization related to all stock option
awards granted/modified on or subsequent to January 1, 2006, based on the estimated grant
date fair value using the Black-Scholes option-pricing model, and (ii) amortization of
the intrinsic value recorded as deferred compensation for options granted prior to
January 1, 2006 being accounted for under APB Opinion No. 25. Option awards granted prior
to adoption of SFAS No. 123(R) continue to follow the provisions of APB Opinion No. 25
and FIN 44 until modified and or settled.
|
|
|
|
|
Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the statements of
cash flows, if any. SFAS No. 123(R) requires that cash flows resulting from tax
deductions in excess of the cumulative compensation cost recognized for options exercised
(excess tax benefits) be classified as financing cash flows. The Company has sufficient
net operating loss carryforwards to generally eliminate cash payments for income taxes.
|
(4)
|
|
Property and Equipment
|
|
|
|
Property and equipment consist of the following at December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
Laboratory equipment
|
|
$
|
98,328
|
|
|
|
67,067
|
|
Computer and office equipment
|
|
|
42,610
|
|
|
|
34,536
|
|
|
|
|
|
|
|
|
|
|
|
140,938
|
|
|
|
101,603
|
|
Less accumulated depreciation
|
|
|
(50,685
|
)
|
|
|
(26,787
|
)
|
|
|
|
|
|
|
|
|
|
$
|
90,253
|
|
|
|
74,816
|
|
|
|
|
|
|
|
|
(Continued)
F-23
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
Depreciation expense was $23,898, $16,453 and $8,279 for the years ended December 31,
2006, 2005 and 2004, respectively, and $50,685 for the period from March 27, 2003 (inception)
to December 31, 2006.
|
|
(5)
|
|
Debt
|
|
(a)
|
|
Term Note
|
|
|
|
|
In September 2005, the Company entered into a $4,000,000 term loan. The term loan bears
interest at 12.23%, which is payable monthly commencing September 15, 2005. Interest
expense for the year ended December 31, 2006 and 2005 was $489,200 and $145,401,
respectively, and $634,601 for the
period from March 27, 2003 (inception) to December 31, 2006. The principal is payable in
12 equal monthly installments commencing August 2007. Principal on the term loan matures
as follows: 2007 $1,666,667 and 2008 $2,333,333. The term loan is collateralized by
all personal property of the Company, except intellectual property, and contains certain
negative covenants that limit the payment of cash dividends, redemption of equity
securities, change in ownership, and the creation or extinguishment of debt. In
connection with the issuance of the term note, the Company issued warrants to purchase
200,000 shares of Series B at $2.00 per share and warrants to purchase 25,000 shares of
common stock at $0.01 per share.
|
|
|
|
|
The fair value of the warrants was estimated on the date of grant using the Black-Scholes
option pricing model. The Company allocated $312,514 of the proceeds from the term loan
to the warrants, based on the relative fair values of the loan and warrants. The warrants
were accounted for as a discount to the term loan and are being charged to expense as
interest over the term of the loan. Amortization of the debt discount associated with the
value of the warrants was $111,944 and $32,651 for the years ended December 31, 2006 and
2005, respectively, and $144,595 for the period from March 27, 2003 (inception) to
December 31, 2006.
|
|
|
|
|
The Company incurred $45,000 of debt issuance cost, which has been deferred and will be
amortized over the life of the debt. Amortization was $16,119 and $4,701 for the years
ended December 31, 2006 and 2005, respectively, and $20,820 for the period from March 27,
2003 (inception) to December 31, 2006.
|
|
|
(b)
|
|
Convertible Notes Payable
|
|
|
|
|
From March to June 2004, the Company issued 8% Convertible Notes (the Notes), resulting
in aggregate cash proceeds of $1,000,000. Interest expense related to the Notes was
$28,357 for the year ended December 31, 2004. The Notes were convertible into Series B
and provided for the issuance of warrants to purchase 155,300 shares, as amended, of
common stock at $0.01 per share (note 7). In connection with the issuance of the Notes,
the Company incurred aggregate financing costs of $18,651, which were being amortized to
interest expense over the term of the Notes. In September 2004, $1,028,357, which
represented the total principal of the Notes and the interest accrued thereon, was
converted into 514,179 shares of Series B. Unamortized deferred financing costs were
charged to interest expense at the time of the conversion. Amortization of the deferred
financing costs was $18,651 for the year ended December 31, 2004.
|
(Continued)
F-24
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
The fair value of the warrants was estimated on the date of grant using the Black-Scholes
option pricing model. The Company allocated $203,258 of the proceeds from the Notes to
the warrants, based on the relative fair values of the Notes and warrants. The warrants
were accounted for as a discount to the Notes and were charged to expense as interest
over the term of the Notes. Unamortized discount was charged to interest expense at the
time of the conversion. Amortization of the debt discount associated with the value of
the warrants was $203,258 for the year ended December 31, 2004.
|
|
|
|
|
Additionally, in accordance with Emerging Issues Task Force (EITF) Issue No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features of Contingently
Adjustable Conversion Ratios
, and EITF Issue No. 00-27,
Application of Issue No. 98-5 to
Certain Convertible Instruments
, the Company recorded an additional debt discount of
$203,258, which represents the value of the beneficial conversion feature (BCF) of the
Notes. The value allocated to the BCF represents the excess of the fair market value of
the underlying preferred stock issued to the holders of the Notes over the adjusted value
of the Notes, after deducting the fair value ascribed to the warrants issued in
connection with the Notes. This additional debt discount was being amortized to interest
expense over the term of the Notes. Unamortized discount was charged to interest expense
at the time of the conversion. Amortization of the BCF was $203,258 for the year ended
December 31, 2004.
|
(6)
|
|
Redeemable Convertible Preferred Stock
|
|
(a)
|
|
Series A Convertible Preferred Stock
|
|
|
|
|
The Company issued an aggregate of 742,000 shares of Series A Convertible Preferred Stock
(Series A) in December 2003 and January 2004 at $2.00 per share. Gross proceeds to the
Company were $1,484,000.
|
|
|
|
|
Series A is convertible at any time at the option of the
holder, into the number of shares of common stock obtained by dividing the original purchase price by the conversion
price, as defined, subject to adjustment pursuant to the terms of Series A. The Series A
is to be automatically converted into common stock at the applicable conversion rate at
any time upon the earlier of (i) the election of the holders of at least 60% of the
outstanding shares of Series B or (ii) the closing of a firmly underwritten public
offering in which the price per share is at least five times the Series B purchase price
of $2.00 per share, as adjusted for stock dividends, combinations, splits, and
recapitalizations; the aggregate net cash proceeds to the Company from the offering are
at least $40,000,000; and the common stock is listed on the New York Stock or NASDAQ
Exchanges.
|
|
|
|
|
The holders of Series A have voting rights equal to the number of shares of common stock
into which the holders shares could be converted, and vote together with all other
classes of stock as a single class. The holders of Series A are entitled to receive
dividends at an annual rate of 8%, when and if declared by the Companys board of
directors. No dividends have been declared through December 31, 2006.
|
|
|
|
|
In the event of liquidation, dissolution, or winding up of the Company, each holder of
Series A would be entitled to receive $2.00 per share, as adjusted pursuant to the terms
of the Series A, plus
|
(Continued)
F-25
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
any declared but unpaid dividends on the Series A after payment of
the Series B liquidation preference. As of December 31, 2006, the liquidation value of
the Series A was $1,484,000.
|
|
|
(b)
|
|
Series B Redeemable Convertible Preferred Stock
|
|
|
|
|
Between September and December 2004, the Company sold 4,101,750 shares of Series B at
$2.00 per share, and warrants to purchase 512,719 shares of common stock at $0.01 per
share, for an aggregate purchase price of $8,203,500. The fair value of the warrants was
estimated on the date of grant using the Black-Scholes option pricing model. The Company
allocated $97,417 of the proceeds to the warrants, based on the relative fair values of
the Series B shares and warrants.
|
|
|
|
|
In 2004, the Company issued 100,000 shares of Series B, warrants to purchase 12,500
shares of common stock at $0.20 per share (note 7), options to purchase 43,500 shares of
common stock at $0.20 per share, and options to purchase 141,000 shares of Series B at
$1.65 per share to its president and CEO to satisfy outstanding obligations of the
Company related to services provided under the presidents employment agreement. The
Company recorded the 100,000 shares of Series B at an aggregate $200,000 and valued the
warrants and options at an aggregate $137,600.
|
|
|
|
|
Between May and July 2005, the Company sold 4,101,750 shares of Series B at $2.00 per
share, and warrants to purchase 512,719 shares of common stock at $0.01 per share, for an
aggregate purchase price of $8,203,500. The fair value of the warrants was estimated on
the date of grant using the
Black-Scholes option pricing model. The Company allocated $97,417 of the proceeds to the
warrants, based on the relative fair values of the Series B shares and warrants.
|
|
|
|
|
Series B is convertible at any time at the option of the holder into the number of shares
of common stock obtained by dividing the original purchase price plus all accrued and
unpaid dividends by the conversion price, as defined, subject to adjustment pursuant to
the terms of the Series B. The Series B is to be automatically converted into common
stock at any time upon the earlier of (i) the election of the holders of at least 60% of
the outstanding shares of Series B or (ii) the closing of a firmly underwritten public
offering in which the price per share is at least five times the Series B purchase price
of $2.00 per share, as adjusted for stock dividends, combinations, splits, and
recapitalizations; the aggregate net cash proceeds to the Company from the offering are
at least $40,000,000; and the common stock is listed on the New York Stock or NASDAQ
Exchanges.
|
|
|
|
|
The holders of Series B have voting rights equal to the number of shares of common stock
into which the holders shares could be converted and vote together with all other
classes of stock as a single class. In addition to general matters requiring stockholder
vote, a vote of at least 60% of the outstanding shares of Series B is required for
certain events, as defined, including, but not limited to, changes to the rights,
preferences, and privileges of the Series B stockholders; payment of dividends;
incurrence of any liability other than ordinary course trade payables in excess of
$50,000; and capital purchases in excess of $50,000. The holders of Series B are entitled
to receive cumulative dividends at an annual rate of 8%, compounded each calendar
quarter. Such dividends accrue from the date of issuance, whether or not earned or
declared. If not declared and paid, then accrued dividends are to be paid upon the
earlier of a liquidation event, as defined, or upon redemption of the Series B. As of
December 31, 2006 and 2005, cumulative but undeclared dividends payable upon redemption
were $2,877,614 and $1,319,531, respectively.
|
(Continued)
F-26
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
In the event of liquidation, dissolution, or winding up of the Company, each holder of
Series B would be entitled to receive $4.00 per share (two times the original purchase
price), as adjusted pursuant to the terms of Series B, plus all accrued and unpaid
dividends and all declared but unpaid dividends on the Series B. As of December 31, 2006,
the liquidation value of the Series B was $38,148,330.
|
|
|
|
|
At the earlier of September 24, 2009 or ten days after the occurrence of any uncured
breach, the Company shall redeem the Series B by paying in cash an amount per share of
Series B equal to the redemption price. The redemption price is, for each share of Series
B, the sum of (i) $4.00, as adjusted for any stock dividends, combinations, splits, and
recapitalizations, plus (ii) all accrued and unpaid dividends. During the years ended
December 31, 2005 and 2004, the Company incurred third-party costs of $60,342 and
$219,072, respectively, in connection with the sale of Series B. These third-party costs
reduced the carrying value of Series B. As a result of the Series B redemption feature,
the carrying value of Series B will be accreted to its redemption value through September
24, 2009. The accretion of the redemption premium above the original issue price during
the years ended December 31, 2006, 2005 and 2004 was $3,256,389, $2,155,606 and $355,066
respectively, and $5,767,061 for the period from March 27, 2003 (inception) to December
31, 2006. The accretion of third-party costs and warrants issued in connection with the
Series B during the years ended December 31, 2006, 2005 and 2004 was $91,862, $75,928 and
$16,054, respectively, and $183,844 for the period from March 27, 2003 (inception) to
December 31, 2006.
|
(7)
|
|
Stock Options and Warrants
|
|
(a)
|
|
Common Stock Options
|
|
|
|
|
The Companys 2003 Equity Incentive Plan, as amended (the 2003 Plan), allows the granting
of incentive and nonqualified stock options and issuance of common stock to employees,
directors, consultants, and contractors to purchase an aggregate of 2,050,000 shares of
the Companys common stock. The options are exercisable generally for a period of ten
years from the date of grant and vest over terms ranging from immediately to four years.
As of December 31, 2006, 288,211 shares remained reserved for grants under the 2003 Plan.
|
|
|
|
|
In addition to options granted under the 2003 Plan, the Company has 181,600 outstanding
nonqualified stock options to individuals for consulting and board services as of
December 31, 2006. The exercise rights and vesting terms of these options are similar to
those options granted under the 2003 Plan.
|
(Continued)
F-27
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
A summary of option activity from March 27, 2003 (inception) to December 31, 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
Number of
|
|
|
price
|
|
|
Aggregated
|
|
|
|
options
|
|
|
per share
|
|
|
exercise price
|
|
Balance, March 27, 2003
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
255,150
|
|
|
|
1.35
|
|
|
|
344,453
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
255,150
|
|
|
|
1.35
|
|
|
|
344,453
|
|
Granted
|
|
|
823,983
|
|
|
|
0.20 1.65
|
|
|
|
534,459
|
|
Canceled
|
|
|
(16,667
|
)
|
|
|
1.50
|
|
|
|
(25,000
|
)
|
Canceled (related to repricing)
|
|
|
(504,233
|
)
|
|
|
1.35 1.65
|
|
|
|
(742,265
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
558,233
|
|
|
|
0.20
|
|
|
|
111,647
|
|
Granted
|
|
|
830,859
|
|
|
|
0.20 0.25
|
|
|
|
176,544
|
|
Canceled
|
|
|
(22,000
|
)
|
|
|
0.20
|
|
|
|
(4,000
|
)
|
Exercised
|
|
|
(17,555
|
)
|
|
|
0.20
|
|
|
|
(3,511
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
1,349,537
|
|
|
|
0.20 0.25
|
|
|
|
280,680
|
|
Granted
|
|
|
701,605
|
|
|
|
0.25 2.87
|
|
|
|
475,009
|
|
Canceled
|
|
|
(129,828
|
)
|
|
|
0.20 0.25
|
|
|
|
(30,068
|
)
|
Exercised
|
|
|
(11,695
|
)
|
|
|
0.20 0.25
|
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
1,909,619
|
|
|
$
|
0.20 2.87
|
|
|
|
723,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to options granted under the 2003 Plan, the Company issued 33,770 shares
of common stock under the 2003 Plan at $1.50 to $1.65 per share for services.
|
(Continued)
F-28
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
The following table details additional information with regard to employee and
nonemployee options as of December 31, 2006 and for the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Nonemployee
|
|
|
Total
|
|
As of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
1,548,497
|
|
|
|
361,122
|
|
|
|
1,909,619
|
|
Weighted average exercise price
|
|
$
|
0.40
|
|
|
|
0.29
|
|
|
|
0.38
|
|
Weighted average remaining
contractual term
|
|
8.60 years
|
|
8.35 years
|
|
8.55 years
|
Aggregate intrinsic value
|
|
$
|
3,825,578
|
|
|
|
932,211
|
|
|
|
4,757,789
|
|
Exercisable options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
691,108
|
|
|
|
260,745
|
|
|
|
951,853
|
|
Weighted average exercise price
|
|
$
|
0.21
|
|
|
|
0.21
|
|
|
|
0.21
|
|
Weighted average remaining
contractual term
|
|
3.50 years
|
|
3.39 years
|
|
3.33 years
|
Aggregate intrinsic value
|
|
$
|
1,835,704
|
|
|
|
777,847
|
|
|
|
2,528,944
|
|
Nonvested options (granted on or
after January 1, 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
501,443
|
|
|
|
55,778
|
|
|
|
557,221
|
|
Weighted average grant date
fair value
|
|
$
|
0.66
|
|
|
|
0.67
|
|
|
|
0.66
|
|
For the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date
fair value of options granted
|
|
$
|
0.62
|
|
|
|
0.58
|
|
|
|
0.62
|
|
SFAS No. 123(R) expense
|
|
$
|
52,036
|
|
|
|
75,726
|
|
|
|
127,762
|
|
APB No. 25 option expense
|
|
$
|
790,069
|
|
|
|
|
|
|
|
790,069
|
|
|
|
|
At December 31, 2006, there was $305,033 of total unrecognized compensation expense,
net of expected forfeitures, related to nonvested share-based compensation arrangements
granted and accounted for under the provisions of SFAS No. 123(R). The expense is
expected to be recognized over a weighted average period of 3.05 years. At December 31,
2006, there was $386,716 of unrecognized compensation expense related to unamortized
intrinsic value for share-based compensation awards accounted for under the provisions of
APB No. 25, which will be recognized over a weighted average period of 1.83 years.
|
(Continued)
F-29
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
The fair value of each employee option award granted after the adoption of SFAS No.
123(R) and each nonemployee award granted is estimated on the date of grant using the
Black-Scholes option pricing model and assumptions noted in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Year ended December 31, 2006
|
|
2005
|
|
|
Nonemployee
|
|
Employee
|
|
Nonemployee
|
|
|
options
|
|
options
|
|
options
|
Expected life
|
|
10 years
|
|
5 to 6 years
|
|
10 years
|
Expected volatility
|
|
|
|
80%
|
|
|
|
80%
|
|
|
|
80%
|
Risk-free interest rate
|
|
4.58% to 4.98%
|
|
4.31% to 4.99%
|
|
4.10% to 4.58%
|
Dividend yield
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
The expected life of the employee options was calculated using the shortcut method
allowed by the provisions of SFAS No. 123(R). The expected volatility is estimated by the
Company utilizing volatility statistics from peer groups. The risk-free interest rate is
based on the continuous rates provided by the U.S. Treasury, with a term approximating
the expected life of the option. The dividend yield is based on the projected annual
dividend payment per share. The Company has not paid any dividends nor does it expect to
in the future.
|
|
|
|
|
In 2006, the Company extended the contractual life of 73,373 employee option awards
granted prior to January 1, 2006. As a result of that modification, the Company recorded
expense of $10,379 based on the fair value of the award on the date of modification
calculated using the Black-Scholes option pricing model.
|
|
|
|
|
During 2006, 2005 and 2004, the Company issued 101,300, 115,172 and 131,750 options,
respectively, to nonemployee consultants to purchase common stock, which includes the
options granted outside of the 2003 Plan. The fair value of the options was determined
using the Black-Scholes option pricing model. The fair value of the nonemployee options
issued during 2006, 2005 and 2004 was $69,197, $19,700 and $140,800, respectively, which
was charged to expense upon grant as the options were 100% vested.
|
|
|
|
|
The Company repriced 139,900 nonemployee consultant options in November 2004 at $0.20 per
share and recorded a compensation charge of $7,417 for the year ended December 31, 2004.
|
|
|
|
|
The Company repriced 364,333 employee options in November 2004 at $0.20 per share. The
amount of compensation expense for the repriced employee option grants is subject to
change each reporting period, based upon the difference between the exercise price and
the fair value of the Companys common stock on each reporting period, until the
settlement of the option.
|
|
|
|
|
In connection with the grant and repricing of options to employees, the Company recorded
deferred stock compensation of $17,592 and $5,225 for 2005 and 2004, respectively, and
$54,767 from March 27, 2003 (inception) to December 31, 2005, representing the difference
between the exercise price and the fair value of the Companys common stock on the date
such options were granted or
|
(Continued)
F-30
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
each balance sheet date for the repriced options. Through
December 31, 2005, deferred compensation was included as a component of stockholders
equity (deficit) and was amortized to expense ratably over the vesting period of each
option grant. Amortization expense for the years ended December 31, 2005 and 2004 was
$19,580 and $12,589, respectively, and $32,997 from March 27, 2003 (inception) to
December 31, 2005. Upon adoption of SFAS No. 123(R), on January 1, 2006, deferred
compensation was eliminated against additional paid-in capital and option expense related
to unamortized intrinsic value of APB Opinion No. 25 options and related compensation
expense for the remeasurement of repriced options is charged to expense and additional
paid-in capital as amortized. Compensation expense for the year ended December 31, 2006
was $223,595 for amortization of APB Opinion No. 25 intrinsic value and $604,460 for
amortization of compensation related to repriced options subject to APB Opinion No. 25.
|
|
|
(b)
|
|
Series B Preferred Stock Options
|
|
|
|
|
In September 2004, the Company issued options to purchase 141,000 shares of Series B at
$1.65 per share to its president and CEO (note 6). The options are nonqualified options
and were fully vested as of December 31, 2005.
|
|
|
(c)
|
|
Warrants
|
|
|
|
|
The Company issued warrants in 2006 to a consultant to purchase 30,000 shares of common
stock at $0.01 per share. The warrants were valued at $10,200 and were expensed as they
were immediately vested.
|
|
|
|
|
In 2005, in connection with the issuance of the term loan, the Company issued warrants to
purchase 25,000 shares at common stock at an exercise price of $0.01 per share,
exercisable through September 2015 (note 5).
|
|
|
|
|
In 2005, in connection with the Series B financing, the Company issued warrants to
purchase 512,719 shares of common stock at an exercise price of $0.01 per share,
exercisable through July 1, 2015 (note 6).
|
|
|
|
|
In 2004, in connection with the Series B financing, the Company issued warrants to
purchase 512,719 shares of common stock at an exercise price of $0.01 per share,
exercisable through September 24, 2014 (note 6).
|
|
|
|
|
In connection with the Series B financing, the Company issued warrants in 2005 and 2004
to purchase a total of 30,000 shares of common stock at an exercise price of $2.00 per
share, exercisable for 10 years, in consideration for consulting services relating to the
sale of the Companys Series B (note 6). The value of the warrants granted was $1,650
using the Black-Scholes options pricing model, with the following assumptions: volatility
of 80%, risk-free interest rate of 4%, dividend yield of 0%, and an expected life of 10
years.
|
(Continued)
F-31
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
In connection with the issuance of the Notes from March to June 2004, the Company issued
warrants to purchase 155,300 shares of common stock at an exercise price of $0.01 per
share, exercisable through September 24, 2014 (note 5). During 2006, 77,650 warrants were
exercised for proceeds of $777.
|
|
|
|
|
In connection with the satisfaction of outstanding obligations to the Companys president
and CEO under an employment agreement, the Company issued warrants to purchase 12,500
shares of common stock at an exercise price of $0.20 per share in 2004, exercisable
through September 24, 2014 (note 6).
|
|
|
|
|
All 1,200,588 warrants outstanding as of December 31, 2006 are exercisable.
|
(8)
|
|
Income Taxes
|
|
|
|
There is no provision for or benefit from income taxes for the period from March 27, 2003
(inception) to December 31, 2006, as the Company incurred losses for the period for income tax
purposes. As of December 31, 2006, the Company has federal net operating loss carryforwards of
approximately $11,300,000 that begin to expire in 2023 and state net operating loss
carryforwards of approximately $11,300,000 that begin to expire in 2023. Pursuant to the
Internal Revenue Code
, the annual utilization of the federal carryforwards may be limited in
terms of utilization in certain circumstances, including a change in ownership of the Company,
as defined. In the case of Pennsylvania state loss carryforwards, there is a $3,000,000 limit
on utilization per year. The Company also has research and development credit carryforwards of
$473,000 that begin to expire in 2023. The Company will not recognize a tax benefit for
financial reporting purposes for any previously incurred or future operating losses or credit
carryforwards, until such time as management believes it is more likely than not that the
Companys future operations will generate sufficient taxable income to be able to realize such
benefits.
|
|
|
|
Deferred income taxes are recorded for the tax effects of temporary differences between the
basis of assets and liabilities recognized for financial reporting purposes and the tax basis,
and net operating losses and credits. The most significant component of the Companys net
deferred tax assets as of December 31, 2006 are net operating loss carryforwards and
capitalized research and development costs. A full valuation allowance was established for the
deferred tax assets, as realization of the tax benefits is not assured.
|
|
(9)
|
|
Commitments and Contingencies
|
|
(a)
|
|
Leases
|
|
|
|
|
The Company leases laboratory equipment under an operating lease that commenced in June
2004 and expires in May 2007. Rent expense under this operating lease was $14,222,
$14,222 and $8,269 for the years ended December 31, 2006, 2005 and 2004, respectively.
Future minimum lease payments as of December 31, 2006 are $5,953 for the year ending
December 31, 2007.
|
|
|
(b)
|
|
License and Research Agreements
|
|
|
|
|
In March 2003, the Company and the University of Pennsylvania entered into two exclusive
worldwide licenses for certain technology rights. The Company issued 408,334 shares of
common stock valued at $612,501 in exchange for licenses of certain patent rights. The
Company recorded the
|
(Continued)
F-32
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
license fee as research and development expense, as the licensed
technology had not reached technological feasibility and had no alternative future uses.
Additional license fees of up to $950,000 are required upon the completion of three
separate milestones, as defined. The agreement also provides for royalty payments equal
to various percentages of future commercial sales of products manufactured using the
licensed technology, as defined, if any, through the later of the expiration of the
licensed patent or ten years after the first commercial sale of the licensed product. As
of December 31, 2006, no milestones were achieved and no royalties have been paid to the
University of Pennsylvania.
|
|
|
|
|
|
|
|
In February 2005, the Company and Intradigm Corporation (Intradigm), a RNAi delivery
technology company, entered into a license and collaboration agreement for the license of
certain patents and the development of a siRNA delivery system for the posterior pole of
the eye. The Company issued 250,000 shares of common stock at $0.20 per share to
Intradigm at execution of the agreement. The shares were valued at $50,000 at date of
grant and expensed in 2005. The shares are restricted and vest as specific milestones, as
defined, are achieved. As of December 31, 2006, Intradigm has vested in 25,000 shares.
The Company expensed and paid $500,000 in 2005 related to the license agreement, and is
required to pay royalties, equal to various percentages, on future sales, if any, of
products manufactured using the licensed technology. The collaboration agreement calls
for payments upon the achievement of certain milestones, if any, up to $5,100,000 for the
development and commercialization of a siRNA therapeutic. In addition to the milestone
payments, the Company is required to pay Intradigm $15,000 per month for each full-time
equivalent employee that Intradigm has provided related to the work being performed under
the collaboration agreement. The Company expensed $89,169 and $134,500 in 2006 and 2005,
respectively, related to these services. As of December 31, 2006, no milestones were
achieved and no royalties have been paid to Intradigm.
|
|
|
|
|
In April 2006, the Company entered into a license agreement with Pathogenics, Inc.
(Pathogenics) for N-Chlorotaurine (NCT) and licensed products, as defined, for the
treatment of ophthalmic disease or infection in any territory. The Company was also
granted non-exclusive rights to all data resulting from a phase I clinical trial with NCT
in Austria. The Company is obligated to pay to Pathogenics certain milestone payments
totaling up to $6,325,000 upon the achievement of specified milestones
and royalty payments of 6% on all net sales, if any, of licensed products. The Company is
also obligated to pay Pathogenics an annual minimum payment if the total payments made
for such year are less than a specified minimum amount. The minimum payments due are
$50,000 for 2007; $100,000 for 2008, 2009, and 2010; $200,000 for 2011 and 2012; and
$1,500,000 for 2013. Additionally, the Company must have funds of up to $75,000 available
to accelerate a certain milestone, as defined. The term of the agreement is for the
shorter of twenty years or the last to expire of the Pathogenics patent rights. The
Company expensed and paid $153,830 in 2006 related to this license agreement. As of
December 31, 2006, no milestones were achieved and no royalties have been paid to
Pathogenics.
|
|
|
|
|
In June 2006, the Company entered into a material transfer agreement with ZaBeCor
Pharmaceutical Company, LLC (ZaBeCor) under which ZaBeCor provided the Company with
instructions to make a certain siRNA-derived therapeutic with the right to evaluate the
potential use of the siRNA-derived therapeutic for the treatment of ophthalmic diseases
in humans for the period of one year. The
|
(Continued)
F-33
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
|
|
|
Company was granted an option to acquire an
exclusive license to certain of ZaBeCors patents related to the siRNA-derived
therapeutic for the therapy of ophthalmic diseases in humans. The term of the option to
license is for one year from the date of the material transfer agreement. The license
agreement, if opted, provides for royalty payments equal to various percentages of future
net sales, as defined, if any. The license agreement also provides for payments in cash
and common stock of the Company upon the achievement of specified milestones, if any, up
to $10,950,000 and 400,000 in cash and common stock, respectively. The Company expensed
and paid $50,000 in 2006 related to this material transfer agreement. As of December 31,
2006, the Company has not exercised the option to license, and as such, no milestones
were achieved and no royalties have been paid to ZaBeCor.
|
|
|
|
|
In August 2006, the Company entered into a license agreement with the Board of Trustees
of the University of Illinois (UIC) for the license of certain inventions, patents, and
technological information related to Ophthalmic siRNA targeting TGF-â for the inhibition
and treatment of ophthalmic disease. The agreement provides for payments upon the
achievement of specified milestones, if any, up to $2,450,000 and royalty payments of
either 1.5% or 3.0%, as defined, on all net sales, as defined, of licensed products.
Additional license fees of $25,000, $50,000, and $100,000 are due in connection with the
first and second, third and fourth, and fifth and subsequent anniversaries of the license
agreement, respectively, with an annual minimum royalty of $400,000 on net sales, if any.
The Company expensed and paid $50,947 in 2006 related to this license agreement. As of
December 31, 2006, no milestones were achieved and no royalties have been paid to UIC.
|
|
|
(c)
|
|
Manufacturing Supply Agreement
|
|
|
|
|
The Company and Avecia BioTechnology, Inc. (Avecia) had entered into a long-term supply
agreement in September 2004. Avecia has been unable to produce product for the Company
pursuant to this agreement. During 2006, the Company notified Avecia that the agreement
is terminated as a result of this failure to produce product. The Company and Avecia are
currently in negotiations with regard to the legal termination of the agreement. The
Company does not believe that there are any future commitments under this agreement and
will recognize return of payments made under the agreement, if any, when settlement is
reached.
|
|
|
(d)
|
|
Employment Agreements
|
|
|
|
|
The Company has employment agreements with certain officers and key employees that
provide for, among other things, salary, performance incentive bonuses, severance, and
change in control provisions.
|
|
|
(e)
|
|
Contingencies
|
|
|
|
|
The Company may be involved from time to time in certain legal actions arising in the
ordinary course of business. Management believes, based on the advice of outside legal
counsel, that the outcome of such actions will not have a material adverse effect on the
Companys financial position or results of operations.
|
(Continued)
F-34
ACUITY PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Financial Statements
December 31, 2006 and 2005
(10)
|
|
Employee Benefit Plans
|
|
|
|
During the year ended December 31, 2005, the Company adopted a 401(k) retirement plan (the
401(k) plan). The 401(k) plan allows eligible employees to contribute a portion of their
salary on a pretax basis, subject to annual limits. The Company may make discretionary
matching contributions to the plan as determined by the board of directors. For the years
ended December 31, 2006 and 2005, there were no discretionary matching contributions approved
by the board of directors.
|
|
(11)
|
|
Supplemental Cash Flow Information
|
|
|
|
Supplemental cash flow information is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception) to
|
|
|
|
Year ended December 31
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
Interest paid
|
|
$
|
490,920
|
|
|
|
145,401
|
|
|
|
|
|
|
|
636,321
|
|
Noncash financing and
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued with debt
|
|
$
|
|
|
|
|
312,514
|
|
|
|
203,258
|
|
|
|
515,772
|
|
Beneficial conversion
feature on convertible
notes payable
|
|
|
|
|
|
|
|
|
|
|
203,258
|
|
|
|
203,258
|
|
Conversion of notes
payable to equity
|
|
|
|
|
|
|
|
|
|
|
1,025,357
|
|
|
|
1,028,357
|
|
(12)
|
|
Subsequent Event
|
|
|
|
On January 11, 2007, the Company entered into an agreement with the Froptix Corporation
(Froptix) and The Frost Group, LLC (Frost Group) whereby the Frost Group provided a
subordinated secured line of credit, up to $8,000,000 to the Company; the Company will merge
with and into a wholly-owned subsidiary of a publicly traded shell company (Public Shell)
controlled by the Frost Group and certain affiliates and associates of the Frost Group; and
Froptix will also merge with and into a wholly-owned subsidiary of the Public Shell.
|
|
|
|
In exchange for entering into this agreement, the Company agreed to grant to the Frost Group a
warrant to purchase up to 125,000 shares of Acuity Series B Preferred Stock, par value $0.01
per share, for an exercise price of $2.00 per share and a warrant to purchase up to 15,625
shares of Acuity Common Stock, par value $0.01 per share for an exercise price of $0.01 per
share. The holders of the Series A and Series B Preferred Stock agreed to waive all redemption
and liquidation rights as of December 14, 2006.
|
|
|
|
On March 27, 2007, the Company, Froptix, and eXegenics, Inc., the Public Shell, executed a
merger agreement that brought the three companies under one corporate umbrella. The combined
company was re-named Opko Corporation. As part of the transaction, the Frost Group agreed to increase the line of credit to
$12,000,000.
|
F-35
eXegenics,
Inc.
A DEVELOPMENT STAGE COMPANY
UNAUDITED
PRO FORMA
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet combines the historical condensed consolidated balance sheets of eXegenics, Froptix and Acuity as of December 31, 2006 giving effect to the
merger as if it had occurred on December 31, 2006. The Unaudited Pro Forma Condensed Consolidated Statement of Operations combines the historical condensed consolidated statements of operations of eXegenics,
Froptix and Acuity giving effect to the merger as if it had occurred on January 1, 2006. These Pro Forma statements are presented for illustrative purposes only. The Pro Forma adjustments are based upon
available information and assumptions that management believes are reasonable. The Unaudited Pro Forma Condensed Consolidated Financial Statements do not purport to project the future financial position or
operating results of the merged company. The acquisition of Froptix and Acuity is viewed to have taken place in a three step transaction.
The first
step is the purchase of 19.4 million shares for a 51% interest
in eXegenics in February 2007 by a group of investors led by
Dr. Phillip Frost. This purchase created common control between eXegenics and
Froptix as investors included in the group led by Dr. Phillip
Frost own 91% of Froptix. The second step is Froptix acquiring eXegenics. This step has been accounted for as a reverse acquisition under the
purchase method of accounting. The combination of these two companies is recorded as a recapitalization of eXegenics. The third step is eXegenics and Froptix, being under common control, acquiring Acuity in a
purchase business combination. The first column of pro forma adjustments reflects the acquisition of shares in February 2007 by the group of investors. The second column of pro forma adjustments reflects the
second step, the recapitalization. The third column of pro forma adjustments reflects the third step, purchase price allocation of Acuity.
These Unaudited Pro Forma Condensed Consolidated Financial Statements do not give effect to any restructuring costs or to any potential cost savings or other operating efficiencies that could result from the
merger between eXegenics, Froptix and Acuity.
You should read this information in conjunction with the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements; the separate historical consolidated financial statements of
eXegenics contained in this Current Report on Form 8-K previously filed with the Securities and Exchange Commission.
F-36
eXegenics,
Inc.
A DEVELOPMENT STAGE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frost Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Froptix/
|
|
|
|
|
|
|
|
|
|
|
interest in
|
|
|
|
|
|
|
Froptix reverse
|
|
|
Froptix/
|
|
|
|
|
|
|
eXegenics
|
|
|
|
|
|
|
|
|
|
|
eXegenics,
|
|
|
|
|
|
|
acquisition of
|
|
|
eXegenics pro
|
|
|
|
|
|
|
acquisition of
|
|
|
|
|
|
|
|
|
|
|
February 2007
|
|
|
|
|
|
|
eXegenics
|
|
|
forma
|
|
|
|
|
|
|
Acuity
|
|
|
|
|
AS OF DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
eXegenics
|
|
|
Adjustments
|
|
|
Froptix
|
|
|
Adjustments
|
|
|
Subtotal
|
|
|
Acuity
|
|
|
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,596
|
|
|
$
|
8,024
|
a
|
|
$
|
116
|
|
|
$
|
0
|
|
|
$
|
16,736
|
|
|
$
|
210
|
|
|
$
|
0
|
|
|
$
|
16,946
|
|
Short-term investments
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
639
|
|
|
|
0
|
|
|
|
639
|
|
Prepaid expenses and other current assets
|
|
|
156
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
156
|
|
|
|
18
|
|
|
|
0
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
8,752
|
|
|
|
8,024
|
|
|
|
116
|
|
|
|
0
|
|
|
|
16,892
|
|
|
|
867
|
|
|
|
0
|
|
|
|
17,759
|
|
Property and equipment, net
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
90
|
|
|
|
0
|
|
|
|
90
|
|
Deferred financing costs
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
24
|
|
|
|
0
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,752
|
|
|
$
|
8,024
|
|
|
$
|
116
|
|
|
$
|
0
|
|
|
$
|
16,892
|
|
|
$
|
981
|
|
|
$
|
0
|
|
|
$
|
17,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term notes payable
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,667
|
|
|
$
|
0
|
|
|
$
|
1,667
|
|
Accounts payable
|
|
|
7
|
|
|
|
0
|
|
|
|
95
|
|
|
|
0
|
|
|
|
102
|
|
|
|
3,136
|
|
|
|
0
|
|
|
|
3,238
|
|
Accrued compensation
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
299
|
|
|
|
0
|
|
|
|
299
|
|
Accrued expenses
|
|
|
667
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
667
|
|
|
|
407
|
|
|
|
16,673
|
i
|
|
|
17,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
674
|
|
|
|
0
|
|
|
|
95
|
|
|
|
0
|
|
|
|
769
|
|
|
|
5,509
|
|
|
|
16,673
|
|
|
|
22,951
|
|
Long-term notes payable, net of unamortized warrant discount of
$168 at December 31, 2006
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,165
|
|
|
|
0
|
|
|
|
2,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
674
|
|
|
|
0
|
|
|
|
95
|
|
|
|
0
|
|
|
|
769
|
|
|
|
7,674
|
|
|
|
16,673
|
|
|
|
25,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Redeemable Convertible Preferred Stock, $0.01 par value;
authorized 13,255,179 shares; issued and outstanding 8,817,679
shares at December 31, 2006. (Liquidation value of $38,148,330
at December 31, 2006); none on a pro forma basis
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25,988
|
|
|
|
(25,988)
|
e
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Series B Redeemable Convertible Preferred Stock
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25,988
|
|
|
|
(25,988
|
)
|
|
|
0
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, $0.01 par value; authorized
issued and outstanding 742,000 shares at December 31, 2006
(Liquidation value of $1,484,000 at December 31, 2006); none on a pro forma basis
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
(7)
|
e
|
|
|
0
|
|
Series A Preferred Stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding 1,002,017 at December 31, 2006;
and on a pro forma basis
|
|
|
10
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10
|
|
Series B Junior Participating Preferred Stock, $0.01 par value;
30,000 designated ; none outstanding at December 31, 2006 or on a pro forma basis
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Series C Preferred Stock, $0.01 par value, authorized 500,000 shares; issued and outstanding 952,839 at December 31, 2006;
457,589 on a pro forma basis
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
d
|
|
|
5
|
|
Common stock, $0.01 par value; authorized 19,584,956 shares;
issued and outstanding 2,116,877 shares at December 31, 2006 none on a pro forma basis
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
21
|
|
|
|
(21)
|
e
|
|
|
0
|
|
Common stock, $0.01 par value; authorized 225,000,000; issued and outstanding
16,990,991 shares issued and outstanding at December 31, 2006
113,116,299 on a pro forma basis
|
|
|
170
|
|
|
|
194
|
a
|
|
|
0
|
|
|
|
618
|
b
|
|
|
982
|
|
|
|
0
|
|
|
|
148
|
d
|
|
|
1,130
|
|
Additional paid-in capital
|
|
|
68,285
|
|
|
|
7,830
|
a
|
|
|
898
|
|
|
|
(61,005)
|
b
|
|
|
16,008
|
|
|
|
0
|
|
|
189,481
|
dei
|
|
|
205,489
|
|
Deficit accumulated during development stage
|
|
|
(57,050
|
)
|
|
|
0
|
|
|
|
(877
|
)
|
|
|
57,050
|
c
|
|
|
(877
|
)
|
|
|
(32,709
|
)
|
|
|
32,709
|
f
|
|
|
(213,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213,000)
|
g
|
|
|
|
|
Less: Treasury Stock of 611,200, at cost
|
|
|
(3,337
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
3,337
|
c
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders equity (deficit)
|
|
|
8,078
|
|
|
|
8,024
|
|
|
|
21
|
|
|
|
0
|
|
|
|
16,123
|
|
|
|
(32,681
|
)
|
|
|
9,315
|
|
|
|
(7,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders equity (deficit)
|
|
$
|
8,752
|
|
|
$
|
8,024
|
|
|
$
|
116
|
|
|
$
|
0
|
|
|
$
|
16,892
|
|
|
$
|
981
|
|
|
$
|
0
|
|
|
$
|
17,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited Pro Forma Condensed Consolidated Financial Statements.
F-37
eXegenics,
Inc.
A DEVELOPMENT STAGE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
eXegenics
|
|
|
Froptix
|
|
|
Acuity
|
|
|
Adjustments
|
|
|
Consolidated
|
|
Revenues
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
0
|
|
|
$
|
508
|
|
|
$
|
8,027
|
|
|
$
|
0
|
|
|
$
|
8,535
|
|
General and administrative
|
|
|
1,117
|
|
|
|
375
|
|
|
|
2,698
|
|
|
|
0
|
|
|
|
4,190
|
|
Write off of in process research and development
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
g
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,117
|
)
|
|
|
(883
|
)
|
|
|
(10,725
|
)
|
|
|
0
|
|
|
|
(12,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
469
|
|
|
|
6
|
|
|
|
252
|
|
|
|
0
|
|
|
|
727
|
|
Interest expense
|
|
|
0
|
|
|
|
0
|
|
|
|
(619
|
)
|
|
|
0
|
|
|
|
(619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense)
|
|
|
469
|
|
|
|
6
|
|
|
|
(367
|
)
|
|
|
0
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(648
|
)
|
|
|
(877
|
)
|
|
|
(11,092
|
)
|
|
|
|
|
|
|
(12,617
|
)
|
Preferred stock dividend
|
|
|
(238
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(705)
|
h
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
shareholders
|
|
$
|
(886
|
)
|
|
$
|
(877
|
)
|
|
$
|
(11,092
|
)
|
|
$
|
(705
|
)
|
|
$
|
(13,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
16,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,042
|
j
|
Diluted loss per share
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.12
|
)
|
See accompanying notes to unaudited Pro Forma Condensed Consolidated Financial Statements.
F-38
eXegenics,
Inc.
A DEVELOPMENT STAGE COMPANY
Notes
to Unaudited Pro Forma Condensed Consolidated Financial Statements
|
|
|
a
|
|
Cash raised through the sale of additional shares of
eXegenics largely to a group of investors lead by Dr. Phillip Frost in February, 2007 for approximately $0.44 per share reduced by a subsequent
purchase price adjustment of $588,947.
|
|
b
|
|
The issuance of 61,775,000 shares of common stock for 100% of the outstanding shares of Froptix.
|
|
c
|
|
Eliminate eXegenics retained deficit and treasury stock.
|
|
d
|
|
Represents eXegenics shares issued and options/warrants granted (including their corresponding fair values) in exchange for 100% ownership in Acuity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Issued/Grants
|
|
|
Fair Value
|
|
|
|
Received
|
|
|
Received
|
|
Common Stock
|
|
|
14,835,930
|
|
|
$
|
39,315,215
|
|
Series C Preferred
Stock, if converted
|
|
|
45,758,686
|
|
|
$
|
121,260,518
|
|
Series C Preferred
Stock Options, if
converted
|
|
|
731,700
|
|
|
$
|
1,763,397
|
|
Series C Preferred
Stock Warrants, if
converted
|
|
|
1,686,600
|
|
|
$
|
4,047,840
|
|
Replacement warrants
for Acuity warrants
|
|
|
6,472,636
|
|
|
$
|
16,311,048
|
|
New warrants issued
|
|
|
6,253,239
|
|
|
$
|
14,444,983
|
|
Vested common stock
options
|
|
|
6,428,266
|
|
|
$
|
15,739,231
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
212,882,232
|
|
|
|
|
|
|
|
|
|
|
|
e
|
|
Eliminate Froptix common stock and Acuity common and preferred stock.
|
|
f
|
|
Eliminate Acuity retained deficit.
|
|
g
|
|
Represents write off of in process research and development
of Acuity (approximately $213,000,000 see note d). Amount was valued at consummation of the
acquisition but then subsequently written off in accordance with FASB Interpretation No. 4,
Applicability of FASB
Statement No. 2 to Business Combinations Accounted for by the Purchase Method.
Note this amount is not included in the
accompanying pro forma condensed consolidated statement of operations.
|
|
h
|
|
Represents dividends which would have been paid to Acuity preferred stock holders had the merger occurred January 1, 2006. Amount calculated as 457,589 Series C
Preferred Stock shares multiplied by a fair value of $77/share multiplied by 2% dividend rate (457,589*$77*2%=$704,687).
|
|
i
|
|
Represents liability ($16,673,275) associated with equity
instruments (options and warrants) issued to individuals other than
employees. In accordance with EITF 00-19 the fair value
of these instruments has been recorded as a liability with a corresponding offset to additional paid in capital.
|
|
j
|
|
Represents weighted average number of shares as follows:
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
eXegenics shares outstanding at December 31, 2006
|
|
|
16,990,991
|
|
Issuance of
shares on February 8, 2007 to a group of investors led by Dr. Phillip
Frost
|
|
|
19,440,491
|
|
Issuance of
shares on March 27, 2007 to Froptix shareholders upon converting
Froptix shares to eXegenics shares
|
|
|
61,775,000
|
|
Issuance of
shares on March 27, 2007 to Acuity shareholders upon converting
Acuity shares to eXegenics shares
|
|
|
14,835,930
|
|
Total
|
|
|
113,042,412
|
|
|
|
|
Note:
|
|
The allocation of purchase price
is preliminary and may change significantly. The stock price of
eXegenics leading up to the closing of the merger increased
significantly, resulting in a much higher valuation of Acuity in
purchase accounting than was contemplated in the negotiations between the parties to the merger.
|
F-39
(d) Exhibits
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
2.1
|
|
Merger Agreement and Plan of
Reorganization
|
|
|
|
3.2*
|
|
Series C Certificate of Designation
|
|
|
|
4.1
|
|
Form of Common Stock Warrant
|
|
|
|
4.2
|
|
Form of Preferred Stock Warrant
|
|
|
|
10.1
|
|
Form of Lockup Agreement
|
|
|
|
10.2
|
|
Credit Agreement, dated as of March 27, 2007, by and
among eXegenics Inc., The Frost Group, LLC, and Acuity
Pharmaceuticals, LLC
|
|
|
|
10.3
|
|
Amended and Restated Venture Loan and Security
Agreement, dated as March 27, 2007, by and among
Horizon Technology Funding Company LLC, Acuity
Pharmaceuticals, LLC and eXegenics, Inc.
|
|
|
|
10.4*
|
|
Research Agreement, dated April 7, 2006, between
Froptix Corporation and the University of Florida
Board of Trustees
|
|
|
|
10.5*
|
|
Standard Exclusive License Agreement, dated as April
18, 2006, by and between University of Florida
Research Foundation, Inc. and Froptix Corporation
|
|
|
|
10.6*
|
|
Standard Exclusive License Agreement, dated as April
18, 2006, by and between University of Florida
Research Foundation, Inc. and Froptix Corporation
|
|
|
|
10.7*
|
|
Standard Exclusive License Agreement, dated as April
18, 2006, by and between University of Florida
Research Foundation, Inc. and Froptix Corporation
|
|
|
|
10.8
|
|
Technology License Agreement, dated August 3, 2006,
between the Board of Trustees of the University of
Illinois and Acuity Pharmaceuticals, Inc.
|
|
|
|
10.9
|
|
License Agreement, dated April 13, 2006, by and
between Acuity Pharmaceuticals, Inc. and Pathogenics,
Inc.
|
|
|
|
10.10
|
|
Amendment No. 1 to Agreement, dated August 2, 2006, by
and between Acuity Pharmaceuticals, Inc. and
Pathogenics, Inc.
|
|
|
|
10.11
|
|
Amendment No. 2 to Agreement, dated March 8, 2007, by
and between Acuity Pharmaceuticals, Inc. and
Pathogenics, Inc.
|
|
|
|
10.12
|
|
License and Collaboration Agreement, dated as of June
2, 2005, by and between Acuity Pharmaceuticals, Inc.
and Intradigm Corporation
|
|
|
|
10.13
|
|
License Agreement, dated as March 31, 2003, by and
between the Trustees of the University of Pennsylvania
and Acuity Pharmaceuticals, Inc. (Reich/Tolentinio)
|
|
|
|
10.14
|
|
License Agreement, dated as March 31, 2003, by and
between the Trustees of the University of Pennsylvania
and Acuity Pharmaceuticals, Inc. (Reich/Gewirtz)
|
|
|
|
10.15
|
|
First Amendment to License Agreement, dated as August
1, 2003, by and between the Trustees of the University
of Pennsylvania and Acuity Pharmaceuticals, Inc.
(Reich/Tolentinio)
|
|
|
|
10.16
|
|
First Amendment to License Agreement, dated as August
1, 2003, by and between the Trustees of the University
of Pennsylvania and Acuity Pharmaceuticals, Inc.
(Gewirtz)
|
|
|
|
10.17
|
|
Amended and Restated Subordination Agreement, dated as
of March 27, 2007, by and among The Frost Group, LLC,
Horizon Technology Funding Company LLC, Acuity
Pharmaceuticals, LLC, and eXegenics Inc.
|
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
10.18
|
|
Employment letter dated March 29, 2007, between Samuel
J. Reich and eXegenics Inc.
|
|
|
|
10.19
|
|
Employment Agreement, dated as of September 25, 2004,
by and between Dale R. Pfost and Acuity
Pharmaceuticals, Inc.
|
|
|
|
99.1
|
|
Press Release, dated March 27, 2007
|
|
|
|
*
|
|
To be filed by amendment
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
eXegenics Inc.
|
|
|
By:
|
/s/
Dale R. Pfost
|
|
|
|
Name:
|
Dale R. Pfost
|
|
|
|
Title:
|
President
|
|
|
Date
March 30, 2007
EXHIBIT
2.1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS
MERGER AGREEMENT AND PLAN OF REORGANIZATION
(this
Agreement
), dated as of March 27,
2007, is entered into by and among Acuity Pharmaceuticals, Inc., a
Delaware corporation (
Acuity
),
Froptix Corporation, a Florida corporation (
Froptix
), eXegenics Inc. a Delaware corporation
(
Parent
), e-Acquisition Company I-A, LLC, a Delaware limited liability company, which is a wholly
owned subsidiary of Parent (
Merger Sub I
) and e-Acquisition Company II-B, LLC, a Delaware limited
liability company which is a wholly owned subsidiary of Parent (
Merger Sub II
).
WHEREAS
, the Boards of Directors and/or members, as applicable, of each of Parent, Merger Sub
I, Merger Sub II, Acuity and Froptix have, pursuant to the Laws of their respective States of
incorporation or organization, approved this Agreement and the consummation of the transactions
contemplated hereby, including (i) the merger of Froptix with and into Merger Sub I (the
Froptix
Merger
), and (ii) the merger of Acuity with and into Merger Sub II (the
Acuity Merger
and, with
the Froptix Merger, the
Mergers
);
WHEREAS,
the Boards of Directors and/or members, as applicable, of each of Parent, Merger Sub
I, Merger Sub II, Acuity and Froptix have declared that this Agreement is advisable, fair and in
the best interests of their respective shareholders, as applicable, and approved the Mergers,
respectively, upon the terms and conditions set forth in this Agreement; and
WHEREAS
, the parties to this Agreement intend that the Mergers will qualify as a
reorganization pursuant to Internal Revenue Code of 1986, as amended
(the
Code
) Section
368(a)(1)(A), and the parties have agreed not take actions that would cause the Mergers not to
qualify as such a reorganization.
NOW
,
THEREFORE
, in consideration of the covenants, promises and representations set forth
herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby
expressly and mutually acknowledged, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article I shall have the
meanings herein specified for all purposes of this Agreement, applicable to both the singular and
plural forms of any of the terms herein defined.
1.1
As used herein, the following terms shall have the following meanings:
Acuity Common Stock
means the Common Stock of Acuity, par value $0.01 per share.
Acuity Common Valuation
shall mean $5,475,111.
Acuity Employee Benefit Plans
means all Employee Benefit Plans with respect to which
Acuity or any ERISA Affiliate of Acuity has any obligation or liability, contingent or otherwise.
Acuity Option Plans
means the Acuity Pharmaceuticals, Inc. 2003 Equity Incentive
Plan, Amended and Restated as of November 8, 2004.
Acuity Preferred Stock
means the Acuity Series A Preferred Stock and the Acuity
Series B Preferred Stock.
Acuity Series A Preferred Stock
means the Series A Preferred Stock of Acuity, par
value $0.01 per share.
Acuity Series A Valuation
shall mean $1,919,116.
Acuity Series B Preferred Stock
means the Series B Preferred Stock of Acuity, par
value $0.01 per share.
Acuity Series B Valuation
shall mean $22,806,128.
Acuity Shareholder
means any holder of Acuity Shares.
Acuity Shares
means, collectively, all of the issued and outstanding shares of
Acuity Common Stock, Acuity Series A Preferred Stock, and Acuity Series B Preferred Stock.
Acuity Warrant Number
shall mean 0.0909507.
Eligible Market
means the American Stock Exchange.
Employee Benefit Plans
means (i) all employee benefit plans (as defined in Section
3(3) of ERISA), (ii) all employment, consulting, individual compensation and collective bargaining
agreements and (iii) all other employee benefit plans, policies, agreements, or arrangements,
including any bonus or other incentive compensation, stock purchase, equity or equity-based
compensation, deferred compensation, change in control, termination, severance, sick leave,
vacation, loans, perquisites, salary continuation, health, disability, life insurance and
educational assistance plans, policies, agreements or arrangements.
End Date
means August 30, 2007.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate
means any entity (whether or not incorporated) which would be
treated as a single employer with Acuity under Sections 414(b), (c), (m) or (o) of the Code and the
regulations thereunder.
Exchange Act
means the Securities Exchange Act of 1934, as amended.
FDA
means the U.S. Food and Drug Administration.
Froptix Common Stock
means the Common Stock of Froptix, par value $0.01 per share.
Froptix Shareholder
means any holder of Froptix Shares.
Froptix Shares
means, collectively, all of the issued and outstanding shares of
Froptix Common Stock.
Froptix Valuation
shall mean $33,000,000.
Froptix Warrant Number
shall mean 0.2530630.
GAAP
means accounting principles generally accepted in the United States of America
applied on a consistent basis throughout the periods indicated.
Governmental Authority
means any foreign, federal, national, state or local
judicial, legislative, executive or regulatory body, authority or instrumentality.
Hazardous Substances
means any substance, waste, contaminant, pollutant or material
that has been determined by any Governmental Authority to be capable of posing a risk of injury to
health, safety, property or the environment.
Holder
means the Trustees of the University of Pennsylvania and any of the holders
of any Registrable Securities who is a party to the Acuity Lockup Agreements or Froptix Lockup
Agreements .
Indebtedness
of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the periods covered thereby,
is classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the Person which owns
such assets or property has not assumed or become liable for the payment of such indebtedness and
(H) all guaranties in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above.
Insolvent
means, with respect to any Person, (i) the present fair saleable value of
such Persons assets is less than the amount required to pay such Persons total Indebtedness, (ii)
such Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as such debts mature or
(iv) such Person has unreasonably small capital with which to conduct its business as such business
is now conducted and is proposed to be conducted.
Intellectual Property
means all trademarks and trademark rights, trade names and
trade name rights, service marks and service mark rights, service names and service name rights,
patents and patent rights, brand names, trade dress, product designs, product packaging, business
and product names, logos, slogans, rights of publicity, trade secrets, inventions, formulae,
industrial models, processes, designs, specifications, data, technology, methodologies, computer
programs (including all source codes), any other confidential and proprietary right or information,
whether or not subject to statutory registration, and all related technical information,
manufacturing, engineering and technical drawings, know-how and all pending applications for and
registrations of patents, trademarks, service marks and copyrights, and the right to sue for past
infringement, if any, in connection with any of the foregoing, and all documents, disks and other
media on which any of the foregoing is stored.
Law
means any law, statute, rule, regulation, judgment, decree, order, ordinance,
code, regulation, arbitration award, grant, franchise, permit and license or other legally
enforceable requirement of or by any Governmental Authority.
Letter of Transmittal
means a letter of transmittal in such form as reasonably
presented to the Froptix Shareholders and the Acuity Shareholders by Parent a reasonable amount of
time after to the Froptix Merger Effective Time and the Acuity Merger Effective Time, as
applicable.
Lien
means any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind, including, without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof and including any lien or charge arising by Law.
Material Adverse Effect
means a material adverse effect on the operations, condition
(financial or other), assets, liabilities, earnings, or business (as now conducted or as proposed
to be conducted) of the Person affected or on the transactions contemplated hereby;
provided
,
however
, that (i) any adverse change or effect that is
demonstrated to be primarily caused by conditions affecting the United States economy
generally shall not be taken into account in determining whether there has been or would be a
Material Adverse Effect on or with respect to the Person affected, or (ii) any adverse change,
event or effect that is demonstrated to be primarily caused by the announcement or pendency of the
Mergers or of the transactions contemplated hereby shall not be taken into account in determining
whether there has been or would be a Material Adverse Effect on or with respect to the Person
affected.
OTCBB
means the over-the-counter bulletin board market maintained by The Nasdaq
Stock Market, Inc.
Parent Common Stock
means the Common Stock of Parent, par value $0.01 per share.
Parent Employee Benefit Plans
means all Employee Benefit Plans with respect to which
Parent or any ERISA Affiliate of Parent has any obligation or liability, contingent or otherwise.
Parent Per Share Stock Valuation
means the per share dollar amount equal to the
quotient of the Parent Valuation divided by the number of shares of the capital stock of Parent
(including options and warrants to purchase capital stock of Parent) outstanding immediately prior
to the Froptix Merger Effective Time, calculated on a fully-diluted basis.
Parent Preferred Stock
means the Parent Series A Preferred Stock and the Parent
Series B Preferred Stock.
Parent Series A Preferred Stock
means the Series A Preferred Stock of Parent, par
value $0.01 per share.
Parent Series B Preferred Stock
means the Series B Junior Participating Preferred
Stock of Parent, par value $0.01 per share.
Parent Series C Preferred Stock
means the Series C Preferred Stock of Parent, par
value $0.01 per share, which will have the rights and preferences set forth in the Series C
Preferred Certificate of Designation.
Parent Valuation
shall mean $19,000,000.
Person
means all natural persons, corporations, business trusts, associations,
unincorporated organizations, limited liability companies, partnerships, joint ventures and other
entities and Governmental Authorities or any department or agency thereof.
Proceeding
means an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened in writing.
Registrable Securities
means all of (i) the shares of Parent Common Stock issued
pursuant to this Agreement, (ii) the shares of Parent Common Stock issuable upon conversion of the
shares of Parent Series C Preferred Stock issued pursuant to this Agreement, (iii) the shares of
Parent Common Stock issuable upon exercise of the Parent Warrants issued pursuant to this Agreement
or the Master Agreement and (iv) the shares of Parent Common Stock issuable upon exercise of the
Adjusted Parent Options or Adjusted Parent Series C Options issued pursuant to this Agreement,
together with any securities issued or issuable pursuant to the adjustment provisions set forth in
the Parent Warrants or upon any stock split, dividend or other distribution, recapitalization,
exchange or similar event with respect to the foregoing.
SEC
means the U.S. Securities and Exchange Commission.
Securities Act
means the Securities Act of 1933, as amended.
Series C Certificate of Designation
means the Series C Certificate of Designation of
Parent in substantially the form attached hereto as
Exhibit E
.
Takeover Protections
shall mean any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other similar anti-takeover
provision under an entitys charter documents or the laws of its state of incorporation.
1.2
Each of the following additional terms is defined in the Section set forth opposite such
term:
|
|
|
Term
|
|
Section
|
Acuity
|
|
Preamble
|
Acuity By-laws
|
|
Section 4.1
|
Acuity Certificate
|
|
Section 4.1
|
Acuity Certificate of Merger
|
|
Section 2.3(b)
|
Acuity Common Exchange Ratio
|
|
Section 3.3(a)
|
Acuity Common Options
|
|
Section 3.4(a)
|
Acuity Common Warrant
|
|
Section 3.5(a)
|
Acuity Dissenting Shares
|
|
Section 3.12
|
Acuity Financial Statements
|
|
Section 4.6
|
Acuity Indemnitees
|
|
Section 7.6(b)
|
Acuity Intellectual Property
|
|
Section 4.9
|
Acuity Lockup Agreements
|
|
Section 7.16(b)
|
Acuity Material Agreement
|
|
Section 4.8
|
Acuity Merger
|
|
Recitals
|
Acuity Merger Effective Time
|
|
Section 2.3(b)
|
Acuity Option
|
|
Section 3.4(b)
|
Acuity Preferred Option
|
|
Section 3.4(b)
|
Acuity Series A Preferred Exchange Ratio
|
|
Section 3.3(b)
|
Acuity Series B Preferred Exchange Ratio
|
|
Section 3.3(c)
|
|
|
|
Term
|
|
Section
|
Acuity Series B Preferred Warrant
|
|
Section 3.5(b)
|
Acuity Stock Certificate
|
|
Section 3.7
|
Adjusted Parent Option
|
|
Section 3.2(a)
|
Adjusted Parent Series C Option
|
|
Section 3.4(b)
|
Agreement
|
|
Preamble
|
Closing
|
|
Section 2.2
|
Closing Date
|
|
Section 2.2
|
Code
|
|
Recitals
|
Confidentiality Agreement
|
|
Section 7.11
|
DGCL
|
|
Section 2.1(b)
|
FBCA
|
|
Section 2.1(a)
|
Froptix
|
|
Preamble
|
Froptix Articles
|
|
Section 5.1
|
Froptix Articles of Merger
|
|
Section 2.3(a)
|
Froptix By-laws
|
|
Section 5.1
|
Froptix Certificate of Merger
|
|
Section 2.3(b)
|
Froptix Common Exchange Ratio
|
|
Section 3.1(a)
|
Froptix Financial Statements
|
|
Section 5.6.
|
Froptix Indemnitees
|
|
Section 7.6(a)
|
Froptix Intellectual Property
|
|
Section 5.9
|
Froptix Lockup Agreements
|
|
Section 7.16(a)
|
Froptix Material Agreement
|
|
Section 5.8
|
Froptix Merger
|
|
Recitals
|
Froptix Merger Effective Time
|
|
Section 2.3(a)
|
Froptix Option
|
|
Section 3.2(a)
|
Froptix Stock Certificate
|
|
Section 3.6
|
LLC Act
|
|
Section 2.1(a)
|
Master Agreement
|
|
Section 7.15
|
Merger Sub I
|
|
Preamble
|
Merger Sub I Certificate
|
|
Section 6.1
|
Merger Sub I LLC Agreement
|
|
Section 6.1
|
Merger Sub II
|
|
Preamble
|
Merger Sub II Certificate
|
|
Section 6.1
|
Merger Sub II LLC Agreement
|
|
Section 6.1
|
Mergers
|
|
Recitals
|
Parent
|
|
Preamble
|
Parent By-laws
|
|
Section 6.1
|
Parent Certificate
|
|
Section 6.1
|
Parent Material Agreement
|
|
Section 6.11
|
Parent Warrants
|
|
Section 3.1(a)
|
Permitted Liens
|
|
Section 4.10
|
SEC Reports
|
|
Section 6.7
|
|
|
|
Term
|
|
Section
|
Surviving Company I
|
|
Section 2.1(a)
|
Surviving Company II
|
|
Section 2.1(b)
|
Transaction Form 8-K
|
|
Section 7.3
|
Voting Agreement
|
|
Section 7.5
|
ARTICLE II
THE MERGERS
2.1
The Mergers
.
(a)
Froptix Merger.
On the terms and subject to the conditions set forth in this
Agreement, at the Froptix Merger Effective Time, in accordance with the terms of the Florida
Business Corporation Act (the
FBCA
) and the Delaware Limited Liability Company Act (the
LLC
Act
), Froptix shall be merged with and into Merger Sub I. At the Froptix Merger Effective Time,
the separate existence of Froptix shall cease and Merger Sub I shall continue as the surviving
company (
Surviving Company I
).
(b)
Acuity Merger
. On the terms and subject to the conditions set forth in this
Agreement, at the Acuity Merger Effective Time, which shall take place immediately after the
effectiveness of the Froptix Merger, in accordance with the provisions of the Delaware General
Corporation Law (the
DGCL
) and the LLC Act, Acuity shall be merged with and into Merger Sub II.
At the Acuity Merger Effective Time, the separate existence of Acuity shall cease and Merger Sub II
shall continue as the surviving company (
Surviving Company II
).
2.2
The Closing
. The closing of the Froptix Merger and the Acuity Merger and the
other transactions contemplated by this Agreement (the
Closing
) shall take place at the offices
of Akerman Senterfitt, in Miami, Florida, commencing at 9:00 a.m. local time on the second business
day following the satisfaction or waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby (other than conditions with respect to actions the
respective parties will take at the Closing itself) or such other date as the parties may mutually
determine (the
Closing Date
).
2.3
Effective Times
.
(a)
Froptix Merger Effective Time
. Prior to the Closing, Parent, Merger Sub I and
Froptix shall prepare, and, on the Closing Date, Froptix shall file (i) with the Secretary of State
of the State of Florida, Articles and a Plan of Merger in substantially the form attached hereto as
Exhibit A
(the
Froptix Articles of Merger
), (ii) with the Secretary of State of the State
of Delaware, a Certificate of Merger in substantially the form attached hereto as
Exhibit B
(the
Froptix Certificate of Merger
), and/or (iii) such other appropriate documents executed in
accordance with the applicable provisions of FBCA and the LLC Act and shall make all other filings
or recordings required under the FBCA and the LLC Act to effect the Froptix Merger. The Froptix
Merger shall become effective at the later of such time as the Articles of Merger and the
Froptix Certificate of Merger are accepted for recording by the Secretary of State of the
State of Florida or Delaware, as applicable. The time at which the Froptix Merger shall become
effective as aforesaid is referred to as the
Froptix Merger Effective Time
.
(b)
Acuity Merger Effective Time
. Prior to the Closing, Parent, Merger Sub II and
Acuity shall prepare, and, on the Closing Date, Acuity shall file with the Secretary of State of
the State of Delaware, a Certificate of Merger in the form attached hereto as
Exhibit C
(the
Acuity Certificate of Merger
), and/or such other appropriate documents executed in
accordance with the applicable provisions of the DGCL and the LLC Act and shall make all other
filings or recordings required under the DGCL and the LLC Act to effect the Acuity Merger. The
Acuity Merger shall become effective at such time as the Certificate of Merger is accepted for
recording by the Secretary of State of the State of Delaware. The time at which the Acuity Merger
shall become effective as aforesaid is referred to as the
Acuity Merger Effective Time
.
2.4
Legal Effects of the Mergers
.
(a)
Legal Effect of The Froptix Merger
. At the Froptix Merger Effective Time, the
effect of the Froptix Merger shall be as provided in this Agreement and the applicable provisions
of the FBCA and the LLC Act. Without limiting the generality of the foregoing, and subject
thereto, at the Froptix Merger Effective Time, all of the assets, properties, rights, privileges,
powers and franchises of Froptix and Merger Sub I shall vest in Surviving Company I, and all of the
debts, liabilities, obligations, restrictions and duties of Froptix and Merger Sub I shall become
the debts, liabilities, obligations, restrictions and duties of Surviving Company I.
(b)
Legal Effect of The Acuity Merger
. At the Acuity Merger Effective Time, the
effect of the Acuity Merger shall be as provided in this Agreement and the applicable provisions of
the DGCL and the LLC Act. Without limiting the generality of the foregoing, and subject thereto,
at the Acuity Merger Effective Time, all of the assets, properties, rights, privileges, powers and
franchises of Acuity and Merger Sub II shall vest in Surviving Company II, and all of the debts,
liabilities, obligations, restrictions and duties of Acuity and Merger Sub II shall become the
debts, liabilities, obligations, restrictions and duties of Surviving Company II.
2.5
Certificates of Formation and Limited Liability Company Agreements.
(a)
Certificate of Formation of Surviving Company I
. As of the Froptix Merger
Effective Time, by virtue of the Froptix Merger and without any action on the part of Parent,
Merger Sub I or Froptix, the Certificate of Formation of Surviving Company I shall be the
Certificate of Formation of Merger Sub I, as in effect immediately prior to the Froptix Merger
Effective Time, until thereafter amended in accordance with the LLC Act and such Certificate of
Formation; provided, however, that as of the Froptix Merger Effective Time the Certificate of
Formation shall provide that the name of Surviving Company I is Froptix, LLC.
(b)
Limited Liability Company Agreement of Surviving Company I
. As of the Effective
Time, by virtue of the Froptix Merger and without any action on the part of Parent, Merger Sub I or
Froptix, the Limited Liability Company Agreement of Surviving Company I shall be the Limited
Liability Company Agreement of Merger Sub I, as in effect immediately prior to the Froptix Merger
Effective Time, until thereafter amended in accordance with the LLC Act, the Certificate of
Formation of Surviving Company I and such Limited Liability Company Agreement; provided, however,
that all references in such Limited Liability Company Agreement to Merger Sub I shall be amended to
refer to Froptix, LLC.
(c)
Certificate of Formation of Surviving Company II
. As of the Acuity Merger
Effective Time, by virtue of the Acuity Merger and without any action on the part of Parent, Merger
Sub II or Acuity, the Certificate of Formation of Surviving Company II shall be the Certificate of
Formation of Merger Sub II, as in effect immediately prior to the Acuity Merger Effective Time,
until thereafter amended in accordance with the LLC Act and such Certificate of Formation;
provided, however, that as of the Acuity Merger Effective Time the Certificate of Formation shall
provide that the name of Surviving Company II is Acuity Pharmaceuticals, LLC.
(d)
Limited Liability Company Agreement of Surviving Company II
. As of the Effective
Time, by virtue of the Acuity Merger and without any action on the part of Parent, Merger Sub II or
Acuity, the Limited Liability Company Agreement of Surviving Company II shall be the Limited
Liability Company Agreement of Merger Sub II, as in effect immediately prior to the Acuity Merger
Effective Time, until thereafter amended in accordance with the LLC Act, the Certificate of
Formation of Surviving Company II and such Limited Liability Company Agreement; provided, however,
that all references in such Limited Liability Company Agreement to Merger Sub II shall be amended
to refer to Acuity Pharmaceuticals, LLC.
2.6
Managers and Officers
.
(a)
Managers of Surviving Company I
. The initial mangers of Surviving Company I, if
any, shall be the managers of Merger Sub I, if any, as of immediately prior to the Froptix Merger
Effective Time, until their respective successors are duly elected or appointed and qualified.
(b)
Officers of Surviving Company I.
The initial officers of Surviving Company I
shall be the officers of Merger Sub I as of immediately prior to the Froptix Merger Effective Time.
(c)
Managers of Surviving Company II
. The initial managers of Surviving Company II,
if any, shall be the managers of Merger Sub II, if any, as of immediately prior to the Acuity
Merger Effective Time, until their respective successors are duly elected or appointed and
qualified.
(d)
Officers of Surviving Company II.
The initial officers of Surviving Company II
shall be the officers of Merger Sub II as of immediately prior to the Acuity Merger Effective Time.
ARTICLE III
MANNER OF CONVERTING SECURITIES;
TREATMENT OF OPTIONS AND WARRANTS
3.1
Conversion of Shares in the Froptix Merger
. Subject to the provisions of this
Article III and Section 11.3, at the Froptix Merger Effective Time, by virtue of the Froptix Merger
and without any action on the part of Parent, Merger Sub I or Froptix, or any of the stockholders
or members of any of the foregoing, the outstanding securities of Froptix and Merger Sub I shall be
converted as follows:
(a) Each share of Froptix Common Stock issued and outstanding immediately prior to the Froptix
Merger Effective Time shall cease to be outstanding and shall be converted into and exchanged for
the right to receive (i) a number of validly issued, fully paid and nonassessable shares of Parent
Common Stock determined by dividing (x) the quotient of the Froptix Valuation divided by the Parent
Per Share Stock Valuation by (y) the number of shares of Froptix Common Stock issued and
outstanding on a fully diluted basis at such time (this ratio of Parent Common Stock to Froptix
Common Stock being
Froptix Common Exchange Ratio
), (ii) and a warrant (a
Parent Warrant
) to
purchase a number of shares of Parent Common Stock equal to product of the Froptix Warrant Number
and the Froptix Common Exchange Ratio. The Parent Warrants will be issued in substantially the
form attached hereto as
Exhibit D
. One-third of the Parent Warrants will have an exercise
price equal to 1.35 times the Parent Per Share Stock Valuation. One-third of the Parent Warrants
will have an exercise price equal to 1.70 times the Parent Per Share Stock Valuation. One-third of
the Parent Warrants will have an exercise price equal to 2.1 times the Parent Per Share Stock
Valuation.
(b) Each unit of membership interest of Merger Sub I issued and outstanding immediately prior
to the Froptix Merger Effective Time shall remain issued and outstanding from and after the Froptix
Merger Effective Time. Each certificate of Merger Sub I evidencing ownership of any such units
shall continue to evidence ownership of such units of Surviving Company I.
3.2
Froptix Options
.
(a) Subject to the provisions of this Article III, at the Froptix Merger Effective Time, each
outstanding and unexercised option to purchase Froptix Shares granted or as otherwise approved by
the Froptix Board of Directors (each, a
Froptix Option
), whether or not exercisable or vested,
shall be converted into an option to purchase shares of Parent Common Stock (each, an
Adjusted
Parent Option
), on substantially the same terms and conditions as were applicable under the
Froptix Option. Each Adjusted Parent Option shall be exercisable for a number of shares of Parent
Common Stock equal to (i) the number of Froptix Shares subject to the Froptix Option to
which such Adjusted Parent Option relates multiplied by (ii) the Froptix Common Exchange
Ratio, rounded down to the nearest whole number of shares. The per share exercise price of each
Adjusted Parent Option shall equal (A) the per share exercise price of the Froptix Option to which
such Adjusted Parent Option relates divided by (B) the Froptix Common Exchange Ratio, rounded up to
the nearest whole cent. Parent shall issue each Adjusted Parent Option to each holder of a Froptix
Option upon surrender thereof or, in case such Froptix Option shall be lost, stolen or destroyed,
upon receipt of an affidavit of that fact by the holder thereof and, if required by Parent, the
written agreement by such Person to indemnify Parent and Surviving Company I against any claim that
may be made against it with respect to such Froptix Option.
(b) Froptix and Parent shall take any actions necessary and appropriate to cause the
obligations of Froptix under the agreements under which the Adjusted Parent Option was originally
granted to be assumed by Parent at the Froptix Merger Effective Time subject to the adjustments
required by Section 3.2(a). The terms of each Froptix Option as in effect immediately prior to the
Froptix Merger Effective Time, shall continue to apply in all material respects to the
corresponding Adjusted Parent Option.
(c) Except to the extent required under the terms of the Froptix Options, all restrictions or
limitations on transfer and vesting with respect to Froptix Options awarded under any plan, program
or arrangement of Froptix, to the extent that such restrictions or limitations shall not have
already lapsed, shall remain in full force and effect with respect to such Adjusted Parent Option
after giving effect to the Froptix Merger.
(d) Parent shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of the Adjusted Parent Options.
Within seventy-five (75) days after the Closing Date, Parent shall file a registration statement on
Form S-8 (if available) (or any successor or other appropriate forms) with respect to the shares of
Parent Common Stock subject to such options and shall use all reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
3.3
Conversion of Shares in the Acuity Merger
. Subject to the provisions of this
Article III and Section 11.3, at the Acuity Merger Effective Time, by virtue of the Acuity Merger
and without any action on the part of Parent, Merger Sub II or Acuity, or any of the stockholders
or members of any of the foregoing, the outstanding securities of Acuity and Merger Sub II shall be
converted as follows:
(a) Each share of Acuity Common Stock issued and outstanding immediately prior to the Acuity
Merger Effective Time (other than Acuity Dissenting Shares) shall cease to be outstanding and shall
be converted into and exchanged for the right to receive (i) a number of validly issued, fully paid
and nonassessable shares of Parent Common Stock determined by dividing (x) the quotient of the
Acuity Common Valuation divided by the Parent Per Share Stock Valuation by (y) the number of shares
of Acuity Common Stock issued and outstanding at such time (not on a fully-diluted basis)
(the
Acuity Common Exchange Ratio
), (ii) and a Parent Warrant to purchase a number of shares
of Parent Common Stock equal to the product of the Acuity Warrant Number and the Acuity Common
Exchange Ratio. One-third of the Parent Warrants will have an exercise price equal to 1.35 times
the Parent Per Share Stock Valuation. One-third of the Parent Warrants will have an exercise price
equal to 1.70 times the Parent Per Share Stock Valuation. One-third of the Parent Warrants will
have an exercise price equal to 2.1 times the Parent Per Share Stock Valuation.
(b) Each share of Acuity Series A Preferred Stock issued and outstanding immediately prior to
the Acuity Merger Effective Time (other than Acuity Dissenting Shares) shall cease to be
outstanding and shall be converted into and exchanged for the right to receive (i) a number of
validly issued, fully paid and nonassessable shares of Parent Common Stock determined by dividing
(x) the quotient of the Acuity Series A Valuation divided by the Parent Per Share Stock Valuation
by (y) the number of shares of Acuity Series A Preferred Stock issued and outstanding at such time
(not on a fully diluted basis) (the
Acuity Series A Preferred Exchange Ratio
), (ii) and a Parent
Warrant to purchase a number of shares of Parent Common Stock equal to the product of the Acuity
Warrant Number and the Acuity Series A Preferred Exchange Ratio. One-third of the Parent Warrants
will have an exercise price equal to 1.35 times the Parent Per Share Stock Valuation. One-third of
the Parent Warrants will have an exercise price equal to 1.70 times the Parent Per Share Stock
Valuation. One-third of the Parent Warrants will have an exercise price equal to 2.1 times the
Parent Per Share Stock Valuation.
(c) Each share of Acuity Series B Preferred Stock issued and outstanding immediately prior to
the Acuity Merger Effective Time (other than Acuity Dissenting Shares) shall cease to be
outstanding and shall be converted into and exchanged for the right to receive (i) a number of
validly issued, fully paid and nonassessable shares of Parent Series C Preferred Stock determined
by dividing (x) the quotient of the Acuity Series B Valuation divided by the Parent Per Share Stock
Valuation by (y) 100 multiplied by the number of shares of Acuity Series B Preferred Stock issued
and outstanding at such time (not on a fully diluted basis) (the
Acuity Series B Preferred
Exchange Ratio
), (ii) and a Parent Warrant to purchase a number of shares of Parent Common Stock
equal to (w) the product of the Acuity Warrant Number and the Acuity Series B Preferred Exchange
Ratio multiplied by (z) one hundred. One-third of the Parent Warrants will have an exercise price
equal to 1.35 times the Parent Per Share Stock Valuation. One-third of the Parent Warrants will
have an exercise price equal to 1.70 times the Parent Per Share Stock Valuation. One-third of the
Parent Warrants will have an exercise price equal to 2.1 times the Parent Per Share Stock
Valuation.
(d) Each unit of membership interest of Merger Sub II issued and outstanding immediately prior
to the Acuity Merger Effective Time shall remain issued and outstanding from and after the Acuity
Merger Effective Time. Each certificate of Merger Sub II representing any such units shall
continue to evidence ownership of such units of Surviving Company II.
3.4
Acuity Options
.
(a) Subject to the provisions of this Article III, at the Acuity Merger Effective Time, each
outstanding and unexercised option to purchase shares of Acuity Common Stock granted under any of
the Acuity Option Plans or as otherwise approved by the Acuity Board of Directors (each, an
Acuity
Common Option
), whether or not exercisable or vested, shall be converted into an option to
purchase an Adjusted Parent Option, on substantially the same terms and conditions as were
applicable under the Acuity Common Option. Each Adjusted Parent Option shall be exercisable for a
number of shares of Parent Common Stock equal to (i) the number of shares of Acuity Common Stock
subject to the Acuity Option to which such Adjusted Parent Option relates multiplied by (ii) the
Acuity Common Exchange Ratio, rounded down to the nearest whole number of shares. The per share
exercise price of each Adjusted Parent Option shall equal (A) the per share exercise price of the
Acuity Option to which such Adjusted Parent Option relates divided by (B) the Acuity Common
Exchange Ratio, rounded up to the nearest whole cent. Parent shall issue each Adjusted Parent
Option to each holder of an Acuity Option upon surrender thereof or, in case such Acuity Option
shall be lost, stolen or destroyed, upon receipt of an affidavit of that fact by the holder thereof
and, if required by Parent, the written agreement by such Person to indemnify Parent and Surviving
Company II against any claim that may be made against it with respect to such Acuity Option.
(b) Subject to the provisions of this Article III, at the Acuity Merger Effective Time, each
outstanding and unexercised option to purchase shares of Acuity Series B Preferred Stock granted
under any of the Acuity Option Plans or as otherwise approved by the Acuity Board of Directors
(each, an
Acuity Preferred Option
and with the Acuity Common Options, the
Acuity Options
),
whether or not exercisable or vested, shall be converted into an option to purchase Parent Series C
Preferred Stock (an
Adjusted Parent Series C Option
), on substantially the same terms and
conditions as were applicable under the Acuity Preferred Option. Each Adjusted Parent Series C
Option shall be exercisable for a number of shares of Parent Series C Preferred Stock equal to (i)
the number of shares of Acuity Series B Preferred Stock subject to the Acuity Preferred Option to
which such Adjusted Parent Series C Option relates multiplied by (ii) the Acuity Series B Preferred
Exchange Ratio, rounded to the nearest whole number of shares. The per share exercise price of
each Adjusted Parent Series C Option shall equal (A) the per share exercise price of the Acuity
Preferred Option to which such Adjusted Parent Series C Option relates divided by (B) the Acuity
Series B Preferred Exchange Ratio, rounded to the nearest whole cent. Parent shall issue each
Adjusted Parent Series C Option to each holder of an Acuity Preferred Option upon surrender thereof
or, in case such Acuity Preferred Option shall be lost, stolen or destroyed, upon receipt of an
affidavit of that fact by the holder thereof and, if required by Parent, the written agreement by
such Person to indemnify Parent and Surviving Company II against any claim that may be made against
it with respect to such Acuity Preferred Option.
(c) Acuity and Parent shall take any actions necessary and appropriate to cause the
obligations of Acuity under the Acuity Option Plans and agreements under which the Adjusted Parent
Option or Adjusted Parent Series C Option was originally
granted to be assumed by Parent at the Acuity Merger Effective Time subject to the adjustments
required by Section 3.4(a) or Section 3.4(b). The terms of each Acuity Option and the Acuity
Option Plans under which such Acuity Option was initially granted, in each case, as in effect
immediately prior to the Acuity Merger Effective Time, shall continue to apply in all material
respects to the corresponding Adjusted Parent Option or Adjusted Parent Series C Option.
(d) Except to the extent required under the terms of the Acuity Options (and not waived by any
holder thereof), all restrictions or limitations on transfer and vesting with respect to Acuity
Options awarded under the Acuity Option Plans or any other plan, program or arrangement of Acuity,
to the extent that such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such Adjusted Parent Option or Adjusted Parent Series C
Option after giving effect to the Acuity Merger.
(e) Parent shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock and Parent Series C Preferred Stock for delivery upon
exercise of the Adjusted Parent Options and the Adjusted Parent Series C Options, as applicable.
Within seventy-five (75) days after the Closing Date, Parent shall file a registration statement on
Form S-8 (if available) (or any successor or other appropriate forms) with respect to the shares of
Parent Common Stock subject to such options and shall use all reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
3.5
Acuity Warrants
. Subject to the provisions of this Article III, at the Acuity
Merger Effective Time:
(a) Pursuant to the terms of each outstanding warrant to purchase shares of Acuity Common
Stock (an
Acuity Common Warrant
), each Acuity Common Warrant shall be assumed by Parent and shall
represent the right to acquire upon exercise thereof the number of shares of Parent Common Stock
(rounded down to the nearest whole share) determined by multiplying the number of shares of Acuity
Common Stock issuable upon the exercise of each Acuity Common Warrant by the Acuity Common Exchange
Ratio; provided, that the aggregate exercise price of each Acuity Common Warrant shall remain
unchanged. Each holder of an Acuity Common Warrant shall also receive a Parent Warrant to purchase
a number of shares of Parent Common Stock equal to the product of the Acuity Warrant Number and the
Acuity Common Exchange Ratio for each share of Acuity Common Stock which the Acuity Common Warrant
was exercisable into immediately prior to the Acuity Merger Effective
Time. One-third of the Parent Warrants will have an exercise price equal to 1.35 times the Parent Per
Share Stock Valuation. One-third of the Parent Warrants will have an exercise price equal to 1.70
times the Parent Per Share Stock Valuation. One-third of the Parent Warrants will have an exercise
price equal to 2.1 times the Parent Per Share Stock Valuation.
(b) Pursuant to the terms of each outstanding warrant to purchase shares of Acuity Series B
Preferred Stock (an
Acuity Series B Preferred Warrant
), each Acuity Series B Preferred Warrant
shall be assumed by Parent and amended and converted into the right to acquire upon exercise
thereof the number of shares of Parent Series C Preferred Stock (rounded down to the nearest whole
share) determined by multiplying the number of shares of Acuity Series B Preferred Stock issuable
upon the
exercise of each Acuity Series B Preferred Warrant by the Acuity Series B Preferred
Exchange Ratio; provided, that the aggregate exercise price of each Acuity Series B Preferred
Warrant shall remain unchanged. Each holder of an Acuity Series B Preferred Warrant shall also
receive a Parent Warrant to purchase a number of shares of Parent Common Stock equal to (w) the
product of the Acuity Warrant Number and the Acuity Series B Preferred Exchange Ratio multiplied by
100 (z) for each share of Acuity Series B Stock which the Acuity Series B Preferred Warrant was
exercisable into immediately prior to the Acuity Merger Effective
Time. One-third of the Parent Warrants will have an exercise price equal to 1.35 times the Parent Per
Share Stock Valuation. One-third of the Parent Warrants will have an exercise price equal to 1.70
times the Parent Per Share Stock Valuation. One-third of the Parent Warrants will have an exercise
price equal to 2.1 times the Parent Per Share Stock Valuation.
(c) Subject to Section 11.3, Parent shall issue each amended and converted warrant
contemplated by this Section 3.5 to each holder of an Acuity Common Warrant or an Acuity Series B
Preferred Warrant upon surrender thereof or, in case such warrant shall be lost, stolen or
destroyed, upon receipt of an affidavit of that fact by the holder thereof and, if required by
Parent, the written agreement by such Person to indemnify Parent and Surviving Company II against
any claim that may be made against it with respect to such Acuity Common Warrant or an Acuity
Series B Preferred Warrant.
3.6
Surrender and Exchange of Froptix Securities
. As soon as practicable after the
Froptix Merger Effective Time and subject to Section 11.3, upon (i) surrender of a certificate or
certificates representing the Froptix Shares that were outstanding immediately prior to the Froptix
Merger Effective Time (each a
Froptix Stock
Certificate
) to Parent (or, in case such certificates
shall be lost, stolen or destroyed, an affidavit of that fact by the holder thereof pursuant to
Section 3.11) and (ii) delivery to Parent of an executed Letter of Transmittal, Parent shall
deliver to the record holder of the Froptix Shares surrendering such certificate or certificates, a
warrant agreement or agreements and a certificate or certificates (or evidence of shares in
book-entry form) registered in the name of such shareholder representing the number of shares of
Parent Common Stock and Parent Warrants to which such holder is entitled under Section 3.1(a). In
the event of a transfer of ownership of Froptix Shares that is not registered in the transfer
records of Froptix, a certificate (or evidence of shares in book-entry form) representing the
proper number of whole shares of Parent Common Stock may be issued to a Person other than the
Person in whose name the Froptix Stock Certificate so surrendered is registered, if, upon delivery
by the holder thereof, such Froptix Stock Certificate shall be properly endorsed or shall otherwise
be in proper form for transfer and the Person requesting such issuance shall have paid any transfer
and other taxes required by reason of the issuance of shares of Parent Common Stock to a Person
other than the registered holder of such Froptix Stock Certificate or shall have established to the
reasonable satisfaction of Parent that such tax either has been paid or is not applicable, and
shall have demonstrated, to the reasonable satisfaction of Parent, that the transfer of such
Froptix Shares to the requesting person was accomplished in conformity with all applicable
securities Laws and with any other agreements restricting the transfer of the Froptix Shares, to
which such Froptix Shares are subject. As of the Froptix Merger Effective Time, each Froptix Share
issued and outstanding immediately prior to the Froptix Merger Effective Time shall no longer be
outstanding and shall automatically be canceled and retired and until the certificate or
certificates evidencing such shares are surrendered, each certificate that immediately prior to the
Froptix Merger Effective Time represented any outstanding Froptix Share shall be deemed at and
after the Froptix
Merger Effective Time to represent only the right to receive upon surrender as aforesaid the
consideration specified in Section 3.1(a) for the holder thereof.
3.7
Surrender and Exchange of Acuity Securities
. As soon as practicable after the
Acuity Merger Effective Time and subject to Section 11.3, upon (i) surrender of a certificate or
certificates representing Acuity Shares that were outstanding immediately prior to the Acuity
Merger Effective Time (each an
Acuity Stock
Certificate
) to Parent (or, in case such certificates
shall be lost, stolen or destroyed, an affidavit of that fact by the holder thereof pursuant to
Section 3.11) and (ii) delivery to Parent of an executed Letter of Transmittal, Parent shall
deliver to the record holder of the Acuity Shares surrendering such certificate or certificates, a
warrant agreement or agreements and a certificate or certificates (or evidence of shares in
book-entry form) registered in the name of such shareholder representing the number of shares of
Parent Common Stock or Parent Series C Preferred Stock and Parent Warrants to which such holder is
entitled under Section 3.3(a), Section 3.3(b) and Section 3.3(c). In the event of a transfer of
ownership of Acuity Shares that is not registered in the transfer records of Acuity, a certificate
(or evidence of shares in book-entry form) representing the proper number of whole shares of Parent
Common Stock or Parent Series C Preferred Stock, as applicable, may be issued to a Person other
than the Person in whose name the Acuity Stock Certificate so surrendered is registered, if, upon
delivery by the holder thereof, such Acuity Stock Certificate shall be properly endorsed or shall
otherwise be in proper form for transfer and the Person requesting such issuance shall have paid
any transfer and other taxes required by reason of the issuance of shares of Parent Common Stock or
Parent Series C Preferred Stock, as applicable, to a Person other than the registered holder of
such Acuity Stock Certificate or shall have established to the reasonable satisfaction of Parent
that such tax either has been paid or is not applicable, and shall have demonstrated, to the
reasonable satisfaction of Parent, that the transfer of such Acuity Shares to the requesting person
was accomplished in conformity with all applicable securities Laws and with any other agreements
restricting the transfer of the Acuity Shares, to which such Acuity Shares are subject. As of the
Acuity Merger Effective Time, each Acuity Share issued and outstanding immediately prior to Acuity
the Merger Effective Time (other than Acuity Dissenting Shares) shall no longer be outstanding and
shall automatically be canceled and retired and until the certificate or certificates evidencing
such shares are surrendered, each certificate that immediately prior to the Acuity Merger Effective
Time represented any outstanding Acuity Share (other than Acuity Dissenting Shares) shall be deemed
at and after the Acuity Merger Effective Time to represent only the right to receive upon surrender
as aforesaid the consideration specified in Section 3.3(a), Section 3.3(b) and Section 3.3(c), as
applicable, for the holder thereof.
3.8
Transfer Books; No Further Ownership Rights in Froptix Shares
. All shares of
Parent Common Stock and Parent Warrants issued upon the surrender for exchange of Froptix Stock
Certificates in accordance with the terms of this Article III shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the Froptix Shares previously
represented by such Froptix Stock Certificates, and at the Froptix Merger Effective Time, the share
transfer books of Froptix shall be closed and thereafter there shall be no further registration of
transfers on the share transfer books of Surviving Company I of the Froptix Shares that were
outstanding immediately prior to
the Froptix Merger Effective Time. From and after the Froptix Merger Effective Time, the
holders of Froptix Stock Certificates that evidenced ownership of the Froptix Shares outstanding
immediately prior to the Froptix Merger Effective Time shall cease to have any rights with respect
to such shares, except as otherwise provided for herein or by applicable Law.
3.9
Transfer Books; No Further Ownership Rights in Acuity Shares
. All shares of
Parent Common Stock, Parent Series C Preferred Stock and Parent Warrants issued upon the surrender
for exchange of Acuity Stock Certificates in accordance with the terms of this Article III shall be
deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the Acuity
Shares previously represented by such Acuity Stock Certificates, and at the Acuity Merger Effective
Time, the share transfer books of Acuity shall be closed and thereafter there shall be no further
registration of transfers on the share transfer books of Surviving Company II of the Acuity Shares
that were outstanding immediately prior to the Acuity Merger Effective Time. From and after the
Acuity Merger Effective Time, the holders of Acuity Stock Certificates that evidenced ownership of
the Acuity Shares outstanding immediately prior to the Acuity Merger Effective Time shall cease to
have any rights with respect to such shares, except as otherwise provided for herein or by
applicable Law.
3.10
No Fractional Shares or Warrants
. No fraction of a share of Parent Common Stock
or Parent Series C Preferred Stock (including any Parent Warrant to purchase a fraction of a share
of Parent Common Stock or Parent Series C Preferred Stock) shall be issued upon the surrender for
exchange of a Froptix Stock Certificate or Acuity Stock Certificate (or evidence of such shares in
book-entry form), no dividends or other distributions of Parent shall relate to such fractional
share interests and such fractional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of Parent. Each holder of Froptix Shares or Acuity Shares who would
otherwise be entitled to a fraction of a share of Parent Common Stock or Parent Series C Preferred
Stock (after aggregating all fractional shares of Parent Common Stock or Parent Series C Preferred
Stock that otherwise would be received by such holder) shall, receive from Parent, in lieu of such
fractional share, one share of Parent Common Stock and/or Parent Series C Preferred Stock, as the
case may be.
3.11
Lost, Stolen or Destroyed Certificates
. If any Froptix Stock Certificate or
Acuity Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Froptix Stock Certificate or Acuity Stock Certificate to
be lost, stolen or destroyed and, if required by Parent, the written agreement by such Person to
indemnify Parent and Surviving Company I or Surviving Company II, as applicable, against any claim
that may be made against it with respect to such Froptix Stock Certificate or Acuity Stock
Certificate, Parent will issue, subject to Section 11.3, in exchange for such lost, stolen or
destroyed Froptix Stock Certificate or Acuity Stock Certificate, Parent Common Stock or Parent
Series C Preferred Stock, as applicable, and Parent Warrants pursuant to this Agreement.
3.12
Dissenting Shares
. Notwithstanding anything in this Agreement to the contrary,
Acuity Shares which are issued and outstanding immediately prior to the Acuity
Merger Effective Time and which are held by stockholders properly exercising appraisal rights
available under Section 262 of the DGCL (the
Acuity
Dissenting Shares
) shall not be converted
into or be exchangeable for the right to receive the shares of Parent Common Stock or Parent Series
C Preferred Stock, as applicable, and Parent Warrants, unless and until such holders shall have
failed to perfect or shall have effectively withdrawn or lost their rights to appraisal under the
DGCL. Acuity Dissenting Shares shall be treated in accordance with Section 262 of the DGCL. If
any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right
to appraisal, such holders Acuity Shares shall thereupon be converted into and become exchangeable
only for the right to receive, as of the Acuity Merger Effective Time, shares of Parent Common
Stock or Parent Series C Preferred Stock, as applicable, and Parent Warrants. Acuity shall give
(a) Parent and Froptix prompt notice of any written demands for appraisal of any Acuity Shares,
attempted withdrawals of such demands and any other instruments, served pursuant to the DGCL and
received by Acuity relating to rights to be paid the fair value of Acuity Dissenting Shares, as
provided in Section 262 of the DGCL and (b) Parent the opportunity to participate in, and after the
Closing, direct, all negotiations and proceedings with respect to demands for appraisal under the
DGCL. Acuity shall not, except with the prior written consent of Parent and Froptix, voluntarily
make or agree to make any payment with respect to any demands for appraisals of Acuity Shares.
Acuity or Surviving Company II, as applicable under Section 262 of the DGCL, shall comply will all
notice requirements under such Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACUITY
Except as set forth on the Schedule of Exceptions delivered to Parent in connection with this
Agreement, Acuity represents and warrants to Parent as of the date of this Agreement as follows:
4.1
Organization and Standing
. Acuity is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Acuity has the requisite
corporate power and authority to own and operate its properties and assets, and to carry on its
business as currently conducted. Acuity is presently qualified to do business as a foreign
corporation in the Commonwealth of Pennsylvania and in each other jurisdiction in which the failure
to be so qualified would have a Material Adverse Effect with respect to Acuity. True and accurate
copies of Acuitys Certificate of Incorporation (the
Acuity Certificate
) and Acuitys By-laws
(the
Acuity By-laws
), each as in effect as of the date hereof and at the Closing, have been
delivered to Parent.
4.2
Corporate Power
. Acuity has all requisite legal and corporate power and authority
to execute and deliver this Agreement and to carry out and perform its other obligations hereunder.
4.3
Authorization
. All action on the part of Acuity and its officers, directors and
security holders necessary for the authorization, execution and delivery of this Agreement and the
performance of its respective obligations hereunder, has been taken or will be taken prior to or
upon the Closing, as applicable. This Agreement has been duly
executed by Acuity and, assuming the due authorization, execution and delivery by the other
parties hereto, constitutes and will constitute a valid and legally binding obligation of Acuity,
except (i) as limited by Laws of general application relating to bankruptcy, insolvency and the
relief of debtors and (ii) as limited by rules of Law governing specific performance, injunctive
relief or other equitable remedies and by general principles of equity.
4.4
Subsidiaries
. Acuity does not own or control, directly or indirectly, any
interest in any corporation, partnership, limited liability company, association, other business
entity or Person. Acuity is not a participant in any joint venture, partnership or similar
arrangement. Since its inception, Acuity has not consolidated or merged with, acquired all or
substantially all of the assets of, or acquired the stock of or any interest in any Person.
4.5
Capitalization
.
(a) The authorized capital stock of Acuity on the date hereof and immediately prior to the
Closing consists, and shall consist, of 19,584,956 shares of Acuity Common Stock, of which
2,116,877 shares of Acuity Common Stock are issued and outstanding, and 13,997,179 shares of Acuity
Preferred Stock, of which 742,000 are designated Acuity Series A Preferred Stock and of which
13,255,179 are designated Acuity Series B Preferred Stock. Immediately prior to the Closing,
742,000 shares of Acuity Series A Preferred Stock were issued and outstanding and convertible into
Acuity Common Stock on a one-for-one basis, and 8,817,679 shares of Acuity Series B Preferred were
issued or outstanding and convertible into Acuity Common Stock on a one-for-one basis. The Acuity
Common Stock and the Acuity Preferred Stock have the rights, preferences, privileges and
restrictions set forth in the Acuity Certificate and under Delaware Law. All issued and
outstanding shares of Acuitys capital stock have been duly authorized and validly issued in
compliance with applicable Laws, and are fully paid and nonassessable and free and clear of Liens
or third party rights and of any restrictions on transfer, except for transfer restrictions of the
federal and state securities laws. To Acuitys knowledge, each holder of any capital stock of
Acuity is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(b) There are no options, warrants, preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution or other rights to purchase or acquire from Acuity any of
Acuitys authorized and unissued capital stock. There are no rights to have Acuitys capital stock
registered for sale to the public in connection with the Laws of any jurisdiction, no agreements
relating to the voting of Acuitys voting securities (except as contemplated hereby) and no
restrictions on the transfer of Acuitys capital stock or other equity securities, other than those
arising under applicable securities Laws. All outstanding shares, options and warrants were issued
pursuant to and in compliance with a valid exemption from registration under the Securities Act,
and have been issued in compliance with applicable state securities Laws. The exercise price of
each option to purchase or acquire from Acuity any of Acuitys authorized and unissued capital
stock was intended to constitute a price which is equal to or greater than the fair
market value of the underlying shares on the date of grant, as then determined in good faith
by the Acuity board of directors.
4.6
Financial Statements
. Acuity has delivered to Froptix and Parent the audited
financial statements of Acuity as of and for the twelve-month period ended December 31, 2004, 2005
and 2006 (the
Acuity Financial Statements
). The Acuity Financial Statements, together with the
notes thereto (if any) have been prepared in accordance with GAAP, except that the unaudited Acuity
Financial Statements may not contain all footnotes required by GAAP. The Acuity Financial
Statements, together with the notes thereto (if any) are true and correct in all material respects
and fairly present in all material respects the financial condition, results of operations and cash
flow of Acuity as of the dates, and for the periods, indicated therein, subject to normal year-end
audit adjustments, which shall not be material. No event has occurred and nothing has come to the
attention of Acuity since September 30, 2006 to indicate that the Acuity Financial Statements were
not true and correct in all material respects as of the date thereof. Except as set forth in the
Acuity Financial Statements, Acuity has no liabilities of any nature, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business subsequent to September 30,
2006 that do not exceed, in the aggregate, $50,000, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under GAAP to be reflected
in the Acuity Financial Statements, which, individually or in the aggregate, are not material to
the financial condition or operating results of Acuity.
4.7
Absence of Certain Changes or Events
. Since September 30, 2006, (i) there has
been no event, occurrence or development that, individually or in the aggregate, has resulted in or
could reasonably be expected to result in a Material Adverse Effect on Acuity or which, if taken
after the date hereof, would constitute a breach of the covenants set forth in Section 7.7 or 7.12,
(ii) Acuity has not incurred any material liabilities, and (iii) Acuity has not (a) altered its
method of accounting or the identity of its auditors, (b) declared or made any dividend or
distribution of cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, and (c) issued any equity
securities. Acuity has not taken any steps to seek protection pursuant to any bankruptcy Law nor
does Acuity have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so. Acuity is not Insolvent as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent.
4.8
Material Contracts
. A list of the oral and written material agreements of Acuity
is set forth on
Schedule 4.8
of the Schedule of Exceptions (each, an
Acuity Material
Agreement
). Acuity and to Acuitys knowledge, each other party thereto, has in all material
respects performed all the obligations required to be performed by them to date (or such non
performing party has received a valid, enforceable and irrevocable written waiver with respect to
its non performance), has received no notice of default and are not in default (with due notice or
lapse of time or both) under any Acuity Material Agreement. Acuity has no knowledge of any breach
or anticipated breach by the other party to any Acuity Material Agreement.
4.9
Intellectual Property
(a) Acuity owns or licenses for use (with a right of sublicense) certain Intellectual
Property (
Acuity Intellectual Property
), such Acuity Intellectual Property being all that is
necessary for the business of Acuity as presently conducted. To Acuitys knowledge, neither
Acuitys material pre-clinical and clinical development candidates and processes to make such
candidates, nor any Acuity Intellectual Property, infringe or will infringe on the valid and
subsisting Intellectual Property rights of others that Acuity is aware of or, to Acuitys
knowledge, any other rights of others. No claim is pending or, to Acuitys knowledge, threatened,
alleging any such infringement or with respect to the ownership, validity, license or use of, or
any infringement resulting from, either the Acuity Intellectual Property or the sale of any
material products or services by Acuity. No loss or expiration of the Acuity Intellectual Property
is pending or, to Acuitys knowledge, threatened. The Schedule of Exceptions contains a complete
list of the patents and patent applications, trademark applications and registrations, copyright
registrations, and domain name registrations within Acuity Intellectual Property. There are no
outstanding options, licenses or other agreements relating to the Acuity Intellectual Property, and
Acuity is not bound by or a party to any options, licenses or agreements with respect to the
Intellectual Property of any other person or entity. Acuity is not violation of any license,
sublicense, or other agreements to which it is a party or otherwise bound relating to any
Intellectual Property. Acuity is not obligated to make any payments by way of royalties, fees or
otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the
use thereof in connection with the conduct of its business as presently conducted. There are no
agreements, understandings, instruments, contracts, judgments, orders or decrees to which Acuity is
a party or by which it is bound that involve indemnification by Acuity with respect to
infringements of Intellectual Property. To Acuitys knowledge, all registrations owned by or on
behalf of Acuity, and applications to governmental or regulatory authorities in respect of such
Acuity Intellectual Property, are valid and in full force and effect. To Acuitys knowledge, no
other person is infringing on the Acuity Intellectual Property.
(b) Each former and current officer, employee and consultant of Acuity has executed a
Confidential Information and Invention Assignment Agreement, substantially in the form(s) delivered
to Parent, and each such agreement remains in full force and effect pursuant to its terms. To
Acuitys knowledge, no officer or employee or consultant is in violation of such proprietary
information agreement or of any prior employee contract, proprietary information agreement or other
agreement relating to the right of any such individual to be employed by, or to contract with,
Acuity, and, to Acuitys knowledge, the continued employment by Acuity of its present employees,
and the performance of Acuitys contracts with its independent contractors, will not result in any
such violation. Acuity has not received any written notice alleging that any such violation has
occurred.
(c) The Acuity Merger does not and will not materially or adversely affect any rights of
Acuity or Surviving Company II to use any material Acuity Intellectual Property.
4.10
Title to Properties and Assets; Liens
. Acuity has good and marketable title to
its properties and assets, and has good title to all its leasehold interests, in each case subject
to no Lien or lease, other than (i) for Liens for current taxes not yet due and payable, and
provided for on the applicable financial statements, and (ii)
de minimis
Liens and defects in title
which do not in any case, individually or in the aggregate, materially detract from the value,
continued ownership, use or operation of the property subject thereto or materially impair business
operations, and that have not arisen otherwise than in the ordinary course of business (the
Permitted Liens
). With respect to the property and assets it leases, Acuity is in compliance
with such leases in all material respects and holds a valid leasehold interest free of all Liens
other than Permitted Liens. Acuitys properties and assets are in good condition and repair in all
material respects. Acuity does not currently own, and has never owned, any real property.
4.11
Compliance with Other Instruments and Laws
. Acuity is not in violation or
default of any provision of the Acuity Certificate or the Acuity By-laws, each as amended and in
effect on the date hereof and as of the Closing. Acuity is not in violation of, default under or
breach of any provision of any agreement, instrument, mortgage, deed of trust, loan, contract,
commitment, judgment, decree, order or obligation to which it is a party or by which it or any of
its properties or assets are bound, which violation, default or breach, individually or in the
aggregate, would or could reasonably be expected to have a Material Adverse Effect on Acuity.
Acuity is not in violation of any provision of any federal, state or local statute, rule or
governmental regulation, judgment, injunction or decree of any governmental authority, which
violation, individually or in the aggregate, would or could reasonably be expected to have a
Material Adverse Effect on Acuity. The execution and delivery of this Agreement by Acuity, and
Acuitys performance of and compliance with the terms hereof, or the consummation of the Acuity
Merger and the other transactions contemplated hereby, will not result in any violation, breach or
default, be in conflict with or constitute, with or without the passage of time or giving of
notice, a default under any Acuity Material Agreement or any of the foregoing provisions, require
any consent or waiver under any Acuity Material Agreement or any of the foregoing provisions (other
than any consents or waivers that have been obtained), result in the creation of any Lien upon any
of the properties or assets of Acuity, trigger any right of cancellation, termination or
acceleration under any Acuity Material Agreement or any of the foregoing provisions, create any
right of payment in any other person or entity (except as set forth herein), or result in a
Material Adverse Effect on Acuity. Acuity has delivered to Parent and Froptix copies of all
written communications to and from the FDA and written summaries of all such oral communications.
Acuity has no knowledge that could reasonably lead it to believe that the FDA will not approve any
of its proposed products or that questions the validity of its clinical trials.
4.12
Litigation
. There is no action, suit, proceeding or investigation pending or, to
Acuitys knowledge, threatened against or affecting Acuity or its properties or rights before any
court or by or before any governmental agency. The foregoing includes, without limitation, actions
pending or, to Acuitys knowledge, threatened involving the prior employment of any of Acuitys
employees, their use in connection with Acuitys business or any information or techniques
allegedly proprietary to any of their former employers, or their obligations under any agreements
with prior employers. Acuity is not
a party or subject to, and none of their respective assets is bound by, the provisions of any
order, writ, injunction, judgment or decree of any Governmental Authority. There is no action,
suit or proceeding initiated by Acuity currently pending or which Acuity intends to initiate.
4.13
Governmental Consents
. No consent, approval or authorization of or registration,
qualification, designation, declaration or filing with any governmental authority on the part of
Acuity is required in connection with the valid execution and delivery of this Agreement or the
consummation of any transaction contemplated hereby.
4.14
Permits
. Acuity has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, and Acuity reasonably
believes it can obtain, without undue burden or expense, any similar authority for the conduct of
its business as planned to be conducted. Acuity is not in default in any material respect under
any of such franchises, permits, licenses, or other similar authority. Acuity has complied in all
material respects with all federal, state or foreign Laws applicable to its business.
4.15
Brokers or Finders
. Acuity has not engaged any brokers, finders or agents, and
Acuity has not incurred, and will not incur, directly or indirectly, as a result of any action
taken by Acuity or any of its affiliates, any liability for brokerage or finders fees or agents
commissions or any similar charges in connection with this Agreement and the transactions
contemplated hereby.
4.16
Tax Returns and Payments
. Acuity has accurately prepared and timely filed all
United States income tax returns and all state and municipal tax returns required to be filed by
it, if any, has paid all taxes, assessments, fees and charges owed by it (regardless of whether
shown on any such tax return) or has otherwise made adequate provision for the payment of all
taxes, assessments, fees and charges owed by it. Acuity has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries. Acuity has not been advised in writing (a) that any
of its returns have been or are being audited or (b) of any deficiency in assessment or proposed
adjustment to its federal, state or other taxes. No assessment or proposed adjustment of Acuitys
United States income tax or state or municipal taxes is pending. Acuity is not currently the
beneficiary of any extension of time within which to file any tax report or return. No claim has
been made by a Governmental Authority in a jurisdiction where Acuity does not file reports and
returns that it is or may be subject to taxation by that jurisdiction. There are no Liens on any
of the assets of Acuity that arose in connection with the failure or alleged failure to pay any
tax. Acuity has withheld and paid all taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent contractor or third party.
Acuity has not waived any statute of limitations in respect of taxes or agreed to any extension of
time with respect to a tax assessment or deficiency. Acuity has not entered into a closing
agreement pursuant to Section 7121 of the Code. Acuity has not made any payments,
and is not and will not become obligated under any contract entered into on or before the
Closing Date to make any payments in connection with the transactions contemplated by this
Agreement, or in connection with a combination of the transactions contemplated by this Agreement
and any other event, that will be non-deductible under Code Section 280G or subject to the excise
tax under Code Section 4999 or that would give rise to any obligation to indemnify any Person for
any excise tax payable pursuant to Code Section 4999. Acuity is not a party to or bound by any tax
allocation or tax sharing agreement or has any current or potential obligation to indemnify any
other Person with respect to taxes. Except for consolidated income tax liabilities of any
wholly-owned corporate subsidiaries it has owned since their inception, Acuity does not have any
liability for taxes of any person under Treasury Regulations Section 1.1502-6 (or any corresponding
provision of state, local or foreign income tax Law), or as transferee, successor, by contract or
otherwise. References in this Section to Acuity include references to any and all subsidiaries of
Acuity that may affect its liability. Acuity has not participated in any reportable transaction as
contemplated in Treasury Regulations Section 1.6011-4.
4.17
Employees
. The employment of each employee of Acuity is terminable at will. No
employee of Acuity has been granted the right to continued employment by Acuity or to any material
compensation following termination of employment with Acuity. To Acuitys knowledge, no employee
of Acuity, nor any consultant with whom Acuity has contracted, is in violation of any term of any
employment contract, noncompetition or proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract with, Acuity or any
judgment, decree or order of any court or administrative agency under which it is subject; and to
Acuitys knowledge the continued employment by Acuity of its present employees, and the performance
of Acuitys contracts with its independent contractors, will not result in any such violation.
Neither the execution or delivery of this Agreement, nor the carrying on of Acuitys business by
the employees and independent contractors of Acuity, nor the conduct of Acuitys business as now
conducted will conflict with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under which any such employee or
independent contractor is now obligated and of which Acuity is aware. Acuity has not received any
notice alleging that any such violation has occurred. Acuity is not in default with respect to any
obligation to any of its employees. No employee of Acuity is represented by any labor union or
covered by any collective bargaining agreement. There is no pending or, to Acuitys knowledge,
threatened dispute involving Acuity and any employee or group of its employees. Acuity has
complied and is currently complying with all applicable Laws relating to employment and employment
practices, terms and conditions of employment, and wages and hours, except for noncompliance that,
individually and in the aggregate, would not have a Material Adverse Effect on Acuity.
4.18
Employee Benefit Plans
.
(a)
Schedule 4.18
of the Schedule of Exceptions sets forth a correct and complete list
of all Acuity Employee Benefit Plans. Each Acuity Employee Benefit Plan, and its related
documents, has been made available to Parent. No Acuity Employee
Benefit Plan is subject to Title IV of ERISA, or Section 412 of the Code, is or has
been subject to Sections 4063 or 4064 of ERISA, or is a multi-employer welfare arrangement as
defined in Section 3(40) of ERISA. Neither Acuity nor any ERISA Affiliate has any obligation or
liability, contingent or otherwise, under Title IV of ERISA with respect to any pension plan as
defined in Section 3(2) of ERISA. Neither Acuity nor any of it ERISA Affiliates has ever
participated in and has never been required to contribute to any multi employer plan, as defined
in Sections 3(37)(A) and 4001(a)(3) of ERISA and Section 414(f) of the Code or any multiple
employer plan within the meaning of Section 210(a) of ERISA or Section 413(c) of the Code. No
Acuity Employee Benefit Plan provides for, nor does Acuity or any of its subsidiaries have any
liability for post-employment life insurance or health benefit coverage for any participant or any
beneficiary of a participant, except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and at the expense of the participant or the participants
beneficiary.
(b) The Acuity Employee Benefit Plans have been maintained in all material respects in
accordance with their terms and with all provisions of ERISA, the Code (including rules and
regulations thereunder) and other applicable federal and state Laws and regulations.
(c) There are no pending actions, claims or lawsuits that have been asserted or instituted
against any Acuity Employee Benefit Plan, the assets of any of the trusts under any Acuity Employee
Benefit Plan or the sponsor of any Acuity Employee Benefit Plan, or, to the knowledge of Acuity,
against any fiduciary or administrator of any Acuity Employee Benefit Plan with respect to the
operation of any Acuity Employee Benefit Plan (other than routine benefit claims), nor does Acuity
have any knowledge of facts that could reasonably be expected to form the basis for any such claim
or lawsuit.
(d) Neither will the execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein (i) result in any payment becoming due to any current or former
employee, officer, director or consultant of Acuity or any of its subsidiaries, (ii) increase any
benefits otherwise payable under any Acuity Employee Benefit Plan, (iii) result in the acceleration
of the time of payment or vesting of any rights with respect to any such benefits under any Acuity
Employee Benefit Plan or (iv) require any contributions or payments to fund, or any security to
secure, any obligations under any Acuity Employee Benefit Plan. There are no Acuity Employee
Benefit Plans that, individually or collectively, could give rise to the payment in connection with
the transactions contemplated by this Agreement, or in connection with a combination of the
transactions contemplated by this Agreement and any other event, of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
4.19
Obligations of Management
. Each officer and key employee of Acuity is currently
devoting substantially all of his or her business time to the conduct of the business of Acuity.
Acuity is not aware that any officer or key employee of Acuity is planning to work less than full
time at Acuity in the future. To Acuitys knowledge, no officer or key employee is currently
working or plans to work for a competitive enterprise,
whether or not such officer or key employee is or will be compensated by such enterprise or is
planning to leave the employ of Acuity.
4.20
Obligations to Related Parties
. There are no loans, leases, agreements,
understandings, commitments or other continuing transactions between Acuity and any employee,
officer, director or member of his or her immediate family or stockholder of Acuity or member of
his or her immediate family or any person or entity that, directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with any of the
foregoing persons. To Acuitys knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Acuity is affiliated or with which Acuity
has a business relationship, or any firm or corporation that competes with Acuity, except in
connection with the ownership of stock of publicly-traded companies (but not exceeding 2% of the
outstanding capital stock of any such company). No employee, officer, director or member of his or
her immediate family or, to Acuitys knowledge, stockholder of Acuity or member of his or her
immediate family or any person or entity that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with any of the foregoing
persons, is, directly or indirectly, interested in any material contract with Acuity (other than
such contracts as relate to any such persons ownership of capital stock or other securities of
Acuity or employment by Acuity). Acuity is not a guarantor or indemnitor of any Indebtedness of
any other Person.
4.21
Insurance
. Acuity has in full force and effect general commercial, clinical
trial, product liability, fire and casualty insurance policies and insurance against other hazards,
risks and liabilities to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated and sufficient in amount to allow it to replace
any of its material properties or assets that might be damaged or destroyed or sufficient to cover
liabilities to which Acuity may reasonably become subject.
4.22
Environmental and Safety Laws
. Acuity is in compliance with all applicable
environmental Laws, rules and regulations except for noncompliance that, individually or in the
aggregate, would not or could not reasonably be expected to have a Material Adverse Effect on
Acuity. There is no environmental litigation or other environmental proceeding pending or, to
Acuitys knowledge, threatened, by any governmental regulatory authority or others with respect to
the business of Acuity. No state of facts exists as to environmental matters or Hazardous
Substances that involves the reasonable likelihood of a material capital expenditure by Acuity or
that may otherwise have a Material Adverse Effect on Acuity. To Acuitys knowledge, no Hazardous
Substances have been used, treated, stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by Acuity in violation of any applicable environmental Laws.
4.23
Disclosure
. All disclosures provided by Acuity to Parent, Merger Sub I, Merger
Sub II and Froptix regarding Acuity, its business and the transactions contemplated hereby,
furnished by or on behalf of Acuity are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FROPTIX
Except as set forth on the Schedule of Exceptions delivered to Parent in connection with this
Agreement, Froptix represents and warrants to Parent as of the date of this Agreement as follows:
5.1
Organization and Standing
. Froptix is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Florida. Froptix has the requisite
corporate power and authority to own and operate its properties and assets, and to carry on its
business as currently conducted. Froptix is presently qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Froptix. True and accurate copies of the Froptix Articles of Incorporation (the
Froptix Articles
) and Froptix By-laws (the
Froptix By-laws
), each as in effect as of the date
hereof and at the Closing, have been delivered to Parent.
5.2
Corporate Power
. Froptix has all requisite legal and corporate power and
authority to execute and deliver this Agreement and to carry out and perform its other obligations
hereunder.
5.3
Authorization
. All action on the part of Froptix, its officers, its directors and
its stockholders necessary for the authorization, execution and delivery of this Agreement and the
performance of all of Froptixs obligations hereunder has been taken or will be taken prior to or
upon the Closing, as applicable. This Agreement has been duly executed by Froptix and, assuming
the due authorization, execution and delivery by the other parties hereto, constitutes and will
constitute a valid and legally binding obligation of Froptix, except (i) as limited by Laws of
general application relating to bankruptcy, insolvency and the relief of debtors and (ii) as
limited by rules of Law governing specific performance, injunctive relief or other equitable
remedies and by general principles of equity.
5.4
Subsidiaries
. Froptix does not own or control, directly or indirectly, any
interest in any corporation, partnership, limited liability company, association, other business
entity or Person. Froptix is not a participant in any joint venture, partnership or similar
arrangement. Since its inception, Froptix has not consolidated or merged with, acquired all or
substantially all of the assets of, or acquired the stock of or any interest in any Person.
5.5
Capitalization
.
(a) The authorized capital stock of Froptix as of the date hereof and immediately prior to the
Closing consists and will consist of 1,000 shares of Froptix Common Stock, nine hundred five (905)
of which are issued and outstanding. The
Froptix Common Stock has the rights, preferences, privileges and restrictions set forth in the
Froptix Articles and under Florida Law.
(b) All issued and outstanding shares of Froptixs capital stock have been duly authorized and
validly issued in compliance with applicable Laws, and are fully paid and nonassessable and free
and clear of Liens or third party rights and of any restrictions on transfer, except for transfer
restrictions of the federal and state securities laws. To Froptixs knowledge, each holder of any
capital stock of Froptix is an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
(c) There are no options, warrants, preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution or other rights to purchase or acquire from Froptix any of
Froptixs authorized and unissued capital stock. There are no rights to have Froptixs capital
stock registered for sale to the public in connection with the Laws of any jurisdiction, no
agreements relating to the voting of Froptixs voting securities (except as contemplated hereby)
and no restrictions on the transfer of Froptixs capital stock, other than those arising under
applicable securities Laws. All outstanding shares, options and warrants were issued pursuant to
and in compliance with a valid exemption from registration under the Securities Act and have been
issued in compliance with applicable state securities Laws. The exercise price of each option to
purchase or acquire from Froptix any of Froptixs authorized and unissued capital stock was
intended to constitute a price which is equal to or greater than the fair market value of the
underlying shares on the date of grant, as then determined in good faith by the Froptix board of
directors.
5.6
Financial Statements
. Froptix has delivered to Parent the audited balance sheet
of Froptix as of December 31, 2006 (the
Froptix
Financial Statements
). The Froptix Financial
Statements fairly present in all material respects the assets, liabilities and stockholders equity
of Froptix as of the dates, and for the periods, indicated therein, subject to normal year-end
audit adjustments, which shall not be material. No event has occurred and nothing has come to the
attention of Froptix since December 31, 2006 to indicate that the Froptix Financial Statements did
not fairly present in all material respects the assets, liabilities and stockholders equity of
Froptix as of the date thereof. Except as set forth in the Froptix Financial Statements, Froptix
has no liabilities of any nature, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to December 31, 2006 that do not exceed, in the
aggregate, $50,000, and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under GAAP to be reflected in the Froptix Financial Statements,
which, individually or in the aggregate, are not material to the financial condition or operating
results of Froptix.
5.7
Absence of Certain Changes or Events
. Since December 31, 2006, (i) there has been
no event, occurrence or development that, individually or in the aggregate, has resulted in or
could reasonably be expected to result in a Material Adverse Effect on Froptix or which, if taken
after the date hereof, would constitute a breach of the covenants set forth in Section 7.7 or 7.12,
(ii) Froptix has not incurred any material
liability, (iii) Froptix has not altered its method of accounting or the identity of its
auditor, (iv) Froptix has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) Froptix has not issued any equity securities. Froptix has
not taken any steps to seek protection pursuant to any bankruptcy Law nor does Froptix have any
knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a creditor to do so.
Froptix is not Insolvent as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing, will not be Insolvent.
5.8
Material Contracts
. A list of the oral and written material agreements of Froptix
is set forth on
Schedule 5.8
of the Schedule of Exceptions (each, a
Froptix Material
Agreement
). Froptix and to Froptixs knowledge, each other party thereto, has in all material
respects performed all the obligations required to be performed by them to date (or such non
performing party has received a valid, enforceable and irrevocable written waiver with respect to
its non performance), has received no notice of default and are not in default (with due notice or
lapse of time or both) under any Froptix Material Agreement. Froptix has no knowledge of any
breach or anticipated breach by the other party to any Froptix Material Agreement.
5.9
Intellectual Property
. Froptix owns or licenses for use (with a right of
sublicense) certain Intellectual Property (
Froptix Intellectual Property
), which constitute all
of the Intellectual Property being all that is necessary for the business of Froptix as presently
conducted. To Froptixs knowledge, neither Froptixs material pre-clinical and clinical
development candidates and processes to make such candidates, nor any Froptix Intellectual
Property, infringe or will infringe on the valid and subsisting Intellectual Property rights of
others that Froptix is aware of or, to Froptixs knowledge, any other rights of others. No claim
is pending or, to Froptixs knowledge, threatened, alleging any such infringement or with respect
to the ownership, validity, license or use of, or any infringement resulting from, either the
Froptix Intellectual Property or the sale of any material products or services by Froptix. No loss
or expiration of the Froptix Intellectual Property is pending or, to Froptixs knowledge,
threatened. The Schedule of Exceptions contains a complete list of the patents and patent
applications, trademark applications and registrations, copyright registrations, and domain name
registrations within Froptix Intellectual Property. There are no outstanding options, licenses or
other agreements relating to the Froptix Intellectual Property, and Froptix is not bound by or a
party to any options, licenses or agreements with respect to the Intellectual Property of any other
person or entity. Froptix is not violation of any license, sublicense, or other agreements to
which it is a party or otherwise bound relating to any Intellectual Property. Froptix is not
obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of
or claimant to any Intellectual Property with respect to the use thereof in connection with the
conduct of its business as presently conducted. There are no agreements, understandings,
instruments, contracts, judgments, orders or decrees to which Froptix is a party or by which it is
bound that involve indemnification by Froptix with respect to infringements of Intellectual
Property. To Froptixs knowledge, all registrations owned by or on behalf of Froptix, and
applications to governmental or
regulatory authorities in respect of such Froptix Intellectual Property, are valid and in full
force and effect. To Froptixs knowledge, no other person is infringing on the Froptix
Intellectual Property. The Froptix Merger does not and will not materially or adversely affect any
rights of Froptix or Surviving Company I to use any material Froptix Intellectual Property.
5.10
Title to Properties and Assets; Liens
. Froptix has good and marketable title to
its properties and assets, and has good title to all its leasehold interests, in each case subject
to no Lien, other than Permitted Liens. With respect to the property and assets it leases, Froptix
is in compliance with such leases in all material respects and holds a valid leasehold interest
free of all Liens other than Permitted Liens. Froptixs properties and assets are in good
condition and repair in all material respects. Froptix does not currently own, and has never
owned, any real property.
5.11
Compliance with Other Instruments and Laws
. Froptix is not in violation or
default of any provision of the Froptix Articles or Froptix By-laws, each as amended and in effect
on the date hereof and as of the Closing. Froptix is not in violation of, default under or breach
of any provision of any agreement, instrument, mortgage, deed of trust, loan, contract, commitment,
judgment, decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound, which violation, default or breach, individually or in the
aggregate, would or could reasonably be expected to have a Material Adverse Effect on Froptix.
Froptix is not in violation of any provision of any federal, state or local statute, rule or
governmental regulation, judgment, injunction or decree of any governmental authority, which
violation, individually or in the aggregate, would or could reasonably be expected to have a
Material Adverse Effect on Froptix. The execution and delivery of this Agreement by Froptix, and
Froptixs performance of and compliance with the terms hereof, or the consummation of the Froptix
Merger and the other transactions contemplated hereby, will not result in any violation, breach or
default, be in conflict with or constitute, with or without the passage of time or giving of
notice, a default under any Froptix Material Agreement or any of the foregoing provisions, require
any consent or waiver under any Froptix Material Agreement or any of the foregoing provisions
(other than any consents or waivers that have been obtained), result in the creation of any Lien
upon any of the properties or assets of Froptix, trigger any right of cancellation, termination or
acceleration under any Froptix Material Agreement or any of the foregoing provisions, create any
right of payment in any other person or entity (except as set forth herein), or result in a
Material Adverse Effect on Froptix.
5.12
Litigation
. There is no action, suit, proceeding or investigation pending or, to
Froptixs knowledge, threatened against or affecting Froptix or its properties or rights before any
court or by or before any governmental agency. Froptix is not a party or subject to, and none of
its assets is bound by, the provisions of any order, writ, injunction, judgment or decree of any
Governmental Authority. There is no action, suit or proceeding initiated by Froptix currently
pending or which Froptix intends to initiate.
5.13
Governmental Consents
. No consent, approval or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of Froptix is required in connection with the valid execution and
delivery of this Agreement or the consummation of any transaction contemplated hereby.
5.14
Permits
. Froptix has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by it, and Froptix
reasonably believes it can obtain, without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. Froptix is not in default in any material
respect under any of such franchises, permits, licenses, or other similar authority. Froptix has
complied in all material respects with all federal, state or foreign Laws applicable to its
business.
5.15
Brokers or Finders
. Froptix has not engaged any brokers, finders or agents, and
Froptix has not incurred, and will not incur, directly or indirectly, as a result of any action
taken by Froptix or any of its affiliates, any liability for brokerage or finders fees or agents
commissions or any similar charges in connection with this Agreement and the transactions
contemplated hereby.
5.16
Tax Returns and Payments
. Froptix has accurately prepared and timely filed all
United States income tax returns and all state and municipal tax returns required to be filed by
it, if any, has paid all taxes, assessments, fees and charges owed by it (regardless of whether
shown on any such tax return) or has otherwise made adequate provision for the payment of all
taxes, assessments, fees and charges owed by it. Froptix has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries. Froptix has not been advised in writing (a) that
any of its returns have been or are being audited or (b) of any deficiency in assessment or
proposed adjustment to its federal, state or other taxes. No assessment or proposed adjustment of
Froptixs United States income tax or state or municipal taxes is pending. Froptix is not
currently the beneficiary of any extension of time within which to file any tax report or return.
No claim has been made by a Governmental Authority in a jurisdiction where Froptix does not file
reports and returns that it is or may be subject to taxation by that jurisdiction. There are no
Liens on any of the assets of Froptix that arose in connection with the failure or alleged failure
to pay any tax. Froptix has withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent contractor or third
party. Froptix has not waived any statute of limitations in respect of taxes or agreed to any
extension of time with respect to a tax assessment or deficiency. Froptix has not entered into a
closing agreement pursuant to Section 7121 of the Code. Froptix has not made any payments, and is
not and will not become obligated under any contract entered into on or before the Closing Date to
make any payments in connection with the transactions contemplated by this Agreement, or in
connection with a combination of the transactions contemplated by this Agreement and any other
event, that will be non-deductible under Code Section 280G or subject to the excise tax under Code
Section 4999 or that would give rise to any obligation to indemnify any Person for any excise tax
payable pursuant to Code Section 4999. Froptix is not a party to or bound by any tax allocation or
tax sharing
agreement or has any current or potential obligation to indemnify any other Person with respect to taxes.
Except for consolidated income tax liabilities of any wholly-owned corporate subsidiaries it has
owned since their inception, Froptix does not have any liability for taxes of any person under
Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign
income tax Law), or as transferee, successor, by contract or otherwise. References in this section
to Froptix include references to any and all subsidiaries of Froptix which may affect its
liability. Froptix has not participated in any reportable transaction as contemplated in Treasury
Regulations Section 1.6011-4.
5.17
Employees
. Froptix does not have, and has never had, any employees.
5.18
Employee Benefit Plans
. Froptix is not (and has never been) a party to or bound
by, does not maintain or contribute to (and has never maintained or contributed to) and has no
liability with respect to, any Employee Benefit Plan.
5.19
Obligations to Related Parties
. There are no loans, leases, agreements,
understandings, commitments or other continuing transactions between Froptix and any employee,
officer, director or member of his or her immediate family or stockholder of Froptix or member of
his or her immediate family or any person or entity that, directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with any of the
foregoing persons. To Froptixs knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Froptix is affiliated or with which
Froptix has a business relationship, or any firm or corporation that competes with Froptix, except
in connection with the ownership of stock of publicly-traded companies (but not exceeding 2% of the
outstanding capital stock of any such company). No employee, officer, director or member of his or
her immediate family or, to Froptixs knowledge, stockholder of Froptix or member of his or her
immediate family or any person or entity that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with any of the foregoing
persons, is, directly or indirectly, interested in any material contract with Froptix (other than
such contracts as relate to any such persons ownership of capital stock or other securities of
Froptix). Froptix is not a guarantor or indemnitor of any Indebtedness of any other Person.
5.20
Environmental and Safety Laws
. Froptix is in compliance with all applicable
environmental Laws, rules and regulations except for noncompliance that, individually or in the
aggregate, would not or could not reasonably be expected to have a Material Adverse Effect on
Froptix. There is no environmental litigation or other environmental proceeding pending or, to
Froptixs knowledge, threatened, by any governmental regulatory authority or others with respect to
the business of Froptix. No state of facts exists as to environmental matters or Hazardous
Substances that involves the reasonable likelihood of a material capital expenditure by Froptix or
that may otherwise have a Material Adverse Effect on Froptix. To Froptixs knowledge, no Hazardous
Substances have been used, treated, stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by Froptix in violation of any applicable environmental Laws.
5.21
Disclosure
. All disclosures provided by Froptix to Parent, Merger Sub I, Merger
Sub II and Acuity regarding Froptix, its business and the transactions contemplated hereby,
furnished by or on behalf of Froptix are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances under which they were
made, not misleading.
ARTICLE VI
REPRESENTATIONS, WARRANTIES OF THE PARENT,
MERGER SUB I AND MERGER SUB II
Except as set forth in the SEC Reports or on the Schedule of Exceptions delivered to Acuity
and Froptix in connection with this Agreement, each of Parent, Merger Sub I and Merger Sub II
represents and warrants to Acuity and Froptix as of the date of this Agreement as follows:
6.1
Organization and Standing
. Parent is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Merger Sub I is a limited
liability company duly organized, validly existing and in good standing under the Laws of the State
of Delaware. Merger Sub II is a limited liability company duly organized, validly existing and in
good standing under the Laws of the State of Delaware. Each of Parent, Merger Sub I and Merger Sub
II has the requisite corporate power and authority to own and operate its properties and assets,
and to carry on its business as currently conducted. Parent is presently qualified to do business
as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect with respect to Parent. True and accurate copies of Parents Certificate
of Incorporation (the
Parent Certificate
), Parents By-laws (the
Parent By-laws
), Merger Sub
Is Certificate of Formation (the
Merger Sub I Certificate
), Merger Sub Is Limited Liability
Company Agreement (the
Merger Sub I LLC Agreement
), Merger Sub IIs Certificate of Formation (the
Merger Sub II Certificate
), Merger Sub IIs Limited Liability Company Agreement (the
Merger Sub
II LLC Agreement
), each as in effect as of the date hereof and at the Closing, have been delivered
to Acuity and Froptix.
6.2
Corporate Power
. Each of Parent, Merger Sub I and Merger Sub II has all requisite
legal and corporate and other power and authority to execute and deliver this Agreement and to
carry out and perform its other obligations hereunder.
6.3
Authorization
. All corporate and other action on the part of each of Parent,
Merger Sub I and Merger Sub II, their respective officers and directors necessary for the (i) due
authorization, execution and delivery of this Agreement and (ii) performance of all obligations of
Parent, Merger Sub I and Merger Sub II hereunder has been taken or will be taken prior to or upon
the Closing, as applicable. All corporate action on the part of the sole member of each of Merger
Sub I and Merger Sub II necessary for the (i) due authorization, execution and delivery of this
Agreement and (ii) performance of all obligations of Merger Sub I and Merger Sub II hereunder has
been taken or will be taken prior to the Closing, as applicable. This Agreement has been duly
executed by each of
Parent, Merger Sub I and Merger Sub II and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes and will constitute a valid and legally binding
obligation of each of Parent, Merger Sub I and Merger Sub II, except (i) as limited by Laws of
general application relating to bankruptcy, insolvency and the relief of debtors and (ii) as
limited by rules of Law governing specific performance, injunctive relief or other equitable
remedies and by general principles of equity.
6.4
Authorized Securities
. The shares of Parent Common Stock and Parent Series C
Preferred Stock issuable pursuant to Section 3.1(a), Section 3.3(a), Section 3.3(b), and Section
3.3(c) shall be duly authorized and, when issued in accordance with this Agreement, will be duly
and validly issued, fully paid and non-assessable, free and clear of all Liens and shall not be
subject to preemptive or similar rights of stockholders. The Adjusted Parent Options, Adjusted
Parent Series C Options and Parent Warrants shall be duly issued and authorized when issued in
accordance with this Agreement and any share of Parent Common Stock or Parent Series C Preferred
Stock issued upon the exercise thereof according to their respective terms, as applicable, will be
duly and validly issued, fully paid and non-assessable, free and clear of all Liens and shall not
be subject to preemptive or similar rights of stockholders.
6.5
Subsidiaries
. Other than its interest in Merger Sub I and Merger Sub II, Parent
does not own or control, directly or indirectly, any interest in any corporation, partnership,
limited liability company, association, other business entity or person. Parent is not a
participant in any joint venture, partnership or similar arrangement. Parent has not during the
period covered by the SEC Reports consolidated or merged with, acquired all or substantially all of
the assets of, or acquired the stock of or any interest in any Person.
6.6
Capitalization
.
(a) The authorized capital stock of Parent on the date hereof consists of 225,000,000 shares
of Parent Common Stock, of which 36,505,369 shares of Common Stock are issued and outstanding, and
10,000,000 shares of Parent Preferred Stock, of which 4,000,000 are designated Parent Series A
Preferred Stock and of which 30,000 are designated Series B Junior Participating Preferred Stock
pursuant to the Parent Certificate as of the date hereof. As of the date of this Agreement,
1,083,404 shares of Parent Series A Preferred Stock were issued and outstanding and convertible
into Parent Common Stock on a one-for-one basis, and no shares of Parent Series B Preferred were
issued or outstanding. The Parent Common Stock and the Parent Preferred Stock have the rights,
preferences, privileges and restrictions set forth in the Parent Certificate and under Delaware
Law. All issued and outstanding shares of Parents capital stock have been duly authorized and
validly issued in compliance with applicable Laws, and are fully paid and nonassessable and free
and clear of Liens or third party rights and of any restrictions on transfer, except for transfer
restrictions of the federal and state securities laws.
(b) There are no options, warrants, preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution or other rights to purchase or acquire from Parent any of
Parents authorized and unissued capital stock. Except as
contemplated by this Agreement, there are (i) no rights to have Parents capital stock
registered for sale to the public in connection with the Laws of any jurisdiction, (ii) to the
Parents knowledge, no agreements relating to the voting of Parents voting securities and (iii) no
restrictions on the transfer of Parents capital stock or other equity securities, other than those
arising under applicable securities Laws. All outstanding shares, options and warrants were issued
pursuant to a valid registration statement filed with the SEC or an exemption from registration
under the Securities Act and have been issued in compliance with applicable state securities Laws.
6.7
SEC Reports; Financial Statements
. Parent has duly filed all required
registration statements, reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated by reference) required to be filed by it with the
SEC under the Exchange Act, including pursuant to Sections 13(a) or 15(d) thereof, for the two
years preceding the date hereof (the foregoing materials (together with any materials filed by
Parent under the Exchange Act, whether or not required) being collectively referred to herein as
the
SEC Reports
) on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations of the SEC with
respect thereto as in effect at the time of filing. Such financial statements have been prepared
in accordance with GAAP, except as may be otherwise specified in such financial statements or the
notes thereto, and fairly present in all material respects the financial condition, results of
operations and cash flows of Parent as of the dates, and for the periods, indicated therein,
subject, in the case of unaudited statements, to normal, year-end audit adjustments.
6.8
Absence of Changes
. Since the date of the latest audited financial statements
included within the SEC Reports, except as disclosed in the SEC Reports or in
Schedule 6.8
of the Schedule of Exceptions or incident to the transactions contemplated hereby or in connection
with the Mergers, (i) there has been no event, occurrence or development that, individually or in
the aggregate, has had or that would reasonably be expected to result in a Material Adverse Effect
on Parent, or which, if taken after the date hereof, would constitute a breach of the covenants set
forth in Section 7.7 or 7.12, (ii) Parent has not incurred any material liabilities, (iii) Parent
has not altered its method of accounting or the identity of its auditors, except as disclosed in
its SEC Reports, (iv) Parent has not declared or made any dividend or distribution of cash or other
property to its stockholders, in their capacities as such, or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) Parent has not issued any
equity securities. Parent has not taken any steps to seek protection pursuant to any bankruptcy
Law nor does Parent have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge
of any fact that would reasonably lead a creditor to do so. Parent is not Insolvent as of the
date hereof, and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent.
6.9
Sarbanes-Oxley Act
. The Parent and, to Parents knowledge, each of its officers
and directors are in compliance with, and have complied, in each case in all material respects,
with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act
) and the
related rules and regulations promulgated under or pursuant to the Exchange Act. Each SEC Report
containing financial statements that has been filed with or submitted to the SEC by Parent was
accompanied by the certifications required to be filed or submitted by the Parents chief executive
officer and/or chief financial officer, as required, pursuant to the Exchange Act and, at the time
of filing or submission of each such certification, such certification was true and accurate and
complied in all material respects with the Exchange Act. Neither Parent nor, to Parents
knowledge, any of its executive officers has received notice from any Governmental Authority
challenging or questioning the accuracy, completeness, form or manner of filing such
certifications.
6.10
Internal Controls.
Neither Parent (including, to Parents Knowledge, any
employee thereof) nor the Parents independent auditors has identified or been made aware of (A)
any significant deficiency or material weakness in the design or operation of internal controls
utilized by Parent (other than a significant deficiency or material weakness that has been
disclosed to the Audit Committee of the Board of Directors of Parent, and, in the case of a
material weakness, that has been disclosed as required in the SEC Reports), (B) any fraud, whether
or not material, that involves Parents management or other employees who have a significant role
in the preparation of financial statements or the internal controls utilized by Parent or (C) any
claim or allegation regarding any of the foregoing (other than claims or allegations that have been
duly investigated and found not to involve any of the foregoing).
6.11
Material Contracts
. A list of the oral and written material agreements of Parent
are included as exhibits to the SEC Reports (each, a
Parent Material Agreement
). Parent and to
Parents knowledge, each other party thereto, has in all material respects performed all the
obligations required to be performed by them to date (or such non performing party has received a
valid, enforceable and irrevocable written waiver with respect to its non performance), has
received no notice of default and are not in default (with due notice or lapse of time or both)
under any Parent Material Agreement. Parent has no knowledge of any breach or anticipated breach
by the other party to any Parent Material Agreement.
6.12
Title to Properties and Assets; Liens
. Parent has good and marketable title to
its properties and assets, and has good title to all its leasehold interests, in each case subject
to no Lien, other than Permitted Liens. With respect to the property and assets it leases, Parent
is in compliance with such leases in all material respects and holds a valid leasehold interest
free of all Liens. Parents properties and assets are in good condition and repair in all material
respects. Parent does not currently own, and has never owned, any real property.
6.13
Compliance with Other Instruments and Laws
. Parent is not in violation or
default of any provision of the Parent Certificate or the Parent By-laws, each as amended and in
effect on the date hereof and as of the Closing. Parent is not in violation of, default under or
breach of any provision of any agreement, instrument, mortgage, deed of trust, loan, contract,
commitment, judgment, decree, order or obligation to which it is a party or by which it or any of
its properties or assets are bound, which violation, default or breach, individually or in the
aggregate, would or could reasonably be expected to have a Material Adverse Effect on Parent.
Parent is not in violation of any provision of any federal, state or local statute, rule or
governmental regulation, judgment, injunction or decree of any governmental authority, which
violation, individually or in the aggregate, would or could reasonably be expected to have a
Material Adverse Effect on Parent. The execution and delivery of this Agreement by Parent, and
Parents performance of and compliance with the terms hereof, or the consummation of the Merger and
the other transactions contemplated hereby, will not result in any violation, breach or default, be
in conflict with or constitute, with or without the passage of time or giving of notice, a default
under any Parent Material Agreement or any of the foregoing provisions, require any consent or
waiver under any Parent Material Agreement or any of the foregoing provisions (other than any
consents or waivers that have been obtained), result in the creation of any Lien upon any of the
properties or assets of Parent, trigger any right of cancellation, termination or acceleration
under any Parent Material Agreement or any of the foregoing provisions, create any right of payment
in any Person (except as contemplated herein), or result in a Material Adverse Effect on Parent.
6.14
Litigation
. There is no action, suit, proceeding or investigation pending or, to
Parents knowledge, threatened against or affecting Parent, Merger Sub I, Merger Sub II or any of
their respective properties or rights before any court or by or before any governmental agency.
None of Parent, Merger Sub I, or Merger Sub II is party or subject to, and none of their respective
assets is bound by, the provisions of any order, writ, injunction, judgment or decree of any
Governmental Authority. There is no action, suit or proceeding initiated by Parent currently
pending or which Parent intends to initiate.
6.15
Governmental Consents
. No consent, approval or authorization of or registration,
qualification, designation, declaration or filing with any governmental authority on the part of
Parent is required in connection with the valid execution and delivery of this Agreement or the
consummation of any transaction contemplated hereby, except the qualification or registration (or
taking such action as may be necessary to secure an exemption from qualification or registration,
if available) of the offer, issuance and sale of the shares of Parent Common Stock, Parent Series C
Preferred Stock, Adjusted Parent Options, Adjusted Parent Series C Options, Parent Warrants and the
securities of Parent issuable upon conversion or exercise of the Parent Series C Preferred Stock,
Adjusted Parent Options, Adjusted Parent Series C Options or Parent Warrants under applicable
federal and state securities Laws.
6.16
Permits
. Parent has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it. Parent is not in default
in any material respect under any of such franchises, permits, licenses, or
other similar authority. Parent has complied in all material respects with all federal, state
or foreign Laws applicable to its business.
6.17
Brokers or Finders
. Parent has not engaged any brokers, finders or agents, and
Parent has not incurred, and neither will incur, directly or indirectly, as a result of any action
taken by Parent or any of its affiliates, any liability for brokerage or finders fees or agents
commissions or any similar charges in connection with this Agreement and the transactions
contemplated hereby.
6.18
Tax Returns and Payments
. Merger Sub I and Merger Sub II are treated as
disregarded entities, as defined in Treasury Regulations Section 301.7701(a)-2, for federal income
tax purposes. Parent has accurately prepared and timely filed all United States income tax returns
and all state and municipal tax returns required to be filed by it, if any, has paid all taxes,
assessments, fees and charges owed by it (regardless of whether shown on any such tax return) or
has otherwise made adequate provision for the payment of all taxes, assessments, fees and charges
owed by it. Parent has withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries.
Parent has not been advised in writing (a) that any of its returns have been or are being audited
or (b) of any deficiency in assessment or proposed adjustment to its federal, state or other taxes.
No assessment or proposed adjustment of Parents United States income tax or state or municipal
taxes is pending. Parent is not currently the beneficiary of any extension of time within which to
file any tax report or return. No claim has been made by a Governmental Authority in a
jurisdiction where Parent does not file reports and returns that it is or may be subject to
taxation by that jurisdiction. There are no Liens on any of the assets of Parent that arose in
connection with the failure or alleged failure to pay any tax. Parent has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or third party. Parent has not waived any statute of
limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment
or deficiency. Parent has not entered into a closing agreement pursuant to Section 7121 of the
Code. Parent has not made any payments, and is not and will not become obligated under any
contract entered into on or before the Closing Date to make any payments, in connection with the
transactions contemplated by this Agreement, or in connection with a combination of the
transactions contemplated by this Agreement and any other event, that will be non-deductible under
Code Section 280G or subject to the excise tax under Code Section 4999 or that would give rise to
any obligation to indemnify any person for any excise tax payable pursuant to Code Section 4999.
Parent is not a party to or bound by any tax allocation or tax sharing agreement or has any current
or potential obligation to indemnify any other person with respect to taxes. Except for
consolidated income tax liabilities of any wholly-owned corporate subsidiaries it has owned since
their inception, Parent does not have any liability for taxes of any person under Treasury
Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign income tax
Law), or as transferee, successor, by contract or otherwise. References in this Section to Parent
include references to any and all subsidiaries of Parent that may affect its liability.
Parent has not participated in any reportable transaction as contemplated in Treasury
Regulations Section 1.6011-4.
6.19
Employees
. To Parents knowledge, no employee of Parent, nor any consultant with
whom Parent has contracted, is in violation of any term of any employment contract, noncompetition
or proprietary information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, Parent or any judgment, decree or order of any
court or administrative agency under which it is subject. Parent has not received any notice
alleging that any such violation has occurred. Parent is not in default with respect to any
obligation to any of its employees. No employee of Parent is represented by any labor union or
covered by any collective bargaining agreement. There is no pending or, to Parents knowledge,
threatened dispute involving Parent and any employee or group of its employees. Parent has
complied and is currently complying with all applicable Laws relating to employment and employment
practices, terms and conditions of employment, and wages and hours, except for noncompliance that,
individually and in the aggregate, would not have a Material Adverse Effect on Parent.
6.20
Employee Benefit Plans
.
(a)
Schedule 6.20
of the Schedule of Exceptions sets forth a correct and complete list
of all Parent Employee Benefit Plans. Each Parent Employee Benefit Plan, and its related
documents, has been made available to Froptix and Acuity. No Parent Employee Benefit Plan is
subject to Title IV of ERISA, or Section 412 of the Code, is or has been subject to Sections 4063
or 4064 of ERISA, or is a multi-employer welfare arrangement as defined in Section 3(40) of ERISA.
Neither Parent nor any ERISA Affiliate has any obligation or liability, contingent or otherwise,
under Title IV of ERISA with respect to any pension plan as defined in Section 3(2) of ERISA.
Neither Parent nor any of it ERISA Affiliates has ever participated in and has never been required
to contribute to any multi employer plan, as defined in Sections 3(37)(A) and 4001(a)(3) of ERISA
and Section 414(f) of the Code or any multiple employer plan within the meaning of Section 210(a)
of ERISA or Section 413(c) of the Code. No Parent Employee Benefit Plan provides for, nor does
Parent or any of its subsidiaries have any liability for post-employment life insurance or health
benefit coverage for any participant or any beneficiary of a participant, except as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and at the expense of
the participant or the participants beneficiary.
(b) The Parent Employee Benefit Plans have been maintained in all material respects in
accordance with their terms and with all provisions of ERISA, the Code (including rules and
regulations thereunder) and other applicable federal and state Laws and regulations. The exercise
price of each option to purchase or acquire from Parent any of Parents authorized and unissued
capital stock was intended to constitute a price which is equal to or greater than the fair market
value of the underlying shares on the date of grant, as then determined in good faith by the Parent
board of directors.
(c) There are no pending actions, claims or lawsuits that have been asserted or instituted
against any Parent Employee Benefit Plan, the assets of any of the trusts under any Parent Employee
Benefit Plan or the sponsor of any Parent Employee Benefit Plan, or, to the knowledge of Parent,
against any fiduciary or administrator of any Parent Employee Benefit Plan with respect to the
operation of any Parent Employee Benefit Plan (other than routine benefit claims), nor does Parent
have any knowledge of facts that could reasonably be expected to form the basis for any such claim
or lawsuit.
(d) Neither will the execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein (i) result in any payment becoming due to any current or former
employee, officer, director or consultant of Parent or any of its subsidiaries, (ii) increase any
benefits otherwise payable under any Parent Employee Benefit Plan, (iii) result in the acceleration
of the time of payment or vesting of any rights with respect to any such benefits under any Parent
Employee Benefit Plan or (iv) require any contributions or payments to fund, or any security to
secure, any obligations under any Parent Employee Benefit Plan. There are no Parent Employee
Benefit Plans that, individually or collectively, could give rise to the payment of any amount in
connection with the transactions contemplated by this Agreement, or in connection with a
combination of the transactions contemplated by this Agreement and any other event, that would not
be deductible pursuant to the terms of Section 280G of the Code.
(e) With respect to each Parent Employee Benefit Plan intended to qualify under Code Section
401(a) or 403(a), (i) the Internal Revenue Service has issued a favorable determination letter,
which has not been revoked, that any such plan is tax-qualified and each trust created thereunder
has been determined by the Internal Revenue Service to be exempt from federal income tax under Code
Section 501(a); (ii) nothing has occurred or will occur through the Closing which would cause the
loss of such qualification or exemption or the imposition of any penalty or tax liability; (iii) no
reportable event (within the meaning of Section 4043 of ERISA) has occurred; (iv) there has been no
termination or partial termination of such plan within the meaning of Code Section 411(d)(3); and
(v) the present value of all liabilities under any such plan will not exceed the current fair
market value of the assets of such plan (determined using the actuarial assumption used for the
most recent actuarial valuation for such plan).
6.21
Obligations to Related Parties
. There are no loans, leases, agreements,
understandings, commitments or other continuing transactions between Parent and any employee,
officer, director or member of his or her immediate family or stockholder of Parent or member of
his or her immediate family or any person or entity that, directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with any of the
foregoing persons. To Parents knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Parent is affiliated or with which Parent
has a business relationship, or any firm or corporation that competes with Parent, except in
connection with the ownership of stock of publicly-traded companies (but not exceeding 2% of the
outstanding capital stock of any such company). No employee, officer, director or member of his or
her immediate family or, to Parents knowledge, stockholder of Parent or member of his or her
immediate family or any person or entity that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with any of the foregoing
persons, is, directly or indirectly, interested in any material contract with Parent (other than
such contracts as relate to any such persons ownership of capital stock or other securities of
Parent or employment by Parent). Parent is not a guarantor or indemnitor of any Indebtedness of
any other Person.
6.22
Insurance
. Parent has in full force and effect general commercial, fire and
casualty insurance policies and insurance against other hazards, risks and liabilities to persons
and property to the extent and in the manner customary for companies in similar businesses
similarly situated and sufficient in amount to allow it to replace any of its material properties
or assets that might be damaged or destroyed or sufficient to cover liabilities to which Parent may
reasonably become subject.
6.23
Environmental and Safety Laws
. Parent is in compliance with all applicable
environmental Laws, rules and regulations except for noncompliance that, individually or in the
aggregate, would not or could not reasonably be expected to have a Material Adverse Effect on
Parent. There is no environmental litigation or other environmental proceeding pending or, to
Parents knowledge, threatened, by any governmental regulatory authority or others with respect to
the business of Parent. No state of facts exists as to environmental matters or Hazardous
Substances that involves the reasonable likelihood of a material capital expenditure by Parent or
that may otherwise have a Material Adverse Effect on Parent. To Parents knowledge, no Hazardous
Substances have been used, treated, stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by Parent in violation of any applicable environmental Laws.
6.24
No Assets; No Liabilities
. Except as specifically disclosed in the SEC Reports,
neither Parent, Merger Sub I nor Merger Sub II has the right to own, or will have the right to own
prior to the Closing, any assets (including without limitation, tangible and intangible, personal
and real property) and neither is involved in the operation of any business or property. Other
than as specifically disclosed in the SEC Reports and those liabilities related to this Agreement
set forth in the Schedule of Exceptions, neither Parent, Merger Sub I nor Merger Sub II has any
direct or indirect material liability, Indebtedness or obligation (including without limitation,
known or unknown, absolute or contingent, liquidated or unliquidated or due or to become due)
except relating to the transactions contemplated hereby.
6.25
Application of Takeover Protections
. There are no Takeover Protections that are
or could reasonably be expected to become applicable to Parent as a result of Parent, Merger Sub I,
Merger Sub II, Froptix or Acuity fulfilling their obligations or exercising their rights under this
Agreement, including, without limitation, as a result of Parents issuance of the shares of Parent
Common Stock and Parent Series C Preferred Stock issuable pursuant to Section 3.1(a), Section
3.3(a), Section 3.3(b), and Section 3.3(c) or any other warrant or option as specified in this
Agreement.
6.26
Disclosure
. All disclosures provided by Parent, Merger Sub I and Merger Sub II
to Froptix and Acuity regarding Parent, Merger Sub I and Merger Sub II, their respective businesses
and the transactions contemplated hereby, furnished by or on behalf of Parent, Merger Sub I and
Merger Sub II are true and correct in all material respects and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not misleading. To
Parents, Merger Sub Is and Merger Sub IIs knowledge, no event or circumstance has occurred or
information exists with respect to Parent, Merger Sub I or Merger Sub II or their respective
business, properties, operations or financial conditions, which, under applicable Law, rule or
regulation, requires public disclosure or announcement by Parent but which has not been so publicly
announced or disclosed.
6.27
Operations of Merger Sub I and Merger Sub II
. Each of Merger Sub I and Merger
Sub II is a direct, wholly owned subsidiary of Parent, was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this Agreement.
6.28
Trading Matters
. The Parent Common Stock is quoted on the OTCBB. There is no
action or proceeding pending or, to Parents knowledge, threatened against Parent by Nasdaq or
NASD, Inc. with respect to any intention by such entities to prohibit or terminate the quotation of
any such securities on the OTCBB.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1
Publicity
. Until the Acuity Merger Effective Time, no party shall issue any press
release or public announcement pertaining to the Mergers that has not been agreed upon in advance
by Parent, Froptix and Acuity, except as Parent reasonably determines to be necessary in order to
comply with the rules of the SEC or the OTCBB.
7.2
Tax Free Exchange
. Each of Parent, Froptix and Acuity shall use its respective
commercially reasonable efforts to cause the Mergers to qualify as a reorganization described in
Section 368(a) of the Code and will not take any actions that would reasonably be expected to cause
the Mergers to not so qualify. For purposes of the foregoing, this Agreement shall constitute a
plan of reorganization.
7.3
Transaction Form 8-K; Other Filings
. As promptly as practicable (but in no event,
with respect to filing, later than the date required under applicable Law), Parent will prepare and
file a current report on Form 8-K (the
Transaction Form 8-K
) and any filings required to
be filed by it under the Exchange Act, the Securities Act or any other federal or blue sky or
related Laws relating to the execution of this Agreement and the consummation of the Mergers, as
well as under regulations of or as required by the OTCBB and such Governmental Authorities as may
require the filing of such other filings. Froptix and Acuity will work together with Parent as
promptly as practicable to
prepare the Transaction Form 8-K and other filings referred to above and provide Parent
whatever information is necessary to accurately complete such filings in a timely manner.
7.4
Notices from or to Governmental Authorities
. Subject to applicable Laws relating
to the exchange of information, each party will promptly furnish to the other parties copies of
written communications (and memoranda setting forth the substance of all oral communications)
received by such party, or any of their respective subsidiaries, affiliates or associates (as such
terms are defined in Rule 12b-2 under the Exchange Act as in effect on the date hereof), from, or
delivered by any of the foregoing to, any Governmental Authority relating to or in respect of the
transactions contemplated under this Agreement.
7.5
Parent Directors
. Parent shall use its best efforts to cause the Director
Nominees to be elected as members of the Parent board of directors by the existing members of the
Parent board of directors simultaneous with Closing (to the extent that they are not already
serving in such capacity). Each Director Nominee shall serve as a director for a term expiring at
Parents next annual meeting of stockholders following the Closing Date and until his successor is
elected and qualified, provided that Parent shall use its best efforts to cause the Parent board of
directors to re-nominate each Director Nominee as a director for election at the Parents annual
meeting of stockholders for each of 2007 and 2008 subject to any limitations imposed by applicable
Law or the rules of the Eligible Market. Parent shall take such action, including amending its
bylaws, as may be required to cause the number of directors constituting the Parent board of
directors immediately after the Closing Date to be increased to eight.
Director Nominees
means
Philip Frost, Jane H. Hsiao, Steven D. Rubin, David A. Eichler and Michael Reich.
7.6
Indemnification and D&O Insurance
.
(a) From and after the Closing, Parent will cause Surviving Company I to fulfill and honor in
all material respects the obligations of Froptix pursuant to any indemnification provisions under
the Froptix Articles and Froptix By-laws for the benefit of any individual who served as a director
or officer of Froptix (the
Froptix Indemnitees
) at any time prior to the Froptix Merger Effective
Time to the maximum extent permitted by Law.
(b) From and after the Closing, Parent will cause Surviving Company II to fulfill and honor in
all material respects the obligations of Acuity pursuant to any indemnification provisions under
the Acuity Certificate and Acuity By-laws for the benefit of any individual who served as a
director or officer of Acuity (the
Acuity Indemnitees
) at any time prior to the Acuity Merger
Effective Time to the maximum extent permitted by Law.
(c) Parent will provide each Froptix Indemnitee and Acuity Indemnitee with liability insurance
for a period of 24 months after such Froptix Merger Effective Time or Acuity Merger Effective Time,
as applicable, on terms no less favorable in coverage and amount than any applicable insurance in
effect immediately prior to such Froptix Merger Effective Time or Acuity Merger Effective Time;
provided,
however
, that Parent may reduce the coverage and amount of liability insurance for the Froptix
Indemnitees to the extent the cost of liability insurance having the full coverage and amount for
such indemnitees would exceed 120% of the cost of such coverage as of the date hereof and may
reduce the coverage and amount of liability insurance for the Acuity Indemnitees to the extent the
cost of liability insurance having the full coverage and amount for such indemnitees would exceed
120% of the cost of such coverage as of the date hereof.
7.7
Covenants Relating To Conduct Of Business
. During the period from the date of
this Agreement to the Acuity Merger Effective Time, each of Parent, Merger Sub I, Merger Sub II,
Froptix and Acuity shall:
(a) conduct its business only in the ordinary course and consistent with prudent and prior
business practice, except for transactions permitted hereunder, or with the prior written consent
of the other parties, which consent will not be unreasonably withheld; and
(b) confer on a reasonable basis with each other regarding operational matters and other
matters related to the Mergers.
7.8
Access to Parent, Merger Sub I and Merger Sub II
. Parent shall afford to Acuity
and Froptix and their respective officers, directors, agents and counsel access at times and upon
conditions reasonably convenient to Parent to all properties, books, records, contracts and
documents of Parent, Merger Sub I and Merger Sub II, and an opportunity to make such investigations
as they shall reasonably desire to make of Parent, Merger Sub I and Merger Sub II; and Parent shall
furnish or cause to be furnished to Acuity and Froptix and their authorized representatives all
such information with respect to the business and affairs of Parent, Merger Sub I and Merger Sub II
as Acuity and Froptix and their authorized representatives may reasonably request and make the
officers, directors, employees, auditors and counsel of Parent, Merger Sub I and Merger Sub II
available for consultation and permit access to other third parties as reasonably requested by
Froptix or Acuity for verification of any information so obtained.
7.9
Access to Froptix
. Froptix shall afford to Parent and its officers, directors,
agents and counsel access at times and upon conditions reasonably convenient to Froptix to all
properties, books, records, contracts and documents of Froptix, and an opportunity to make such
investigations as it shall reasonably desire to make of Froptix; and Froptix shall furnish or cause
to be furnished to Parent and its authorized representatives all such information with respect to
the business and affairs of Froptix as Parent and its authorized representatives may reasonably
request and make the officers, directors, employees, auditors and counsel of Froptix available for
consultation and permit access to other third parties as reasonably requested by Parent for
verification of any information so obtained.
7.10
Access to Acuity
. Acuity shall afford to Parent and its officers, directors,
agents and counsel access at times and upon conditions reasonably convenient to Acuity and to all
properties, books, records, contracts and documents of Acuity, and an opportunity to make such investigations as it shall reasonably desire to make of Acuity;
and Acuity shall furnish or cause to be furnished to Parent and its authorized representatives all such
information with respect to the business and affairs of Acuity as Parent and its authorized
representatives may reasonably request and make the officers, directors, employees, auditors and
counsel of Acuity available for consultation and permit access to other third parties as reasonably
requested by Parent for verification of any information so obtained.
7.11
Confidentiality Agreement
. Each of Parent, Froptix and Acuity acknowledge and
agree that any information received pursuant to Sections 7.8, 7.9 and/or 7.10 shall be subject to
the terms of the Confidentiality Agreement by and among Parent, Froptix and Acuity dated February
27, 2007 (the
Confidentiality Agreement
).
7.12
Prohibited Actions Pending Closing.
Except as provided in this Agreement or as
disclosed in the Schedule of Exceptions or to the extent Parent, Acuity and Froptix shall otherwise
consent in writing, during the period from the date of this Agreement to the Acuity Merger
Effective Time, none of Parent, Merger Sub I, Merger Sub II, Froptix or Acuity shall:
(a) create any Lien on any of its properties or assets (whether tangible or intangible), other
than (A) Permitted Liens and (B) Liens that will be released at or prior to or in connection with
the Closing.
(b) sell, assign, transfer, lease or otherwise dispose of or agree to sell, assign, transfer,
lease or otherwise dispose of any its assets or cancel any Indebtedness owed to it.
(c) change any method of accounting or accounting practice used by it, other than such changes
required by GAAP.
(d) issue or sell any shares of the capital stock of, or other equity interests in it, or
securities convertible into or exchangeable for such shares or equity interests, or issue or grant
any options, warrants, calls, subscription rights or other rights of any kind to acquire additional
shares of such capital stock, such other equity interests or such securities.
(e) amend or otherwise change their respective Articles or Certificate of Incorporation, as
the case may be, or other governing documents;
(f) declare, set aside or pay any dividend or distribution with respect to any share of its
capital stock or declare or effectuate a stock dividend, stock split or similar event.
(g) issue any note, bond, or other debt security or create, incur, assume, or guarantee any
Indebtedness for borrowed money or capitalized lease obligation.
(h) make any capital investment in, make any loan to, or acquire the securities or assets of
any other person or entity.
(i) enter into any new or additional agreements or materially modify any existing agreements
relating to the employment of any officer or any written agreements of any of its employees, except
in the ordinary course of business.
(j) make any payments out of the ordinary course of business to any of its officers,
directors, employees or stockholders.
(k) Pay, discharge, satisfy or settle any liability (absolute, accrued, asserted or
unasserted, contingent or otherwise).
(l) Sell, transfer, license, abandon, let lapse, encumber or otherwise dispose of any
Intellectual Property.
(m) Agree in writing or otherwise take any action that would, or would reasonably be expected
to, prevent, impair or materially delay the ability of Parent, Froptix or Acuity, as the case may
be, to consummate the transactions contemplated by this Agreement.
(n) agree to take any of the actions specified in this Section 7.12.
7.13
Further Assurances
. Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or advisable under
applicable Laws and regulations to satisfy the conditions to Closing to be satisfied by it and to
consummate and make effective the transactions contemplated by this Agreement and make effective,
in the most expeditious manner practicable, including, without limitation, using commercially
reasonable efforts to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated by this Agreement
and using commercially reasonable efforts to prevent the breach of any representation, warranty,
covenant or agreement of such party contained or referred to in this Agreement and to promptly
remedy the same. In case at any time after the Acuity Merger Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, each party to this Agreement
shall use commercially reasonable efforts to take all such necessary action.
7.14
Initial Listing Application
. As soon as practicable after the Closing Date,
Parent shall use its commercially reasonable efforts, to the extent allowed under the rules of the
Eligible Market, to take all actions and prepare all filings and other documents necessary to be
filed with the Eligible Market in connection with the initial listing application for the inclusion
of the Parent Common Stock on the Eligible Market, conduct ongoing negotiations with the Eligible
Market with respect to such listing and perform all acts reasonably requested by the Eligible
Market.
7.15
Master Agreement Line of Credit
. At the Acuity Merger Effective Time, (a) Acuity
shall assign and Parent shall assume and succeed to all of Acuitys rights and obligations under
that certain Master Agreement, dated as of January 11, 2007, by and among Acuity, Froptix and The
Frost Group, LLC (the
Master Agreement
) which
survive the Acuity Merger Effective Time to the extent set forth therein, and such Master
Agreement shall be amended as set forth therein (as attached hereto as
Exhibit H
), (b)
Acuity shall assign and Parent shall assume and succeed to Acuitys obligations under the Note
delivered by Acuity under the Master Agreement, which shall be amended and restated as set forth in
the Master Agreement, and (c) Parent shall grant the Parent Warrants to The Frost Group, LLC as may
be required to be issued pursuant to the Master Agreement upon the assumption described in this
Section 7.15.
7.16
Lockup Agreements
.
(a) Froptix shall cause each Froptix Shareholder who owns more than 5% of the Froptix Shares
on the date of this Agreement to deliver to Parent and Acuity an executed lockup letter agreement
substantially in the form of
Exhibit F
hereto prior to the Froptix Merger Effective Time
(the
Froptix Lockup Agreements
).
(b) Acuity shall cause each Acuity Stockholders who owns more than 5% of the Acuity Shares on
the date of this Agreement to deliver to Parent and Froptix an executed lockup letter agreement
substantially in the form of
Exhibit F
hereto prior to the Acuity Merger Effective Time
(the
Acuity Lockup Agreements
).
7.17
Notices and Consents
. Each of Parent, Acuity and Froptix will give any notices
to third parties, and will use its commercially reasonable efforts to obtain any third party
consents referred to in the Schedule of Exceptions delivered by it hereunder.
7.18
Accredited Investor Representations
. Acuity shall use its reasonable best
efforts to obtain a representation from each Acuity Shareholder and each holder of warrants to
acquire Acuity capital stock and Acuity Options, dated as of a recent date, that (a) he, she or it
is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act or (b) if not, he, she or it, either alone or together with his, her or its
purchaser representative(s), has such knowledge and experience in financial and business matters
that he, she or it is capable of independently evaluating the risks and merits of acquiring the
Parent Common Stock, Parent Series C Preferred Stock, Adjusted Parent Options, Adjusted Parent
Series C Options and/or Parent Warrants to be delivered hereunder, and in either case to deliver
such representation to Parent at or prior to the Acuity Merger Effective Time.
7.19
Consents from Certain Holders of Acuity Options
.
(a) Acuity shall, prior to the effective time of the Acuity Merger, enter into an agreement,
in a form acceptable to Parent, Froptix and Acuity, with each of the Persons set forth on
Schedule 7.19
of the Schedule of Exceptions, each of whom is a director or employee of
Acuity that is a holder of one or more unvested options to purchase Acuity capital stock that would
become vested partially or in full as a result of the Acuity Merger, to cause such acceleration
provision to be waived in connection with the Acuity Merger. Such agreement shall also contain a
provision which states that if as a result of the accelerated vesting described above, the employee
is considered to have received parachute payments (as defined by Section 280G of the Code) that
exceed the
amount that such Person is entitled to receive without paying an excise tax, then the unvested
options will not become vested.
(b) Acuity shall use its reasonable best efforts, prior to the effective time of the Acuity
Merger, to enter into an agreement with each other Person who is a holder of one or more unvested
options to purchase Acuity capital stock that would become vested in full as a result of the Acuity
Merger, to cause such acceleration provision to be waived in connection with the Acuity Merger.
7.20
No Additional Representations or Warranties
. Each of Parent, Merger Sub I,
Merger Sub II, Acuity and Froptix acknowledge that the others have not made any representation,
warranty or covenant, express or implied, as to the accuracy or completeness of any information
regarding any of them, except as expressly set forth in this Agreement or the Schedule of
Exceptions. SUBJECT TO ANY RIGHTS ANY PARTY MAY HAVE UNDER LAW OR EQUITY WITH RESPECT TO FRAUD OR
WILLFUL CONCEALMENT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS
AGREEMENT, NO PARTY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW, IN EQUITY, OR
OTHERWISE, IN RESPECT OF PARENT, MERGER SUB I, MERGER SUB II, ACUITY, OR FROPTIX, AS APPLICABLE, OR
ANY OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED REPRESENTATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR
A PARTICULAR PURPOSE, AND EACH SUCH PARTY EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY.
ARTICLE VIII
REGISTRATION RIGHTS
8.1
Piggyback Registration
.
(a) Beginning on the first anniversary of the date of this Agreement, Parent will notify all
Holders of Registrable Securities in writing at least 10 days prior to the filing of any
registration statement under the Securities Act for purposes of a public offering of Parent Common
Stock by Parent (including, but not limited to, registration statements relating to secondary
offerings of Parent Common Stock, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or other transactions under SEC Rule
145) and will afford each such Holder an opportunity to include in such registration statement up
to 50% of such Registrable Securities held by such Holder, subject to Section 8.1(b). Each Holder
desiring to include in any such registration statement part of the Registrable Securities held by
it will, within 5 days after the above-described notice from Parent (the
Holder Notice Period
),
so notify Parent in writing. Such notice will state the intended method of disposition of the
Registrable Securities by such Holder as well as the number of Registrable Securities proposed by
such Holder to be included in such registration statement.
(b) If the registration statement under which Parent gives notice under this Section 8.1 is
for an underwritten offering, Parent will so advise the Holders of Registrable Securities as a part
of such notice. In such event, the right of any Holder to be included in a registration pursuant
to this Section 8.1 will be conditioned upon such Holders participation in such underwriting and
the inclusion of such Holders Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through such underwriting
will enter into an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by Parent. Notwithstanding any other provision of this Section 8.1,
if the underwriter determines that marketing factors require a limitation of the number of shares
to be underwritten, the number of shares that may be included in the underwriting will be
allocated: first, to Parent and second, to the registration of the Registrable Securities allocated
among the Holders of such Registrable Securities on a pro rata basis based on the number of such
Registrable Securities held by all such Holders.
(c) Parent will have the right to terminate or withdraw any registration initiated by it under
this Section 8.1 prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
8.2
Registration Expenses
. Parent shall pay all fees and expenses incident to the
performance of or compliance with Article VIII, including without limitation (a) all registration
and filing fees and expenses, including without limitation those related to filings with the SEC,
the Eligible Market and in connection with applicable state securities or Blue Sky Laws, (b)
printing expenses (including without limitation expenses of printing certificates for Registrable
Securities), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel
for Parent, (e) fees and expenses of all other Persons retained by Parent in connection with a
registration statement and (f) all listing fees to be paid by Parent to the Eligible Market.
Holders shall pay all fees and disbursements of counsel retained for Holders in connection with a
registration statement as well as all underwriter discounts associated with any public offering
conducted on such Holders behalf.
8.3
Obligations of Parent
. Whenever required to effect the registration of any
Registrable Securities, Parent will, as soon as practicable:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such registration statement to become
effective and keep such registration statement effective for at least 180 days or, if earlier,
until (i) the participating Holder or Holders have completed the distribution related thereto or
(ii) the Registrable Securities are no longer required to be registered.
(b) Prepare and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
(c) In the event of any underwritten public offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing underwriter or
underwriters of such offering. Each Holder participating in such underwriting will also enter into
and perform its obligations under such an agreement.
(d) Promptly notify each Holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be delivered under the
Securities Act upon learning of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and, at the request of the Holders, Parent shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(e) Advise each Holder of Registrable Securities covered by such registration statement and,
if requested by any such Holder, confirm such advice in writing:
(i) when such registration statement, and any amendment thereto, has been filed with the SEC
and when the registration statement or any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to such registration statement or
the prospectus included therein or for additional information;
(iii) of the issuance by the SEC of any stop order suspending effectiveness of the
registration statement or the initiation of any proceedings for that purpose; and
(iv) of the receipt by Parent of any notification with respect to the suspension of the
qualification of the securities included in the registration statement for sale in any jurisdiction
or the initiation of any proceeding for such purpose.
8.4
Obligations of the Holders
. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by such Holder will
reasonably cooperate with Parent in connection with the preparation and filing of any registration
statement and each amendment thereof and, upon Parents reasonable request, will in a timely manner
furnish in writing to Parent accurate and complete information regarding the Holder, the
distribution of the Registrable Securities and other matters as may be required by applicable Law,
rule or regulation for inclusion in the registration statement and each amendment; the provision of
such information by such Holders to Parent shall be a condition precedent to Parents obligations
under Section 8.3 hereof.
8.5
Termination of Registration Rights
. All registration rights granted under this
Article VIII will terminate and be of no further force and effect as to any Holder on the earlier
of (a) five years from the date hereof and (b) at such time as all of the Registrable Securities
held by such Holder (together with its affiliates, partners and former partners) may be sold under
SEC Rule 144 during any 90-day period.
8.6
Dispositions.
Each Holder agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to a registration statement.
8.7
SEC Rule 144 Reporting
. With a view to making available to the Holders the
benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable
Securities to the public without registration, Parent will use its reasonable best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in
SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times
after the effective date of the first registration for an offering of its securities to the general
public.
(b) File with the SEC, in a timely manner, all reports and other documents required of Parent
under the Exchange Act;
(c) As long as a Holder owns any Registrable Securities, furnish to such Holder promptly upon
request: a written statement by Parent as to its compliance with the reporting requirements of SEC
Rule 144, the Securities Act, and the Exchange Act, a copy of the most recent annual or quarterly
report of Parent and such other reports and documents so filed by Parent; and such other reports
and documents as a Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
ARTICLE IX
CONDITIONS PRECEDENT TO THE CLOSING
9.1
Conditions Precedent to Each Partys Obligation to Effect the Mergers
. The
respective obligations of each party to effect the Mergers shall be subject to the fulfillment or
satisfaction, prior to or on the Closing Date, of the following conditions:
(a)
Governmental Authorities Approvals
. All Governmental Authorities approvals
required for the consummation of the Mergers, if any, shall have been obtained.
(b)
No Injunctions or Restraints
. No temporary restraining order, preliminary or
permanent injunction or other judgment issued by any court of competent jurisdiction or other legal
restraint or prohibition that has the effect of preventing the consummation of either the Froptix
Merger or the Acuity Merger shall be in effect.
9.2
Conditions Precedent to Obligations of Parent, Merger Sub I and Merger Sub II
.
Parents, Merger Sub Is and Merger Sub IIs obligation to effect the Mergers and consummate the
other transactions contemplated to occur in connection with the Closing is subject to the
satisfaction or waiver of each condition precedent listed below.
(a)
Representations and Warranties
. As of the Closing, each representation and
warranty set forth in Article IV and Article V shall be accurate and complete in all material
respects, except (i) to the extent that such representations and warranties are qualified by terms
such as material and Material Adverse Effect, in which case such representations and warranties
shall be true and correct in all respects at and as of the Closing Date, and (ii) to the extent
that such representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all material respects as of such
earlier date.
(b)
Fairness Opinion
. Parent shall have received an opinion from an independent
financial advisor or investment banking firm that the Mergers are fair to the shareholders of
Parent from a financial perspective.
(c)
Lockup Agreements
. Parent shall have received executed copies of the Froptix
Lockup Agreements and the Acuity Lockup Agreements.
(d)
Receipt of Option Acceleration Waivers
. Acuity shall have delivered to Parent
duly executed waivers from the Persons set forth on
Schedule 7.19
of the Schedule of
Exceptions who is a holder of one or more unvested options to purchase Acuity Shares that would
become vested, in part or in full, as a result of the Acuity Merger, to waive such acceleration of
vesting as contemplated by Section 7.19(a) of this Agreement.
(e)
Termination of Investor Rights Agreement
. Acuity shall have delivered evidence of
the termination of its Investor Rights Agreement, dated September 24, 2004, by and among Acuity and
the stockholders of Acuity named therein.
(f)
Receipt of Accredited Investor Information
.
(i) Acuity shall have delivered evidence to Parent that fewer than 35 Persons who hold Acuity
Shares, Acuity Options, Acuity Series B Preferred Warrants and Acuity Common Warrants are not
accredited investors as such terms is defined in Rule 501(a) of Regulation D as promulgated under
the Securities Act.
(ii) Each of the shareholders of Froptix and Acuity set forth on
Schedule 9.2(f)
of
the Schedule of Exceptions shall have delivered a letter to Parent substantially in the form of
Exhibit G.
(g)
Performance of Obligations of Acuity and Froptix
.
(i) Acuity shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(ii) Froptix shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(h)
Third-Party Consents
. Froptix shall have procured all of the third-party consents
set forth in the Schedule of Exceptions delivered by it and Acuity shall have procured all of the
third-party consents set forth in the Schedule of Exceptions delivered by it.
(i)
Acuity Officers Certificate
. Parent, Merger Sub I and Merger Sub II shall have
received a certificate of the president of Acuity certifying as to the matters set forth in Section
9.2(a) with respect to Acuity and (g)(i).
(j)
Froptix Officers Certificate
. Parent, Merger Sub I and Merger Sub II shall have
received a certificate of the president of Froptix certifying as to the matters set forth in
Section 9.2(a) with respect to Froptix and (g)(ii).
(k)
Acuity Secretarys Certificate
. The duly authorized Secretary of Acuity shall
have delivered to Parent certified copies of the Acuity Certificate, the Acuity By-laws and
resolutions adopted by its board of directors and shareholders of each class entitled to vote
authorizing the Acuity Merger and the transactions contemplated hereby.
(l)
Froptix Secretarys Certificate
. The duly authorized Secretary of Froptix shall
have delivered to Parent certified copies of the Froptix Certificate, the Froptix By-laws and
resolutions adopted by its board of directors and shareholders of each class entitled to vote
authorizing the Froptix Merger and the transactions contemplated hereby.
(m)
Other Documents
. Parent shall have received all of the documents, agreements and
instruments to be delivered to it in accordance with this Agreement and shall have been provided
with such other documents as it shall have reasonably requested from Acuity or Froptix.
9.3
Conditions Precedent to Obligation of Froptix
. Froptixs obligations to effect
the Froptix Merger and consummate the other transactions contemplated to occur in connection with
the Closing is subject to the satisfaction or waiver of each condition precedent listed below.
(a)
Representations and Warranties
. As of the Closing, each representation and
warranty set forth in Article IV and Article VI shall be accurate and complete in all material
respects, except (i) to the extent that such representations and warranties are qualified by terms
such as material and Material Adverse Effect, in which case such representations and warranties
shall be true and correct in all respects at and as of the Closing Date, and (ii) to the extent
that such representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all material respects as of such
earlier date.
(b)
Lockup Agreements
. Froptix shall have received executed copies of the Acuity
Lockup Agreements.
(c)
Third-Party Consents
. Acuity shall have procured all of the third-party consents
set forth in the Schedule of Exceptions delivered by it and Parent shall have procured all of the
third-party consents set forth in the Schedule of Exceptions delivered by it, Merger Sub I and
Merger Sub II.
(d)
Performance of Obligations of Acuity and Parent, Merger Sub I and Merger Sub II
.
(i) Acuity shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(ii) Parent shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(iii) Merger Sub I shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(iv) Merger Sub II shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(e)
Acuity Officers Certificate
. Froptix shall have received a certificate of the
president of Acuity certifying as to the matters set forth in Section 9.3(a) with respect to Acuity
and (d)(i).
(f)
Parent, Merger Sub I and Merger Sub II Officers Certificate
. Froptix shall have
received a certificate of the interim chief executive officer of Parent certifying as to the
matters set forth in Section 9.3(a) with respect to Parent, Merger Sub I and Merger Sub II, and
(d)(ii), (iii) and (iv).
(g)
Acuity Secretarys Certificate
. The duly authorized Secretary of Acuity shall
have delivered to Froptix certified copies of the Acuity Certificate, the Acuity By-laws and
resolutions adopted by its board of directors and shareholders of each class entitled to vote
authorizing the Acuity Merger and the transactions contemplated hereby.
(h)
Parent Secretarys Certificate
. The duly authorized Secretary of Parent shall
have delivered to Froptix certified copies of the Parent Certificate, the Parent By-laws, the
Merger Sub I Certificate, the Merger Sub I LLC Agreement, the Merger Sub II Certificate and the
Merger Sub II LLC Agreement and resolutions adopted by Parents board of directors on behalf of
parent and as the sole member of each of Merger Sub I and Merger Sub II authorizing the Mergers and
the transactions contemplated hereby.
(i)
Other Documents
. Froptix shall have received all of the documents, agreements and
instruments to be delivered to it in accordance with this Agreement and shall have been provided
with such other documents as it shall have reasonably requested from Acuity or Froptix.
(j)
Series C Certificate of Designation
. Parent shall have filed with the Secretary
of State of the State of Delaware the Series C Certificate of Designation.
(k)
Parent Available Cash
. Parent shall have at least sixteen million dollars
($16,000,000) in cash and cash equivalents (after deduction of all known liabilities) and no
material debt or other material obligations, contingent or otherwise, which would be required to be
reflected in the financial statements of Parent in accordance with GAAP.
9.4
Conditions Precedent to Obligation of Acuity
. Acuitys obligations to effect the
Acuity Merger and consummate the other transactions contemplated to occur in connection with the
Closing is subject to the satisfaction or waiver of each condition precedent listed below.
(a)
Representations and Warranties
. As of the Closing, each representation and
warranty set forth in Article V and Article VI shall be accurate and complete in all material
respects, except (i) to the extent that such representations and warranties are qualified by terms
such as material and Material Adverse Effect, in which case such representations and warranties
shall be true and correct in all respects at and as of the Closing Date, and (ii) to the extent
that such representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all material respects as of such
earlier date.
(b)
Lockup Agreements
. Acuity shall have received executed copies of the Froptix
Lockup Agreements.
(c)
Third-Party Consents
. Froptix shall have procured all of the third-party consents
set forth in the Schedule of Exceptions delivered by it and Parent shall have procured all of the
third-party consents set forth in the Schedule of Exceptions delivered by it, Merger Sub I and
Merger Sub II.
(d)
Performance of Obligations of Froptix, Parent, Merger Sub I and Merger Sub II
.
(i) Froptix shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(ii) Parent shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(iii) Merger Sub I shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(iv) Merger Sub II shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(e)
Froptix Officers Certificate
. Acuity shall have received a certificate of the
president of Froptix certifying as to the matters set forth in Section 9.4(a) with respect to
Froptix and (d)(i).
(f)
Parent, Merger Sub I and Merger Sub II Officers Certificate
. Acuity shall have
received a certificate of the interim chief executive officer of Parent certifying as to the
matters set forth in Section 9.4(a) with respect to Parent, Merger Sub I and Merger Sub II and
(d)(ii), (iii) and (iv).
(g)
Froptix Secretarys Certificate
. The duly authorized Secretary of Froptix shall
have delivered to Acuitys certified copies of the Froptix Certificate, the Froptix By-laws and
resolutions adopted by its board of directors and shareholders of each class entitled to vote
authorizing the Froptix Merger and the transactions contemplated hereby.
(h)
Parent Secretarys Certificate
. The duly authorized Secretary of Parent shall
have delivered to Acuity certified copies of the Parent Certificate, the Parent By-laws, the Merger
Sub I Certificate, the Merger Sub I LLC Agreement, the Merger Sub II Certificate and the Merger Sub
II LLC Agreement and resolutions adopted by Parents board of directors on behalf of parent and as
the sole member of each of Merger Sub I and Merger Sub II authorizing the Mergers and the
transactions contemplated hereby.
(i)
Other Documents
. Acuity shall have received all of the documents, agreements and
instruments to be delivered to it in accordance with this Agreement and shall have been provided
with such other documents as it shall have reasonably requested from Parent or Froptix.
(j)
Series C Certificate of Designation
. Parent shall have filed with the Secretary
of State of the State of Delaware the Series C Certificate of Designation.
(k)
Parent Available Cash
. Parent shall have at least sixteen million dollars
($16,000,000) in cash and cash equivalents (after deduction of all known liabilities) and no
material debt or other material obligations, contingent or otherwise, which would be required to be
reflected in the financial statements of Parent in accordance with GAAP.
ARTICLE X
TERMINATION
10.1
Termination
. This Agreement may be terminated at any time prior to the Froptix
Merger Effective Time, whether before or after the requisite approvals of the shareholders of the
Company:
(a) By mutual written consent of Parent, Froptix and Acuity.
(b) By Parent at any time prior to the Froptix Merger Effective Time in the event Froptix or
Acuity has breached any material representation, warranty, or covenant made by it in this Agreement
in any material respect, Parent has notified such party in writing of the breach, and the breach
has continued without cure (i) for a period of 30 days after such notice of breach, or (ii) at the
End Date, whichever shall be the earliest.
(c) By Froptix at any time prior to the Froptix Merger Effective Time in the event Parent,
Merger Sub I, Merger Sub II or Acuity has breached any material representation, warranty, or
covenant made by it in this Agreement in any material respect, Froptix has notified such party in
writing of the breach, and the breach has continued without cure (i) for a period of 30 days after
such notice of breach, or (ii) at the End Date, whichever shall be the earliest.
(d) By Acuity at any time prior to the Froptix Merger Effective Time in the event Parent,
Merger Sub I, Merger Sub II or Froptix has breached any material representation, warranty, or
covenant made by it in this Agreement in any material respect, Acuity has notified such party in
writing of the breach, and the breach has continued without cure (i) for a period of 30 days after
such notice of breach, or (ii) at the End Date, whichever shall be the earliest.
(e) By either Froptix, Acuity or Parent if the Froptix Merger Effective Time and the Acuity
Merger Effective Time shall not have occurred on or before the End Date; provided that the party
seeking to terminate this Agreement pursuant to this Section 10.1(e) shall not have breached in any
material respect its obligations under this Agreement in any manner that shall have proximately
caused the failure to consummate the Mergers on or before the End Date.
(f) By either Froptix, Acuity or Parent if any restraining order, injunction, legal restraint,
prohibition or other judgment has been issued by any court of competent jurisdiction that has the
effect of preventing the consummation of either the Froptix Merger or the Acuity Merger and such
restraint, injunction or prohibition has become final and nonappealable; provided that the party
seeking to terminate this Agreement pursuant to this Section 10.1(f) shall not have breached in any
material respect its obligations under this Agreement in any manner that shall have proximately
caused the restraining order, injunction, legal restraint, prohibition or other judgment to
have been issued by any court of competent jurisdiction.
10.2
Liability
. In the event of termination of this Agreement pursuant to this
Article X, this Agreement shall terminate and there shall be no other liability on the part of
Froptix, Acuity or Parent to any other party except (a) liability arising out of a any breach of
this Agreement, in which case the aggrieved party shall be entitled to all rights and remedies
available at Law or in equity, subject to Article XI, and (b) the provisions of the Confidentiality
Agreement, Section 7.1, this Section 10.2, and Articles XI and XII, which provisions shall survive
such termination.
ARTICLE XI
INDEMNIFICATION
11.1
Survival
. The representations and warranties of Parent, Merger Sub I, Merger Sub
II, Acuity and Froptix contained in or made pursuant to this Agreement will survive the execution
and delivery of this Agreement and the Closing, and for an additional 12 months immediately
subsequent to the Closing.
11.2
Indemnification
.
(a) Parent hereby agrees to indemnify and hold harmless Acuity and Froptix and, as applicable,
their respective officers, directors, stockholders, agents and representatives from and against any
and all claims, demands, losses, damages, expenses or liabilities (including reasonable attorneys
fees) due to or arising out of a material breach of any representation, warranty or covenant
provided by Parent, Merger Sub I or Merger Sub II hereunder.
(b) Froptix hereby agrees to indemnify and hold harmless Parent and, as applicable, its
officers, managers, directors, stockholders, members, agents and representatives from and against
any and all claims, demands, losses, damages, expenses or liabilities (including reasonable
attorneys fees) due to or arising out of (i) a material breach of any representation, warranty or
covenant provided by Froptix hereunder and (ii) pursuant to Section 7.8 of the Master Agreement;
provided, however
, that no indemnification shall be applicable to any losses with respect to taxes
incurred by virtue of the Mergers unless such loss was caused by a breach of Section 7.2.
(c) Acuity hereby agrees to indemnify and hold harmless Parent and, as applicable, its
officers, managers, directors, stockholders, members, agents and representatives from and against
any and all claims, demands, losses, damages, expenses or liabilities (including reasonable
attorneys fees) due to or arising out of (i) a material breach of any representation, warranty or
covenant provided by Acuity hereunder and (ii) pursuant to Section 7.8 of the Master Agreement;
provided, however
, that no indemnification shall be applicable to any losses with respect to taxes
incurred by virtue of the Mergers unless such loss was caused by a breach of Section 7.2.
11.3
Holdback
. As security for the parties respective indemnification obligations
hereunder, Parent shall hold back eleven and one-half percent (11.5%) of each of the shares of
Parent Common Stock, shares of Parent Series C Preferred Stock and Parent Warrants issued in
connection with the Acuity Merger (the
Acuity Escrowed
Securities
) and in connection with the
Froptix Merger (the
Froptix Escrowed Securities,
and together with the Acuity Escrowed
Securities, the
Escrowed Securities
) pursuant to the terms of Article III hereof and this Article
XI. The Escrowed Securities shall be released in accordance with the terms thereof on the date
that is 364 days after the Closing Date, except with respect to a number of such Acuity Escrowed
Securities and/or Froptix Escrowed Securities, as applicable, reasonably determined to be necessary
to satisfy any claim made pursuant to this Article XI in writing prior to such release date, which
securities shall be held pursuant to the terms hereof until such claim is fully and finally
resolved. Parent shall offset losses for which Acuity is obligated to provide indemnification
hereunder against the Acuity Escrowed Securities on a pro rata basis based on the number of such
securities (calculated on a fully diluted basis) issued to each holder thereof and held in such
escrow, and the aggregate number of Acuity Escrowed Securities subject to such offset shall be
determined by dividing the amount of such indemnifiable losses, as fully and finally determined to
be due, by the average closing price per share of Parent Common Stock on the OTCBB or Eligible
Market, as applicable, for the ten-day period ending on the day prior to such offset. Parent shall
offset losses for which Froptix is obligated to provide indemnification hereunder against the
Froptix Escrowed Securities on a pro rata basis based on the number of such securities (calculated
on a fully diluted basis) issued to each Froptix Shareholder and held in such escrow, and the
aggregate number of Froptix Escrowed Securities subject to such offset shall be determined by
dividing the amount of such indemnifiable losses, as fully and finally determined to be due, by the
average closing price per share of Parent Common Stock on the OTCBB or Eligible Market, as
applicable, for the ten-day period ending on the day prior to such offset.
11.4
Sole Remedy; Limitation of Damages
. The indemnification set forth in this
Article XI shall be the sole remedy of the parties with respect to breaches of representations and
warranties hereunder. In no event shall any party be entitled to punitive, exemplary, special,
incidental or consequential damages or the like for any breach of any term hereunder.
11.5
Right to Indemnification Not Affected by Knowledge or Waiver
. The right to
indemnification, payment of losses or other remedy based upon breach of representations,
warranties, or covenants, or pursuant to Section 7.8 of the Master Agreement, will not be affected
by any investigation conducted with respect to, or knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such
representation, warranty, or covenant.
ARTICLE XII
MISCELLANEOUS
12.1
Successors and Assigns
. This Agreement is binding upon and inures to the benefit
of the parties and their successors and assigns. None of the parties to this Agreement may assign
or otherwise transfer this Agreement or any rights or obligations hereunder without the prior
written consent of the other parties.
12.2
Counterparts
. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, and all of which together shall constitute one and the same
agreement.
12.3
Facsimile
. A facsimile copy of an original written signature shall be deemed to
have the same effect as an original written signature.
12.4
Captions and Headings
. The captions and headings used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.
12.5
Notices
. Unless otherwise provided herein, all notices, requests, waivers and
other communications made pursuant to this Agreement will be in writing and will be conclusively
deemed to have been duly given (i) when hand delivered to the other party; (ii) upon receipt, when
sent by facsimile to the number set forth below or email to the address set forth below; or (iii)
the next business day after deposit with a national overnight delivery service, postage prepaid,
addressed to the parties as set forth below with next business day delivery guaranteed. Each
person making a communication hereunder by facsimile or email will promptly confirm by telephone to
the person to whom such communication was addressed each communication made by it by facsimile or
email pursuant hereto. A party may change or supplement the addresses given below, or designate
additional addresses for purposes of this Section 12.5, by giving the other party written notice of
the new address in the manner set forth above.
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If to eXegenics:
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eXegenics Inc.
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1250 Pittsford-Victor Road
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Building 200, Suite 280
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Pittsford, New York 14534
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Attention: John Paganelli
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Phone: 239-561-8966
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Facsimile: 239-561-8766
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with a copy to:
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Harris Beach PLLC
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99 Garnsey Road
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Pittsford, NY 14534
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Attention: Thomas E. Willett
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Phone: 585-419-8646
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Facsimile: 585-419-8801
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If to Acuity:
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Acuity Pharmaceuticals, Inc.
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Market Street
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Philadelphia, PA 19104
Attention: Chief Executive Officer
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Phone: 215-966-6180
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Facsimile: 215-966-6001
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with a copy to:
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Pepper Hamilton LLP
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Two Logan Square
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Philadelphia, PA 19103
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Attention: Ilan Katz, Esq.
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Phone: 215-981-4321
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Facsimile: 215-981-4750
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If to Froptix:
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Froptix Corporation
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Biscayne Blvd., 15th Floor
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Miami, FL 33137
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Attention: Steven D. Rubin, Esq.
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Phone: 305-575-6015
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Facsimile: 305-575-6444
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with a copy to:
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Akerman Senterfitt
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One Southeast Third Avenue, 27th Floor
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Miami, FL 33131
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Attention: Teddy D. Klinghoffer, Esq.
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Phone: 305-374-5600
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Facsimile: 305-374-5095
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12.6
Amendments and Waivers
. Any term of this Agreement may be amended, only with the
written consent of Acuity, Parent and Froptix;
provided
,
however
, (i) that if such amendment is
effected after this agreement has been approved by the stockholders of Acuity, the affirmative vote
of the holders of least a majority of the outstanding Acuity Shares entitled to vote to approve
this Agreement and the holders of at least 60% of the
outstanding shares of Acuity Series B Preferred Stock shall be required to amend any term of
this Agreement, and (ii) that if such amendment is effected after this agreement has been approved
by the stockholders of Froptix, the affirmative vote of the holders of least a majority of the
outstanding Froptix Shares entitled to approve this Agreement shall be required to amend any term
of this Agreement. The observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) at any time by the Party or
Parties hereto entitled to the benefit thereof.
12.7
Enforceability; Severability
. The parties hereto agree that each provision of
this Agreement will be interpreted in such a manner as to be effective and valid under applicable
Law. If one or more provisions of this Agreement are nevertheless held to be prohibited, invalid
or unenforceable under applicable Law, such provision will be effective to the fullest extent
possible excluding the terms affected by such prohibition, invalidity or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of this Agreement. If the
prohibition, invalidity or unenforceability referred to in the prior sentence requires such
provision to be excluded from this Agreement in its entirety, the balance of the Agreement will be
interpreted as if such provision were so excluded and will be enforceable in accordance with its
terms.
12.8
Governing Law
. This Agreement shall be construed in accordance with, and
governed in all respects by, the Laws of the State of Florida.
12.9
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLE WAIVES ITS
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE
PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. EACH OF THE
PARTIES HERETO HEREBY FURTHER ACKNOWLEDGES AND AGREES THAT EACH HAS REVIEWED OR HAD THE OPPORTUNITY
TO REVIEW THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12.10
No Third Party Beneficiaries
. This Agreement is made and entered into for the
sole protection and benefit of the parties hereto, their successors, assigns and heirs, and no
other Person shall have any right or action under this Agreement.
12.11
Entire Agreement
. This Agreement, the Confidentiality Agreement, the Master
Agreement (as amended and restated in the Credit Agreement dated as of the date hereof between
Parent, Acuity and the Frost Group, LLC), attached hereto as
Exhibit H
, and all exhibits
hereto and thereto constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and no party will be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth herein or therein.
12.12
Delays or Omissions
. No delay or omission to exercise any right power or remedy
accruing to any party under this Agreement, or upon any breach or default of any other party under
this Agreement, will impair any such right, power or remedy of such non-breaching or non-defaulting
party nor will it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor will any waiver of any
single breach or default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part
of any party of any provisions or conditions of this Agreement, must be in writing and will be
effective only to the extent specifically set forth in such writing. Except as otherwise set forth
herein, all remedies, either under this Agreement or by Law or otherwise afforded to any party,
will be cumulative and not alternative.
12.13
No Strict Construction
. The language used in this Agreement is deemed to be the
language chosen by the parties to express their mutual intent, and no rules of strict construction
will be applied against any party.
12.14
Expenses
. If the Mergers are not consummated, each party shall bear and pay all
of the legal, accounting and other costs and expenses incurred by it in connection with the
transactions contemplated by this Agreement.
12.15
Exhibits and Schedule of Exceptions
. All exhibits, annexes and schedules,
including the Schedule of Exceptions, annexed hereto or referred to herein are hereby incorporated
in and made a part of this Agreement as if set forth in full herein. A disclosure in any
particular Schedule of the Schedule of Exceptions, or the SEC Reports by Parent, or otherwise in
this Agreement will be deemed adequate to disclose another exception to a representation or
warranty made herein if the disclosure identifies the exception with reasonable particularity so
that any exception to any other Schedule is reasonably apparent.
[Signatures begin on next page.]
IN WITNESS THEREOF, this Agreement has been executed by the undersigned as of the day, month
and year first above written.
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eXegenics Inc.
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By:
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/s/ John A. Paganelli
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Name:
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John A. Paganelli
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Title:
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Interim Chief Executive Officer
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Acuity Pharmaceuticals, Inc.
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By:
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/s/ John A. Paganelli
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Name:
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Dale R. Pfost
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Title:
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President & Chief Executive Officer
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Froptix Corporation
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By:
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/s/ Steven D. Rubin
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Name:
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Steven D. Rubin
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Title:
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Vice President
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e-Acquisition Company I-A, LLC
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By:
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/s/ Dale R. Pfost
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Name:
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Dale R. Pfost
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Title:
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President
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e-Acquisition Company II-B, LLC
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By:
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/s/ Dale R. Pfost
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Name:
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Dale R. Pfost
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Title:
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President
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EXHIBIT 10.3
AMENDED AND RESTATED VENTURE LOAN AND SECURITY AGREEMENT
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Executed as of March ___, 2007
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Effective as of September 14, 2005
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by and among
HORIZON TECHNOLOGY FUNDING COMPANY LLC,
a Delaware limited liability company
76 Batterson Park Road
Farmington, CT 06032
as Lender
and
ACUITY PHARMACEUTICALS, LLC f/k/a e-Acquisition Company II-B, LLC,
a Delaware limited liability company, successor by merger to Acuity Pharmaceuticals, Inc.
3701 Market Street
Philadelphia, PA 19104
And
EXEGENICS, INC.,
a Delaware corporation
1250 Pittsford-Victor Road
Pittsford, NY 14534
collectively, as Borrower
COMMITMENT AMOUNT: $4,000,000
Commitment Termination Date: September 15, 2005
WHEREAS, the Lender and Acuity Corp originally entered into a certain Venture Loan and
Security Agreement dated as of September 14, 2005 (the Original Loan Agreement), pursuant to
which the Lender made a loan to Acuity Corp (the Original Loan) in the original principal amount
of Four Million Dollars ($4,000,000) as evidenced by a certain Secured Promissory Note dared
September 14, 2005 executed by Acuity Corp in favor of Lender (the Original Note);
WHEREAS, in connection with the making of the Loan, Acuity Corp granted each of Horizon
Technology Funding Company II LLC and Horizon Technology Funding Company III LLC a warrant to
purchase certain preferred stock of Acuity Corp (collectively, the Original Warrants), which
Original Warrants, by virtue of the Merger (as hereafter defined), will constitute warrants of
eXegenics;
WHEREAS, pursuant to a certain Merger Agreement and Plan of Reorganization dated on or about
the Execution Date hereof (the Merger Agreement) by and among Acuity Corp, Froptix Corporation,
eXegenics, e-Acquisition Company I-A, LLC, and e-Acquisition Company II-B, LLC, Acuity Corp shall
be merged with and into e-Acquisition Company II-B, LLC, with e-Acquisition Company II-B, LLC
surviving the merger and changing its name to Acuity Pharmaceuticals, LLC (Acuity) and pursuant
to which the capital stock of Acuity Corp shall be converted into the right to receive capital
stock of eXegenics (the Merger);
WHEREAS, pursuant to the Merger Agreement and by operation of law, all of the debts,
liabilities, obligations, restrictions and duties of Acuity Corp shall become the debts,
liabilities, obligations, restrictions and duties of Acuity;
WHEREAS, Acuity has requested that the Lender consent to the Merger;
WHEREAS, Lender is willing to consent to the Merger, as evidenced by it execution of this
Agreement, provided that (a) Acuity Corp, Acuity and eXegenics execute this Agreement pursuant to
which, among other things, Acuity and eXegenics will assume the Obligations and grant a security
interest in all of their personal property (as set forth herein) to secure the Obligations, and (b)
Acuity and eXegenics execute a secured promissory note which will amend and restate the Original
Note;
NOW THEFORE, the Lender, Acuity and eXegenics hereby agree as follows:
AGREEMENT
1.
Definitions and Construction
.
1.1
Definitions
. As used in this Agreement, the following capitalized terms shall have
the following meanings:
Account Control Agreement
means an agreement acceptable to Lender which perfects via
control Lenders security interest in Borrowers deposit accounts and/or accounts holding
securities.
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Account Collateral
means accounts receivable due or to become due under all purchase
orders and contracts for the sale of products or the performance of services or both (and related
general intangibles in the nature of rights to payment) and the proceeds thereof.
Acuity
means Acuity Pharmaceuticals, LLC f/k/a e-Acquisition Company II-B, LLC, a
Delaware limited liability company which is a wholly owned subsidiary of eXegenics, successor by
merger to Acuity Corp.
Acuity Corp
means Acuity Pharmaceuticals, Inc, a Delaware corporation.
Affiliate
means any Person that owns or controls directly or indirectly ten percent
(10%) or more of the stock of another entity, any Person that controls or is controlled by or is
under common control with such Persons or any Affiliate of such Persons and each of such Persons
officers, directors, joint venturers or partners.
Agreement
means this certain Venture Loan and Security Agreement by and between
Borrower and Lender dated as of the date on the cover page hereto (as it may from time to time be
amended or supplemented in writing signed by the Borrower and Lender).
Borrower
means, collectively, Acuity and eXegenics.
Borrowers Home State
means Pennsylvania.
Business Day
means any day that is not a Saturday, Sunday, or other day on which
banking institutions are authorized or required to close in Connecticut or Borrowers Home State.
Claim
has the meaning given such term in
Section 10.3
of this Agreement
Code
means the Uniform Commercial Code as adopted and in effect in the State of
Connecticut, as amended from time to time;
provided
that
if by reason of mandatory
provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of
the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in
a jurisdiction other than Connecticut, the term Code shall also mean the Uniform Commercial Code
as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating
to such creation, perfection or effect of perfection or non-perfection.
Collateral
has the meaning given such term in
Section 4.1
of this Agreement.
Commitment Amount
has the meaning as set forth on the cover page of this Agreement.
Commitment Fee
has the meaning given such term in
Section 2.6(b)
of this
Agreement.
Commitment Termination Date
has the meaning set forth on the cover page of this
Agreement.
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Default
means any event which with the passing of time or the giving of notice or
both would become an Event of Default hereunder.
Default Rate
means the per annum rate of interest equal to five percent (5%) over
the Loan Rate, but such rate shall in no event be more than the highest rate permitted by
applicable law to be charged on commercial loans in a default situation.
Disclosure Schedule
means
Exhibit A
attached hereto.
Effective Date
means September 14, 2005.
Environmental Laws
means all foreign, federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all administrative orders,
directed duties, requests, licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental, health, safety and land use
matters, including the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal
Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the
Emergency Planning and Community Right-to-Know Act.
Equity Securities
of any Person means (a) all common stock, preferred stock,
participations, shares, partnership interests, membership interests or other equity interests in
and of such Person (regardless of how designated and whether or not voting or non-voting) and (b)
all warrants, options and other rights to acquire any of the foregoing.
ERISA
has the meaning given to such term in
Section 7.12
of this Agreement.
Event of Default
has the meaning given to such term in
Section 8
of this
Agreement.
Execution Date
means the date on which this Agreement is executed, as set forth on
the cover page of this Agreement.
eXegenics
means eXegenics, Inc., a Delaware corporation.
Funding Certificate
means a certificate executed by a Responsible Officer of
Borrower substantially in the form of
Exhibit B
or such other form as Lender may agree to
accept.
Funding Date
means the date on which the Loan is made to or on account of Borrower
under this Agreement.
GAAP
means generally accepted accounting principles as in effect in the United
States of America from time to time, consistently applied.
Good Faith Deposit
has the meaning given such term in
Section 2.6(a
) of this
Agreement.
Governmental Authority
means (a) any federal, state, county, municipal or foreign
government, or political subdivision thereof, (b) any governmental or quasi-governmental
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agency, authority, board, bureau, commission, department, instrumentality or public body, (c)
any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal
or other non-governmental authority to whose jurisdiction that Person has consented.
Hazardous Materials
means all those substances which are regulated by, or which may
form the basis of liability under, any Environmental Law, including all substances identified under
any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special
waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
Indebtedness
means, with respect to Borrower, the aggregate amount of, without
duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person to pay the deferred purchase price of property or services (excluding trade payables
aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person,
(e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether
or not such obligation or liability is assumed, (f) all obligations or liabilities of others
guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP
to be shown as debt on the balance sheet of such Person. Unless otherwise indicated, the term
Indebtedness
shall include all Indebtedness of Borrower.
Indemnified Person
has the meaning given such term in
Section 10.3
of this
Agreement.
Intellectual Property
means all of Borrowers right, title and interest in and to
patents, patent rights (and applications and registrations therefor), trademarks and service marks
(and applications and registrations therefor), inventions, copyrights, mask works (and applications
and registrations therefor), trade names, trade styles, software and computer programs, source
code, object code, trade secrets, methods, processes, know how, drawings, specifications,
descriptions, and all memoranda, notes, and records with respect to any research and development,
all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or
intangible form or contained on magnetic media readable by machine together with all such magnetic
media (but not including embedded computer programs and supporting information included within the
definition of goods under the Code).
Investment
means the purchase or acquisition of any capital stock, equity interest,
or any obligations or other securities of, or any interest in, any Person, or the extension of any
advance, loan, extension of credit or capital contribution to, or any other investment in, or
deposit with, any Person.
Landlord Agreement
means an agreement substantially in the form provided by Lender
to Borrower or such other form as Lender may agree to accept.
Lender
means the Lender as set forth on the cover page of this Agreement.
Lenders Expenses
means all reasonable costs or expenses (including reasonable
attorneys fees and expenses) incurred in connection with the preparation, negotiation,
documentation, administration and funding of the Loan Documents; and Lenders reasonable
4
attorneys fees, costs and expenses incurred in amending, modifying, enforcing or defending
the Loan Documents (including fees and expenses of appeal or review), including the exercise of any
rights or remedies afforded hereunder or under applicable law, whether or not suit is brought,
whether before or after bankruptcy or insolvency, including without limitation all fees and costs
incurred by Lender in connection with Lenders enforcement of its rights in a bankruptcy or
insolvency proceeding filed by or against Borrower or its Property.
Lien
means any voluntary or involuntary security interest, pledge, bailment, lease,
mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien
with respect to any Property in favor of any Person.
Loan
means the advance of credit by Lender to Borrower under this Agreement.
Loan Documents
means, collectively, this Agreement, the Note, any Landlord
Agreement, any Account Control Agreement and all other documents, instruments and agreements
entered into in connection with this Agreement, all as amended or extended from time to time.
Loan Rate
means, with respect to the Loan, the per annum rate of interest (based on
a year of twelve 30-day months) equal to the greater of (a) 11.50% or (b) 11.50%
plus
the
difference between (i) the one month LIBOR Rate, as reported in the
Wall Street Journal
, on
the date which is five (5) days before the Funding Date for the Loan (or, if such date is not a
Business Day, the next earlier Business Day) and (ii) 3.00%. Notwithstanding the foregoing, the
Loan Rate shall not exceed the highest rate permitted by applicable law
Maturity Date
means July 1, 2008, or if earlier, the date of acceleration of the
Loan following an Event of Default or the date of prepayment, whichever is applicable.
Note
means the amended and restated promissory note executed in connection with the
Loan in substantially the form of
Exhibit C
attached hereto.
Obligations
means all debt, principal, interest, fees, charges, expenses and
reasonable attorneys fees and costs and other amounts, obligations, covenants, and duties owing by
Borrower to Lender of any kind and description (whether pursuant to or evidenced by the Loan
Documents, or by any other agreement between Lender and Borrower, and whether or not for the
payment of money), whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including all Lenders Expenses.
Officers Certificate
means a certificate executed by a Responsible Officer
substantially in the form of
Exhibit E
or such other form as Lender may agree to accept.
Payment Date
has the meaning given such term in
Section 2.2(a)
of this
Agreement.
Permitted Indebtedness
means and includes:
(a) Indebtedness of Borrower to Lender;
5
(b) Indebtedness arising from the endorsement of instruments in the ordinary course of
business;
(c) Indebtedness existing on the date hereof and set forth on the Disclosure Schedule;
(d) Indebtedness of Borrower in an aggregate original principal amount not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) which is secured by Liens permitted under clause (e) of
the definition of Permitted Liens;
(e) Other Indebtedness in an aggregate original principal amount not to exceed Five Hundred
Thousand Dollars ($500,000);
(f) The Junior Obligations (as defined in the Subordination Agreement); and
(g) Extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower.
Permitted Liens
means and includes:
(a) the Lien created by this Agreement;
(b) Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind
which are not yet delinquent or which are being contested in good faith by appropriate proceedings
which suspend the collection thereof (
provided
that
such appropriate proceedings do
not involve any substantial danger of the sale, forfeiture or loss of any material item of
Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded
such Lien or reserves sufficient to discharge such Lien have been provided on the books of
Borrower);
(c) Liens identified on the Disclosure Schedule;
(d) carriers, warehousemens, mechanics, materialmens, repairmens or other similar Liens
arising in the ordinary course of business and which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate proceedings (
provided
that
such appropriate proceedings do not involve any substantial danger of the sale,
forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is
material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to
discharge such Lien have been provided on the books of Borrower);
(e) Liens upon any equipment or other personal property acquired by Borrower after the
Effective Date to secure (i) the purchase price of such equipment or other personal property, or
(ii) lease obligations or indebtedness incurred solely for the purpose of financing the acquisition
of such equipment or other personal property; provided that such Liens
6
are confined solely to the equipment or other personal property so acquired and the proceeds
thereof and the amount secured does not exceed the acquisition price thereof;
(f) licenses of Intellectual Property entered into in the ordinary course of business (whether
as licensor or licensee);
(g) bankers liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business and Liens in favor of financial institutions arising in connection with
Borrowers deposit accounts or securities accounts held at such institutions to secure customary
fees and charges;
(h) any judgment, attachment or similar Lien not resulting in an Event of Default hereunder;
(i) Liens securing the Junior Obligations (as defined in the Subordination Agreement); and
(j) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described above but any extension, renewal or replacement Lien must be limited to the
property encumbered by the existing Lien and the principal amount of the indebtedness may not
increase.
Person
means and includes any individual, any partnership, any corporation, any
business trust, any joint stock company, any limited liability company, any unincorporated
association or any other entity and any domestic or foreign national, state or local government,
any political subdivision thereof, and any department, agency, authority or bureau of any of the
foregoing.
Property
means any interest in any kind of property or asset, whether real, personal
or mixed, whether tangible or intangible.
Responsible Officer
has the meaning given such term in
Section 6.3
of this
Agreement.
Scheduled Payments
has the meaning given such term in
Section 2.2(a)
of this
Agreement.
Solvent
has the meaning given such term in
Section 5.11
of this Agreement.
Subordination Agreement
means the Amended and Restated Subordination Agreement,
dated on or about the Execution Date, among Borrower, Lender and The Frost Group, LLC.
Subsidiary
means any corporation or other entity of which a majority of the
outstanding Equity Securities entitled to vote for the election of directors or other governing
body (otherwise than as the result of a default) is owned by Borrower directly or indirectly
through Subsidiaries.
Transfer
has the meaning given such term in
Section 7.4
of this Agreement.
7
1.2
Construction
. References in this Agreement to Articles, Sections, Exhibits,
Schedules and Annexes are to recitals, articles, sections, exhibits, schedules and annexes
herein and hereto unless otherwise indicated. References in this Agreement and each of the other
Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules,
annexes and other attachments thereto, (b) all documents, instruments or agreements issued or
executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or
predecessor thereto, as amended, modified and supplemented from time to time and in effect at any
given time. The words hereof, herein and hereunder and words of similar import when used in
this Agreement or any other Loan Document shall refer to this Agreement or such other Loan
Document, as the case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. The words include and including and words of
similar import when used in this Agreement or any other Loan Document shall not be construed to be
limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document,
all accounting terms used in this Agreement or any other Loan Document shall be construed, and all
accounting and financial computations hereunder or thereunder shall be computed, in accordance with
GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms
and information set forth on the cover page of this Agreement are incorporated into this Agreement.
2.
Loan; Repayment
.
2.1
Commitment
.
(a)
The Commitment Amount
. Subject to the terms and conditions of this Agreement and
relying upon the representations and warranties herein set forth as and when made or deemed to be
made, Lender agrees to lend to Borrower on or before Commitment Termination Date, the Loan in the
amount of Commitment Amount.
(b)
The Loan and the Note
. The obligation of Borrower to repay the unpaid principal
amount of and interest on the Loan shall be evidenced by the Note issued to Lender.
(c)
Use of Proceeds
. The proceeds of the Loan shall be used solely for working
capital or general corporate purposes of Borrower.
(d)
Termination of Commitment to Lend
. Notwithstanding anything in the Loan
Documents, Lenders obligation to lend the undisbursed portion of the Commitment Amount to Borrower
hereunder shall terminate on the earlier of (i) at Lenders sole election, the occurrence of any
Default or Event of Default hereunder, and (ii) the Commitment Termination Date. Notwithstanding
the foregoing, Lenders obligation to lend the undisbursed portion of the Commitment Amount to
Borrower shall terminate if, in Lenders sole judgment, there has been a material adverse change in
the general affairs, management, results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from transactions in the ordinary course of business,
or there has been any material adverse deviation by Borrower from the business plan of Borrower
presented to Lender on or before the date of this Agreement.
8
2.2
Payments
.
(a)
Scheduled Payments
. Borrower shall make payments of accrued interest only on the
outstanding principal amount of the Loan through and including July 1, 2007 and commencing August
1, 2007, twelve (12) level payments of principal plus accrued interest on the outstanding principal
amount of the Loan on each subsequent Payment Date as set forth in the Note (collectively, the
Scheduled Payments
). Borrower shall make such Scheduled Payments commencing on the date
set forth in the Note and continuing thereafter on the first Business Day of each calendar month
(each a
Payment Date
) through the Maturity Date. In any event, all unpaid principal and
accrued interest shall be due and payable in full on the Maturity Date.
(b)
Interim Payment
. Unless the Funding Date for the Loan is the first day of a
calendar month, Borrower shall pay the per diem interest (accruing at the Loan Rate from the
Funding Date through the last day of that month) payable with respect to the Loan on the first
Business Day of the next calendar month.
(c)
Payment of Interest
. Borrower shall pay interest on the Loan at a per annum rate
of interest equal to the Loan Rate. All computations of interest (including interest at the
Default Rate, if applicable) shall be based on a year of twelve 30-day months. Notwithstanding any
other provision hereof, the amount of interest payable hereunder shall not in any event exceed the
maximum amount permitted by the law applicable to interest charged on commercial loans.
(d)
Application of Payments
. All payments received by Lender prior to an Event of
Default shall be applied as follows: (1) first, to Lenders Expenses then due and owing; and (2)
second to all Scheduled Payments then due and owing (
provided
,
however
, if such
payments are not sufficient to pay the whole amount then due, such payments shall be applied first
to unpaid interest at the Loan Rate, then to the remaining amount then due). After an Event of
Default, all payments and application of proceeds shall be made as set forth in
Section
9.7
.
(e)
Late Payment Fee
. Borrower shall pay to Lender a late payment fee equal to four
percent (4%) of any Scheduled Payment not paid when due, provided that such fee shall not be due if
(i) such late payment is the first such late payment made by Borrower and (ii) such payment is paid
within ten (10) days of when such payment is due.
(f)
Default Rate
. Borrower shall pay interest at a per annum rate equal to the
Default Rate on any amounts required to be paid by Borrower under this Agreement or the other Loan
Documents (including Scheduled Payments), payable with respect to any Loan, accrued and unpaid
interest, and any fees or other amounts which remain unpaid after such amounts are due. If an
Event of Default has occurred and the Obligations have been accelerated (whether automatically or
by Lenders election), Borrower shall pay interest on the aggregate, outstanding accelerated
balance hereunder from the date of the Event of Default until all Events of Default are cured, at a
per annum rate equal to the Default Rate.
9
2.3
Prepayments
.
(a)
Mandatory Prepayment Upon Acceleration
. If the Loan is accelerated following the
occurrence of an Event of Default pursuant to Section 9.1(a) hereof, then Borrower, in addition to
any other amounts which may be due and owing hereunder, shall immediately pay to Lender the amount
set forth in Section 2.3(b) below, as if the Borrower had opted to prepay on the date of such
acceleration.
(b) Upon three (3) Business Days prior written notice to Lender, Borrower may, at its option,
prepay all, and not less than all, of the Loan in full by paying to Lender an amount equal to (i)
any accrued and unpaid interest on the outstanding principal balance of the Loan; (ii) an amount
equal to (A) if the Loan is prepaid within twenty-four (24) months from the Effective Date three
(3%) percent of the then outstanding principal balance of the Loan, or (B) if the Loan is prepaid
more than twenty-four (24) months after the Effective Date, one and one-half (1.5%) percent of the
then outstanding principal balance of the Loan; (iii) the outstanding principal balance of the
Loan; and (iv) all other sums, if any, that shall have become due and payable hereunder.
2.4
Other Payment Terms
.
(a)
Place and Manner
. Borrower shall make all payments due to Lender in lawful money
of the United States. All payments of principal, interest, fees and other amounts payable by
Borrower hereunder shall be made, in immediately available funds, not later than 10:00 a.m.
Connecticut time, on the date on which such payment is due. Borrower shall make such payments to
Lender via wire transfer as follows:
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Payment via wire transfer:
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Credit:
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Horizon Technology Funding Company LLC
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Bank Name:
Bank Address:
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ABN Amro/LaSalle Bank NA CDO Trust Services
135 South LaSalle Street, Suite 1625
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Chicago, Illinois 60603
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Attn: Greg Meyers, 312-904-0283
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Account No.:
FFCT-Reference Account Number
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2090067 Trust GL
721771.1
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ABA Routing No.:
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071000505
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Reference:
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Acuity Invoice #
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(b)
Date
. Whenever any payment is due hereunder on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day, and such extension of time shall be
included in the computation of interest or fees, as the case may be.
10
2.5
Procedure for Making Loan
.
(a)
Notice
. Whenever Borrower desires that Lender make the Loan, Borrower shall
notify Lender of the date on which Borrower desires Lender to make the Loan. Borrowers notice
shall be made at least five (5) Business Days in advance of the desired Funding Date, unless Lender
elects at its sole discretion to allow the Funding Date to be within five (5) Business Days of the
notice. Borrowers execution and delivery to Lender of the Note shall be Borrowers agreement to
the terms and calculations thereunder with respect to the Loan. Lenders obligation to make the
Loan shall be expressly subject to the satisfaction of the conditions set forth in
Sections 3.1
and 3.2
.
(b)
Loan Rate Calculation
. Prior to each Funding Date, Lender shall establish the
Loan Rate with respect to the Loan, which shall be set forth in the Note to be executed by Borrower
and shall be conclusive in the absence of a manifest error.
(c)
Disbursement
. Lender shall disburse the proceeds of the Loan by wire transfer to
Borrower at the account specified in the Funding Certificate for the Loan.
2.6
Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee
.
(a)
Good Faith Deposit
. Borrower has delivered to Lender a good faith deposit in the
amount of Twenty Thousand Dollars ($20,000) (the
Good Faith Deposit
). The Good Faith
Deposit will be utilized to pay the Commitment Fee.
(b)
Legal, Due Diligence and Documentation Expenses
. Borrower shall pay to Lender
concurrently with its execution and delivery of this Agreement Lenders legal, due diligence and
documentation expenses in connection with the negotiation and documentation of this Agreement and
the Loan Documents; provided, however, that Borrower shall not be liable for any such expenses
which in the aggregate exceed Ten Thousand Dollars ($10,000).
(c)
Commitment Fee
. On the Effective Date, Borrower paid Lender a commitment fee in
the amount of Twenty-Five Thousand Dollars ($25,000) (the
Commitment Fee
). The
Commitment Fee shall be retained by Lender and be deemed fully earned upon receipt. No further
amounts shall be due hereunder as a commitment or similar fee.
2.7
Joint Liability
. Each of Acuity and eXegenics covenants and agrees with Lender as
follows:
(a) The Obligations include all present and future indebtedness, duties, obligations, and
liabilities, whether now existing or contemplated or hereafter arising, of each of Acuity and
eXegenics, other than Permitted Indebtedness.
(b) Reference in this Agreement and the other Loan Documents to the Borrower shall mean each
or any one of Acuity and eXegenics, jointly and severally, unless the context requires otherwise.
(c) Acuity and eXegenics in the discretion of their respective management are to agree among
themselves as to the allocation of the benefits of the proceeds of the Loan,
11
provided, however, that each shall be deemed to have represented and warranted to Lender at
the time of allocation that each use of proceeds is permitted under this Agreement.
(d) For administrative convenience, Acuity hereby irrevocably appoints eXegenics as its
attorney-in-fact, with power of substitution (with the prior written consent of Lender in the
exercise of its sole and absolute discretion), in its respective name or in the name of eXegenics
or otherwise to take any and all actions with respect to this Agreement, the other Loan Documents,
the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as
eXegenics may so elect from time to time, including, without limitation, actions to enter into,
execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any other
Loan Documents, security agreements, mortgages, deposit account agreements, instruments,
certificates, waivers, letter of credit applications, releases, documents and agreements from time
to time. The foregoing appointment is coupled with an interest, cannot be revoked without the
prior written consent of Lender, and may be exercised from time to time through eXegenics
Responsible Officer, or other Person or Persons designated by eXegenics to act from time to time on
behalf of eXegenics.
(e) Lender assumes no responsibility or liability for any errors, mistakes, and/or
discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders,
requests and confirmations between Lender and any one or more of Acuity and eXegenics in connection
with the Loan or any other transaction in connection with the provisions of this Agreement.
2.8
Inter-Company Debt, Contribution
. Without implying any limitation on the joint
and several nature of the Obligations, Lender agrees that, notwithstanding any other provision of
this Agreement, Acuity and eXegenics may create reasonable inter-company indebtedness between or
among them with respect to the allocation of the benefits and proceeds of any Loan under this
Agreement. Acuity and eXegenics agree among them, and Lender consents to that agreement, that
each of them shall have rights of contribution from all of the other to the extent either of them
incurs Obligations in excess of the proceeds of the Loan received by, or allocated to purposes for
the direct benefit of, such company. All such indebtedness and rights shall be, and are hereby
agreed by Acuity and eXegenics to be, subordinate in priority and payment to the indefeasible
repayment in full in cash of the Obligations, and, during the existence of an Event of Default
unless Lender agrees in writing otherwise, shall not be exercised or repaid in whole or in part
until all of the Obligations have been indefeasibly paid in full in cash. Each of Acuity and
eXegenics agrees that all of such inter-company indebtedness and rights of contribution are part
of the Collateral and secure the Obligations.
2.9
Borrower is an Integrated Group
. Each of Acuity and eXegenics hereby represents
and warrants to Lender that it will derive benefits, directly and indirectly, from the Loan, both
in its separate capacity and as a member of the integrated group to which it belongs and because
the successful operation of the integrated group is dependent upon the continued successful
performance of the functions of the integrated group as a whole, (i) the terms of the Loan
provided under this Agreement are more favorable than would otherwise be obtainable by them
individually, and (ii) the additional administrative and other costs and reduced
12
flexibility associated with individual loan arrangements which would otherwise be required if
obtainable would substantially reduce the value to them of the Loan.
2.10
Primary Obligations
. The obligations and liabilities of each of Acuity and
eXegenics under this Agreement shall be primary, direct and immediate, shall not be subject to any
counterclaim, recoupment, set off, reduction or defense based upon any claim that Acuity and
eXegenics may have against the other Borrower, Lender and/or any guarantor and shall not be
conditional or contingent upon pursuit or enforcement by Lender of any remedies it may have against
Acuity and eXegenics with respect to this Agreement, or any of the other Loan Documents, whether
pursuant to the terms hereof or thereof or by operation of law. Without limiting the generality of
the foregoing, Lender shall not be required to make any demand upon either Acuity or eXegenics, or
to sell the Collateral or otherwise pursue, enforce or exhaust its remedies against either Acuity
or eXegenics or the Collateral either, before, concurrently with or after pursuing or enforcing its
rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may
be brought against either Acuity and eXegenics under this Section 2.10, either in the same action,
if any, brought against any one or more of Acuity and eXegenics or in separate actions or
proceedings, as often as Lender may deem expedient or advisable. Without limiting the foregoing,
it is specifically understood that any modification, limitation or discharge of any of the
liabilities or obligations of either Acuity or eXegenics, any other guarantor or any obligor under
any of the Loan Documents, arising out of, or by virtue of, any bankruptcy, arrangement,
reorganization or similar proceeding for relief of debtors under federal or state law initiated by
or against Acuity and eXegenics, in their respective capacities as a Borrower, or under any of the
Loan Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the
liability of each Borrower under this Agreement in any manner whatsoever, and this Section 2.10
shall remain and continue in full force and effect. It is the intent and purpose of this Section
2.10 that each of Acuity and eXegenics shall and does hereby waive all rights and benefits which
might accrue to any guarantor by reason of any such proceeding, Acuity and eXegenics each agree
that they shall be liable for the full amount of the obligations and liabilities under this Section
2.10 regardless of, and irrespective of, any modification, limitation or discharge of the liability
of any one or more of either Acuity or eXegenics, any guarantor or any obligor under any of the
Loan Documents, that may result from any such proceedings.
3.
Conditions of Loan
.
3.1
Conditions Precedent to Closing
. At the time of the execution and delivery of
this Agreement, Lender shall have received, in form and substance reasonably satisfactory to
Lender, all of the following:
(a)
Amended and Restated Loan Agreement
. This Agreement duly executed by Borrower and
Lender.
(b)
Note
. Borrower shall have duly executed and delivered to Lender the Note in the
amount of the Loan, which shall cause the Original Note to be cancelled and Lender shall deliver
the Original Note to Lender marked cancelled.
13
(c)
UCC Financing Statements
. Lender shall have received such documents, instruments
and agreements, including UCC financing statements or amendments to UCC financing statements, as
Lender shall reasonably request to evidence the perfection and priority of the security interests
granted to Lender pursuant to
Section 4
. Borrower authorizes Lender to file any UCC
financing statements, continuations of or amendments to UCC financing statements it deems necessary
to perfect its security interest in the Collateral.
(d)
Secretarys Certificate
. A certificate of the secretary or assistant secretary of
each Borrower with copies of the following documents attached: (i) the certificate of
incorporation and bylaws of Borrower certified by Borrower as being complete and in full force and
effect on the date thereof, (ii) incumbency and representative signatures, and (iii) resolutions
authorizing the execution and delivery of this Agreement and the Note.
(e)
Good Standing Certificates
. A good standing certificate from each Borrowers
state of incorporation and the state in which Borrowers principal place of business is located,
each dated as of a recent date.
(f)
Consents
. All necessary consents of shareholders and other third parties with
respect to the execution, delivery and performance of this Agreement, the Warrant and the other
Loan Documents.
(g)
No Default
. No Default or Event of Default shall have occurred and be continuing.
(h)
Other Documents
. Such other documents and completion of such other matters, as
Lender may deem necessary or appropriate.
3.2
Post-Closing Conditions
. Within thirty (30) days of the Execution Date, the
Borrower shall deliver the following to the Lender:
(a)
Account Control Agreements
. Account Control Agreements for all of Borrowers
deposit accounts and accounts holding securities duly executed by all of the parties thereto, in
the forms provided by Lender.
(b)
Certificate of Insurance
. Evidence of the insurance coverage required by
Section 6.8
of this Agreement.
(c)
Other Documents
. Such other documents and completion of such other matters, as
Lender may deem necessary or appropriate.
3.3
Covenant to Deliver
. Borrower agrees (not as a condition but as a covenant) to
deliver to Lender each item required to be delivered to Lender as a condition to the Loan, if the
Loan is advanced. Borrower expressly agrees that the extension of the Loan prior to the receipt by
Lender of any such item shall not constitute a waiver by Lender of Borrowers obligation to deliver
such item, and any such extension in the absence of a required item shall be in Lenders sole
discretion.
14
4.
Creation of Security Interest
.
4.1
Grant of Security Interest
. Borrower grants to Lender a valid and continuing
security interest in all presently existing and hereafter acquired or arising Collateral in order
to secure prompt, full and complete payment of any and all Obligations and in order to secure
prompt, full and complete performance by Borrower of each of its covenants and duties under each of
the Loan Documents. The
Collateral
shall mean and include all right, title, interest,
claims and demands of Borrower in and to all personal property of Borrower, including without
limitation, all of the following:
(a) All goods (and embedded computer programs and supporting information included within the
definition of goods under the Code) and equipment now owned or hereafter acquired, including,
without limitation, all laboratory equipment, computer equipment, office equipment, machinery,
fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including, without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and
finished products including such inventory as is temporarily out of Borrowers custody or
possession or in transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrowers books relating to any of the
foregoing;
(c) All contract rights and general intangibles (except to the extent included within the
definition of Intellectual Property), now owned or hereafter acquired, including, without
limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims, software, computer programs, computer
disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment
intangibles, commercial tort claims, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights, royalties, license
rights, license fees and all other forms of obligations owing to Borrower arising out of the sale
or lease of goods, the licensing of technology or the rendering of services by Borrower (subject,
in each case, to the contractual rights of third parties to require funds received by Borrower to
be expended in a particular manner), whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise returned to or
reclaimed by Borrower and Borrowers books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, letters of credit (whether or not the letter of
credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel
paper (whether tangible or electronic) and investment property, including, without limitation, all
securities, whether certificated or uncertificated, security entitlements, securities accounts,
commodity contracts and commodity accounts, and all financial assets held in any
15
securities account or otherwise, wherever located, now owned or hereafter acquired and
Borrowers books relating to the foregoing, excluding, in each case, any debt or equity securities
of eXegenics in any Subsidiary or other Investment, including, without limitation, Froptix, LLC;
and
(f) Any and all claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof, including, without limitation, insurance,
condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual
Property to the extent such proceeds no longer constitute Intellectual Property; but
(g) Notwithstanding the foregoing, the Collateral shall not include any Intellectual Property;
provided
,
however
, that the Collateral shall include all accounts receivables,
accounts, and general intangibles that consist of rights to payment and proceeds from the sale,
licensing or disposition of all or any part, or rights in, the foregoing (the
Rights to
Payment
). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy
Court) holds that a security interest in the underlying Intellectual Property is necessary to have
a security interest in the Rights to Payment, then the Collateral shall automatically, and
effective as of the date hereof, include the Intellectual Property to the extent necessary to
permit perfection of Lenders security interest in the Rights to Payment.
4.2
After-Acquired Property
. If Borrower shall at any time acquire a commercial tort
claim, as defined in the Code, Borrower shall immediately notify Lender in writing signed by
Borrower of the brief details thereof and grant to Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Lender.
4.3
Duration of Security Interest
. Lenders security interest in the Collateral shall
continue until the payment in full and the satisfaction of all Obligations and termination of
Lenders commitment to fund any Loan, whereupon such security interest shall terminate. Lender
shall, at Borrowers sole cost and expense, execute such further documents and take such further
actions as may be reasonably necessary to make effective the release contemplated by this
Section 4.3
, including duly executing and delivering termination statements for filing in
all relevant jurisdictions under the Code.
4.4
Location and Possession of Collateral
. The Collateral is and shall remain in the
possession of Borrower at its location listed on the cover page hereof or as set forth in the
Disclosure Schedule and at any additional bona fide places of business established by Borrower from
time to time. Borrower shall remain in full possession, enjoyment and control of the Collateral
(except only as may be otherwise required by Lender for perfection of its security interest
therein) and so long as no Event of Default has occurred and is continuing, shall be entitled to
manage, operate and use the same and each part thereof with the rights and franchises appertaining
thereto;
provided
that
the possession, enjoyment, control and use of the Collateral
shall at all time be subject to the observance and performance of the terms of this Agreement.
4.5
Delivery of Additional Documentation Required
. Borrower shall from time to time
execute and deliver to Lender, at the request of Lender, all financing statements and other
documents Lender may reasonably request, in form satisfactory to Lender, to perfect and
16
continue Lenders perfected security interests in the Collateral and in order to consummate
fully all of the transactions contemplated under the Loan Documents.
4.6
Right to Inspect
. Lender (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time during Borrowers usual
business hours, to inspect Borrowers books and records and to make copies thereof and to inspect,
test, and appraise the Collateral in order to verify Borrowers financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
4.7
Protection of Intellectual Property
. Borrower shall use its commercially
reasonable efforts to (i) protect, defend and maintain the validity and enforceability of its
material Intellectual Property and promptly advise Lender in writing of material infringements
which become known to Borrower, and (ii) not allow any Intellectual Property material to Borrowers
business to be abandoned, forfeited or dedicated to the public except in the ordinary course of
Borrowers business.
4.8
Lien Subordination
. Lender agrees that the Liens granted to it hereunder in
equipment and other personal property acquired by Borrower after the date hereof (Third Party
Equipment) which secure Indebtedness constituting Permitted Indebtedness under subclause (d) of
the definition of Permitted Indebtedness shall be subordinate to the Liens of existing or future
lenders providing equipment financing and equipment lessors for Third Party Equipment or if such
lenders prohibit the granting of Liens to other lenders, Lender shall release its Lien on such
Third Party Equipment and the proceeds thereof; provided that such Liens are confined solely to the
equipment so financed and the proceeds thereof and are Permitted Liens. Upon the expiration of the
Liens of such other lenders or the termination of their prohibition of Liens in favor of other
Lenders, the Third Party Equipment shall automatically become part of the Collateral, and Lender is
authorized at that time to amend any filed financing statement(s) to reflect that change.
Notwithstanding the foregoing, the Obligations hereunder shall not be subordinate in right of
payment to any obligations to other lenders, equipment lenders or equipment lessors and Lenders
rights and remedies hereunder shall not in any way be subordinate to the rights and remedies of any
such lenders or equipment lessors. So long as no Event of Default has occurred and is continuing,
Lender agrees to execute and deliver such agreements and documents as may be reasonably requested
by Borrower from time to time which set forth the lien subordination described in this Section 4.8
and are reasonably acceptable to Lender. Lender shall have no obligation to execute any agreement
or document which would impose obligations, restrictions or lien priority on Lender which are less
favorable to Lender than those described in this Section 4.8.
5.
Representations and Warranties
. Except as set forth in the Disclosure Schedule,
Borrower represents and warrants as follows:
5.1
Organization and Qualification
. Acuity is a limited liability company and
eXegenics is a corporation, in each case, duly organized and validly existing and in good standing
under the laws of its state of incorporation or organization and qualified and licensed to do
business in, and is in good standing in, any state in which the conduct of its business or its
ownership of Property requires that it be so qualified or in which the Collateral is located,
17
except for such states as to which any failure to so qualify would not have a material adverse
effect on Borrower.
5.2
Authority
. Borrower has all necessary power and authority to execute, deliver,
and perform in accordance with the terms thereof, the Loan Documents to which it is a party.
Borrower has all requisite power and authority to own and operate its Property and to carry on its
businesses as now conducted.
5.3
Conflict with Other Instruments, etc
. Neither the execution and delivery of any
Loan Document to which Borrower is a party nor the consummation of the transactions therein
contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or
result in a breach of any of the terms, conditions or provisions of the certificate of
incorporation, the by-laws, or any other organizational documents of Borrower or any law or any
regulation, order, writ, injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or any of its Property
is bound or to which it or any of its Property is subject, or constitute a default thereunder or
result in the creation or imposition of any Lien, other than Permitted Liens.
5.4
Authorization; Enforceability
. The execution and delivery of this Agreement, the
granting of the security interest in the Collateral, the incurring of the Loan, the execution and
delivery of the other Loan Documents to which Borrower is a party and the consummation of the
transactions herein and therein contemplated have each been duly authorized by all necessary action
on the part of Borrower. No authorization, consent, approval, license or exemption of, and no
registration, qualification, designation, declaration or filing with, or notice to, any Person is,
was or will be necessary to (i) the valid execution and delivery of any Loan Document to which
Borrower is a party, (ii) the performance of Borrowers obligations under any Loan Document, or
(iii) the granting of the security interest in the Collateral, except for filings in connection
with the perfection of the security interest in any of the Collateral. The Loan Documents have
been duly executed and delivered and constitute legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws of general application relating to or
affecting the enforcement of creditors rights or by general principles of equity.
5.5
No Prior Encumbrances
. Borrower has good and marketable title to the Collateral,
free and clear of Liens except for Permitted Liens. Borrower has good title and ownership of, or is
licensed under, all of Borrowers current Intellectual Property. Borrower has not received any
communications alleging that Borrower has violated, or by conducting its business as proposed,
would violate any proprietary rights of any other Person. Borrower has no knowledge of any
infringement or violation by it of the intellectual property rights of any third party and has no
knowledge of any violation or infringement by a third party of any of its Intellectual Property.
The Collateral and the Intellectual Property constitute substantially all of the assets and
property of Borrower.
5.6
Name; Location of Chief Executive Office, Principal Place of Business and
Collateral
. Except for Cytoclonal Pharmaceutics Inc., Borrower has not done business under any
name other than that specified on the signature page hereof. Borrowers jurisdiction of
18
incorporation, chief executive office, principal place of business, and the place where
Borrower maintains its records concerning the Collateral are presently located in the state and at
the address set forth on the cover page of this Agreement. The Collateral is presently located at
the address set forth on the cover page hereof or as set forth in the Disclosure Schedule.
5.7
Litigation
. There are no actions or proceedings pending by or against Borrower
before any court or administrative agency in which an adverse decision could have a material
adverse effect on Borrower or the aggregate value of the Collateral. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.
5.8
Financial Statements
. All financial statements relating to Borrower or any
Affiliate that have been or may hereafter be delivered by Borrower to Lender present fairly in all
material respects Borrowers financial condition as of the date thereof and Borrowers results of
operations for the period then ended.
5.9
No Material Adverse Effect
. No event has occurred and no condition exists which
could reasonably be expected to have a material adverse effect on the financial condition, business
or operations of Borrower since December 31, 2006.
5.10
Full Disclosure
. No representation, warranty or other statement made by Borrower
in any Loan Document (including the Disclosure Schedule), certificate or written statement
furnished to Lender contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or statements not
misleading. There is no fact known to Borrower which materially adversely affects, or which could
in the future be reasonably expected to materially adversely affect, its ability to perform its
obligations under this Agreement.
5.11
Solvency, Etc
.
Borrower is Solvent (as defined below) and, after the execution
and delivery of the Loan Documents and the consummation of the transactions contemplated thereby,
Borrower will be Solvent.
Solvent
means, with respect to any Person on any date, that on
such date (a) the fair value of the property of such Person is greater than the fair value of the
liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present
fair saleable value of the assets of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become absolute and matured, (c)
such Person does not intend to, and does not believe that it will, incur debts or liabilities
beyond such Persons ability to pay as such debts and liabilities mature and (d) such Person is not
engaged in business or a transaction, and is not about to engage in business or a transaction, for
which such Persons property would constitute an unreasonably small capital.
5.12
Subsidiaries
. Acuity has no Subsidiaries.
5.13
Catastrophic Events; Labor Disputes
.
None of Borrower or its properties is or has
been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or other casualty that could reasonably be expected to
have a material adverse effect on the financial condition, business or operations of Borrower.
There are no disputes presently subject to grievance procedure, arbitration or litigation under any
of the collective bargaining agreements, employment contracts or employee
19
welfare or incentive plans to which Borrower is a party, and there are no strikes, lockouts,
work stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional disputes or
organizing activity occurring or threatened which could reasonably be expected to have a material
adverse effect on the financial condition, business or operations of Borrower.
5.14
Certain Agreements of Officers, Employees and Consultants
.
(a)
No Violation
. To the knowledge of Borrower, no officer, employee or consultant of
Borrower is, or is now expected to be, in violation of any term of any employment contract,
proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other
material contract or agreement or any restrictive covenant relating to the right of any such
officer, employee or consultant to be employed by Borrower because of the nature of the business
conducted or to be conducted by Borrower or relating to the use of trade secrets or proprietary
information of others, and to Borrowers knowledge, the continued employment of Borrowers
officers, employees and consultants does not subject Borrower to any material liability for any
claim or claims arising out of or in connection with any such contract, agreement, or covenant.
(b)
No Present Intention to Terminate
. To the knowledge of Borrower, no officer of
Borrower, and no employee or consultant of Borrower whose termination, either individually or in
the aggregate, could reasonably be expected to have a material adverse effect on the financial
condition, business or operations of Borrower, has any present intention of terminating his or her
employment or consulting relationship with Borrower.
5.15
Patient Enrollment
. Acuity has enrolled not less than ten (10) human patients in
a Phase II clinical trial of its Cand5 drug for the treatment of age related macular
degeneration, which trial has been approved by the FDA to be conducted in the United States.
6.
Affirmative Covenants
. Borrower, until the full and complete payment of the
Obligations, covenants and agrees that:
6.1
Good Standing
. Borrower shall maintain its corporate existence and its good
standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a material adverse effect on
the financial condition, operations or business of Borrower. Borrower shall maintain in force all
licenses, approvals and agreements, the loss of which could reasonably be expected to have a
material adverse effect on its financial condition, operations or business.
6.2
Government Compliance
. Borrower shall comply with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with which could
reasonably be expected to materially adversely affect the financial condition, operations or
business of Borrower.
6.3
Financial Statements, Reports, Certificates
. Acuity shall deliver to Lender: (a)
as soon as available, but in any event within thirty (30) days after the end of each month, a
company prepared balance sheet, income statement and cash flow statement covering Acuitys
operations during such period, certified by Acuitys president, treasurer or chief financial
officer
20
(each, a
Responsible Officer
); (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Acuitys fiscal year, audited financial statements of
Acuity prepared in accordance with GAAP, together with an unqualified opinion on such financial
statements of a nationally recognized or other independent public accounting firm reasonably
acceptable to Lender; and (c) as soon as available, but in any event within ninety (90) days after
the end of Acuitys fiscal year or the date of Acuitys board of directors adoption, Acuitys
operating budget and plan for the next fiscal year; and (d) such other financial information as
Lender may reasonably request from time to time. eXegenics, promptly as they are available and in
any event: (x) at the time of filing of eXegenics Form 10-K with the Securities and Exchange
Commission after the end of each fiscal year of eXegenics, the financial statements of eXegenics
filed with such Form 10-K; and (y) at the time of filing of eXegenics Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three fiscal quarters of
eXegenics, the financial statements of eXegenics filed with such Form 10-Q. In addition, Borrower
shall deliver to Lender (i) promptly upon becoming available, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders; (ii) immediately upon
receipt of notice thereof, a report of any material legal actions pending or threatened against
Borrower or the commencement of any action, proceeding or governmental investigation involving
Borrower is commenced that is reasonably expected to result in damages or costs to Borrower of One
Hundred Fifty Thousand Dollars ($150,000) or more; and (iii) such other financial information as
Lender may reasonably request from time to time.
6.4
Certificates of Compliance
. Each time financial statements are furnished pursuant
to
Section 6.3
above, Borrower shall deliver to Lender an Officers Certificate signed by a
Responsible Officer in the form of, and certifying to the matters set forth in
Exhibit E
hereto.
6.5
Notice of Defaults
. As soon as possible, and in any event within five (5) days
after the discovery of a Default or an Event of Default, Borrower shall provide Lender with an
Officers Certificate setting forth the facts relating to or giving rise to such Default or Event
of Default and the action which Borrower proposes to take with respect thereto.
6.6
Taxes
. Borrower shall make due and timely payment or deposit of all federal,
state, and local taxes, assessments, or contributions required of it by law or imposed upon any
Property belonging to it, and will execute and deliver to Lender, on demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will make timely payment or
deposit of all tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income
taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits;
provided
that
Borrower need not make
any payment if the amount or validity of such payment is contested in good faith by appropriate
proceedings which suspend the collection thereof (
provided
that
such proceedings
do not involve any substantial danger of the sale, forfeiture or loss of any material item of
Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has
adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided
on the books of Borrower).
21
6.7
Use; Maintenance
. Borrower shall keep and maintain all items of equipment and
other similar types of personal property that form any significant portion or portions of the
Collateral in good operating condition and repair and shall make all necessary replacements thereof
and renewals thereto so that the value and operating efficiency thereof shall at all times be
maintained and preserved. Borrower shall not permit any such material item of Collateral to become
a fixture to real estate or an accession to other personal property, without the prior written
consent of Lender. Borrower shall not permit any such material item of Collateral to be operated
or maintained in violation of any applicable law, statute, rule or regulation. With respect to
items of leased equipment (to the extent Lender has any security interest in any residual
Borrowers interest in such equipment under the lease), Borrower shall keep, maintain, repair,
replace and operate such leased equipment in accordance with the terms of the applicable lease.
6.8
Insurance
. Borrower shall keep its business and the Collateral insured for risks
and in amounts, and as Lender may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Lender. All property policies shall have a
lenders loss payable endorsement showing Lender as an additional loss payee and all liability
policies shall show Lender as an additional insured and all policies shall provide that the insurer
must give Lender at least thirty (30) days notice before canceling its policy. At Lenders
request, Borrower shall deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Lenders option, be payable to Lender on account of the
Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is
continuing, Borrower shall have the option of applying the proceeds of any casualty policy, toward
the replacement or repair of destroyed or damaged property; provided that (i) any such replaced or
repaired property (a) shall be of equal or like value as the replaced or repaired Collateral and
(b) shall be deemed Collateral in which Lender has been granted a first priority security interest
and (ii) after the occurrence and during the continuation of an Event of Default all proceeds
payable under such casualty policy shall, at the option of Lender, be payable to Lender, on account
of the Obligations. If Borrower fails to obtain insurance as required under Section 6.8 or to pay
any amount or furnish any required proof of payment to third persons and Lender, Lender may make
all or part of such payment or obtain such insurance policies required in Section 6.8, and take any
action under the policies Lender deems prudent. On or prior to the first Funding Date and prior to
each policy renewal, Borrower shall furnish to Lender certificates of insurance or other evidence
satisfactory to Lender that insurance complying with all of the above requirements is in effect.
6.9
Security Interest
. Assuming the proper filing of one or more financing
statement(s) identifying the Collateral with the proper state and/or local authorities, the
security interests in the Collateral granted to Lender pursuant to this Agreement (i) constitute
and will continue to constitute first priority security interests (except to the extent any
Permitted Liens may have a superior priority to Lenders Lien under this Agreement) and (ii) are
and will continue to be superior and prior to the rights of all other creditors of Borrower (except
to the extent of such Permitted Liens).
6.10
Further Assurances
. At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably be
22
requested by Lender to make effective the purposes of this Agreement, including without
limitation, the continued perfection and priority of Lenders security interest in the Collateral.
7.
Negative Covenants
. Borrower, until the full and complete payment of the
Obligations, covenants and agrees that Borrower shall not, except in accordance with the terms of
the Merger Agreement:
7.1
Chief Executive Office
. Change its name, jurisdiction of incorporation, chief
executive office, principal place of business or any of the items set forth in Section 1 of the
Disclosure Schedule without thirty (30) days prior written notice to Lender.
7.2
Collateral Control
. Subject to its rights under
Sections 4.4 and 7.4
,
remove any items of Collateral from Borrowers facility located at the address set forth on the
cover page hereof or as set forth on the Disclosure Schedule.
7.3
Liens
. Create, incur, assume or suffer to exist any Lien of any kind upon any of
Borrowers Property, whether now owned or hereafter acquired, except Permitted Liens.
7.4
Other Dispositions of Collateral
. Convey, sell, lease or otherwise dispose of all
or any part of the Collateral to any Person (collectively, a
Transfer
), except for: (i)
Transfers of inventory in the ordinary course of business; or (ii) Transfers of worn-out or
obsolete equipment.
7.5
Distributions
. (i) Pay any dividends or make any distributions on its Equity
Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity
Securities (other than repurchases pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not to exceed One
Hundred Thousand Dollars ($100,000)); (iii) return any capital to any holder of its Equity
Securities as such; (iv) make any distribution of assets, Equity Securities, obligations or
securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such
purpose;
provided
,
however
, Borrower may pay dividends payable solely in common
stock and provided that Borrower may pay stock dividends required by the terms of any existing
class of preferred stock of Borrower so long as no Event of Default has occurred and remains
uncured.
7.6
Intentionally Omitted
.
7.7
Change in Ownership
. (a) Engage in or permit any of its Subsidiaries to engage in
any business other than (i) the businesses currently engaged in by Borrower or reasonably related
thereto (ii) or the business of any entity acquired by eXegenics, by purchase of stock or assets,
by merger or otherwise, after the date hereof or (b) have a material change in its ownership of
greater than forty-nine percent (49%) (other than by the sale by Borrower of Borrowers Equity
Securities in a public offering or to venture capital investors so long as Borrower identifies to
Lender the venture capital investors prior to the closing of the investment).
7.8
Transactions With Affiliates
. Enter into any contractual obligation with any
Affiliate or engage in any other transaction with any Affiliate except upon terms at least as
favorable to Borrower as an arms-length transaction with Persons who are not Affiliates of
23
Borrower; provided that Lender hereby consents to the incurrence of the Junior Obligations (as
defined in the Subordination Agreement).
7.9
Indebtedness Payments
. (i) Prepay, redeem, purchase, defease or otherwise satisfy
in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other
than amounts due or permitted to be prepaid under this Agreement) or lease obligations, (ii) amend,
modify or otherwise change the terms of any Indebtedness for borrowed money or lease obligations so
as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or
shareholders.
7.10
Indebtedness
. Create, incur, assume or permit to exist any Indebtedness except
Permitted Indebtedness.
7.11
Intentionally Omitted
.
7.12
Compliance
. Become an investment company or a company controlled by an
investment company under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for
that purpose; fail to meet the minimum funding requirements of the Employment Retirement Income
Security Act of 1974, and its regulations, as amended from time to time (
ERISA
), permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrowers business or operations or
could reasonably be expected to cause a material adverse change, or permit any of its Subsidiaries
to do so.
7.13
Maintenance of Accounts
. (i) Maintain any deposit account or account holding
securities owned by Borrower except accounts with respect to which Lender is able to take such
actions as it deems necessary to obtain a perfected security interest in such accounts through one
or more Account Control Agreements; or (ii) grant or allow any other Person (other than Lender) to
perfect a security interest in, or enter into any agreements with any Persons (other than Lender)
accomplishing perfection via control as to, any of its deposit accounts or accounts holding
securities.
7.14
Negative Pledge Regarding Intellectual Property
. Create, incur, assume or suffer
to exist any Lien of any kind upon any Intellectual Property or Transfer any Intellectual Property,
whether now owned or hereafter acquired, other than (a) with respect to Intellectual Property
related to Borrowers core ophthalmology technology, non-exclusive licenses entered into in the
ordinary course of business and (b) with respect to Intellectual Property outside of the field of
ophthalmology, licenses entered into in the ordinary course of business and/or consistent with
Borrowers current business plan.
7.15
No Restriction on Acquisitions
. Notwithstanding anything contained herein to the
contrary, this Agreement shall not restrict or otherwise limit eXegenics from making acquisitions
of or Investments in any Person, by stock or asset purchase, merger, combination or otherwise, and
Lenders consent shall not be required for eXegenics to engage in such a transaction.
24
8.
Events of Default
. Any one or more of the following events shall constitute an
Event of Default
by Borrower under this Agreement:
8.1
Failure to Pay
. If Borrower fails to pay when due and payable or when declared
due and payable in accordance with the Loan Documents: (i) any Scheduled Payment within three (3)
days of the relevant Payment Date or the Maturity Date, or (ii) any other portion of the
Obligations within ten (10) days after receipt of written notice from Lender that such payment is
due.
8.2
Certain Covenant Defaults
. If Borrower fails to perform any obligation under
Section 6.8
or violates any of the covenants contained in
Section 7
of this
Agreement.
8.3
Other Covenant Defaults
. If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement contained in this
Agreement (other than as set forth in
Sections 8.1, 8.2 or 8.4 through 8.13
), in any of the
other Loan Documents and Borrower has failed to cure such default within thirty (30) days of the
occurrence of such default. During this thirty (30) day period, the failure to cure the default is
not an Event of Default.
8.4
Intentionally Omitted
.
8.5
Seizure of Assets, Etc.
If any material portion of Borrowers assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of
any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrowers assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower
receives notice thereof;
provided
that
none of the foregoing shall constitute an
Event of Default where such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower.
8.6
Service of Process
. The service of process upon Lender seeking to attach by a
trustee or other process any funds of the Borrower on deposit or otherwise held by Lender, or the
delivery upon Lender of a notice of foreclosure by any Person seeking to attach or foreclose on any
funds of the Borrower on deposit or otherwise held by Lender, or the delivery of a notice of
foreclosure or exclusive control to any entity holding or maintaining Borrowers deposit accounts
or accounts holding securities by any Person (other than Lender) seeking to foreclose or attach any
such accounts or securities.
8.7
Default on Indebtedness
. One or more defaults shall exist under any agreement
with any third party or parties which consists of the failure to pay any Indebtedness at maturity
or which results in a right by such third party or parties, whether or not exercised, to accelerate
the maturity of Indebtedness in an aggregate amount in excess of One Hundred Fifty
25
Thousand Dollars ($150,000) or a default shall exist under any financing agreement with Lender
or any of Lenders Affiliates.
8.8
Judgments
. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) shall
be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10)
days or more.
8.9
Misrepresentations
. If any material representation in any warranty,
representation, statement, certification, or report made to Lender by Borrower or any officer,
employee, agent, or director of Borrower shall prove to have been false or misleading in any
material respect when made or furnished.
8.10
Intentionally Omitted
.
8.11
Unenforceable Loan Document
. If any Loan Document shall in any material respect
cease to be, or Borrower shall assert that any Loan Document is not, a legal, valid and binding
obligation of Borrower enforceable in accordance with its terms.
8.12
Involuntary Insolvency Proceeding
. If a proceeding shall have been instituted in
a court having jurisdiction in the premises seeking a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee (or similar official) of Borrower or for any substantial part of its Property, or for the
winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed
and in effect for a period of sixty (60) consecutive days or such court shall enter a decree or
order granting the relief sought in such proceeding.
8.13
Voluntary Insolvency Proceeding
. If Borrower shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any such law, or shall
consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee,
custodian (or other similar official) of Borrower or for any substantial part of its Property, or
shall make a general assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of any of the
foregoing.
9.
Lenders Rights and Remedies
.
9.1
Rights and Remedies
. Upon the occurrence of any Default or Event of Default,
Lender shall not have any further obligation to advance money or extend credit to or for the
benefit of Borrower. In addition, upon the occurrence of an Event of Default and during the
continuance thereof, Lender shall have the rights, options, duties and remedies of a secured party
as permitted by law and, in addition to and without limitation of the foregoing, Lender may, at its
election, without notice of election and without demand, do any one or more of the following, all
of which are authorized by Borrower:
26
(a)
Acceleration of Obligations
. Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, including (i) any accrued and unpaid
interest, (ii) the amounts which would have otherwise come due under Section 2.3(b)(ii) if the Loan
had been voluntarily prepaid, (iii) the unpaid principal balance of the Loan and (iv) all other
sums, if any, that shall have become due and payable hereunder, immediately due and payable
(
provided
that
upon the occurrence of an Event of Default described in
Section
8.12 or 8.13
all Obligations shall become immediately due and payable without any action by
Lender);
(b)
Protection of Collateral
. Make such payments and do such acts as Lender considers
necessary or reasonable to protect Lenders security interest in the Collateral. Borrower agrees
to assemble the Collateral if Lender so requires and to make the Collateral available to Lender as
Lender may designate. Borrower authorizes Lender and its designees and agents to enter the
premises where the Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any Lien which in Lenders determination
appears or is claimed to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower
hereby grants Lender a license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise any of Lenders rights
or remedies provided herein, at law, in equity, or otherwise;
(c)
Preparation of Collateral for Sale
. Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Lender and its agents and any purchasers at or after foreclosure are
hereby granted a non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other
right, solely pursuant to the provisions of this
Section 9.1
, to use, without charge,
Borrowers Intellectual Property, including without limitation, labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter,
or any Property of a similar nature, now or at any time hereafter owned or acquired by Borrower or
in which Borrower now or at any time hereafter has any rights;
provided
that
such
license shall only be exercisable in connection with the disposition of Collateral upon Lenders
exercise of its remedies hereunder;
(d)
Sale of Collateral
. Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at
such places (including Borrowers premises) as Lender determines are commercially reasonable; and
(e)
Purchase of Collateral
. Credit bid and purchase all or any portion of the
Collateral at any public sale.
Any deficiency that exists after disposition of the Collateral as provided above will be paid
immediately by Borrower.
9.2
Set Off Right
. Lender may set off and apply to the Obligations any and all
indebtedness at any time owing to or for the credit or the account of Borrower or any other assets
of Borrower in Lenders possession or control.
27
9.3
Effect of Sale
. Upon the occurrence of an Event of Default and during the
continuance thereof, to the extent permitted by law, Borrower covenants that it will not at any
time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of,
any stay or extension law now or at any time hereafter in force, nor claim, take nor insist upon
any benefit or advantage of or from any law now or hereafter in force providing for the valuation
or appraisement of the Collateral or any part thereof prior to any sale or sales thereof to be made
pursuant to any provision herein contained, or to the decree, judgment or order of any court of
competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any
statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold
or any part thereof, and, to the full extent legally permitted, except as to rights expressly
provided herein, hereby expressly waives for itself and on behalf of each and every Person, except
decree or judgment creditors of Borrower, acquiring any interest in or title to the Collateral or
any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such
law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise
hinder, delay or impede the execution of any power herein granted and delegated to Lender, but will
suffer and permit the execution of every such power as though no such power, law or laws had been
made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar,
both at law and in equity, against Borrower, its successors and assigns, and against any and all
Persons claiming the Property sold or any part thereof under, by or through Borrower, its
successors or assigns.
9.4
Power of Attorney in Respect of the Collateral
. Borrower does hereby irrevocably
appoint Lender (which appointment is coupled with an interest), the true and lawful attorney in
fact of Borrower with full power of substitution, for it and in its name to file any notices of
security interests, financing statements and continuations and amendments thereof pursuant to the
Code or federal law, as may be necessary to perfect, or to continue the perfection of Lenders
security interests in the Collateral. Borrower does hereby irrevocably appoint Lender (which
appointment is coupled with an interest) on the occurrence of an Event of Default and during the
continuance thereof, the true and lawful attorney in fact of Borrower with full power of
substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for,
compound and give acquittance for any and all rents, issues, profits, avails, distributions,
income, payment draws and other sums in which a security interest is granted under
Section
4
with full power to settle, adjust or compromise any claim thereunder as fully as if Lender
were Borrower itself; (b) to receive payment of and to endorse the name of Borrower to any items of
Collateral (including checks, drafts and other orders for the payment of money) that come into
Lenders possession or under Lenders control; (c) to make all demands, consents and waivers, or
take any other action with respect to, the Collateral; (d) in Lenders discretion to file any claim
or take any other action or proceedings, either in its own name or in the name of Borrower or
otherwise, which Lender may reasonably deem necessary or appropriate to protect and preserve the
right, title and interest of Lender in and to the Collateral; (e) endorse Borrowers name on any
checks or other forms of payment or security; (f) sign Borrowers name on any invoice or bill of
lading for any account or drafts against account debtors; (g) make, settle, and adjust all claims
under Borrowers insurance policies; (h) settle and adjust disputes and claims about the accounts
directly with account debtors, for amounts and on terms Lender determines reasonable; (i) transfer
the Collateral into the name of Lender
28
or a third party as the Code permits; and (j) to otherwise act with respect thereto as though
Lender were the outright owner of the Collateral.
9.5
Lenders Expenses
. If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms of this Agreement,
then Lender may do any or all of the following: (a) make payment of the same or any part thereof;
or (b) obtain and maintain insurance policies of the type discussed in
Section 6.8
of this
Agreement, and take any action with respect to such policies as Lender deems prudent. Any amounts
paid or deposited by Lender shall constitute Lenders Expenses, shall be immediately due and
payable, shall bear interest at the Default Rate and shall be secured by the Collateral. Any
payments made by Lender shall not constitute an agreement by Lender to make similar payments in the
future or a waiver by Lender of any Event of Default under this Agreement. Borrower shall pay all
reasonable fees and expenses, including without limitation, Lenders Expenses, incurred by Lender
in the enforcement or attempt to enforce any of the Obligations hereunder not performed when due.
9.6
Remedies Cumulative
. Lenders rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Lender shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise
by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event
of Default on Borrowers part shall be deemed a continuing waiver. No delay by Lender shall
constitute a waiver, election, or acquiescence by it.
9.7
Application of Collateral Proceeds
. The proceeds and/or avails of the Collateral,
or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other
amounts of any kind held by Lender, at the time of or received by Lender after the occurrence of an
Event of Default hereunder) shall be paid to and applied as follows:
(a)
First
, to the payment of out-of-pocket costs and expenses, including all amounts
expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale
and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and
advances, including reasonable legal expenses and attorneys fees, incurred or made hereunder by
Lender, including, without limitation, Lenders Expenses;
(b)
Second
, to the payment to Lender of the amount then owing or unpaid on the Loan
for Scheduled Payments, any accrued and unpaid interest, the amounts which would have otherwise
come due under Section 2.3(b)(ii), if the Loan had been voluntarily prepaid, the principal balance
of the Loan, and all other Obligations with respect to the Loan (
provided
,
however
,
if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon
the Loan, then to the unpaid interest thereon, then to the amounts which would have otherwise come
due under Section 2.3(b)(ii), if the Loan had been voluntarily prepaid, then to the principal
balance of the Loan, and then to the payment of other amounts then payable to Lender under any of
the Loan Documents); and
(c)
Third
, to the payment of the surplus, if any, to Borrower, its successors and
assigns, or to the Person lawfully entitled to receive the same.
29
9.8
Reinstatement of Rights
. If Lender shall have proceeded to enforce any right
under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of competent
jurisdiction), Lender shall be restored to its former position and rights hereunder with respect to
the Property subject to the security interest created under this Agreement.
10.
Waivers; Indemnification.
10.1
Demand; Protest
. Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any
way be liable.
10.2
Lenders Liability for Collateral
. So long as Lender complies with its
obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in
any manner or fashion from any cause other than Lenders gross negligence or willful misconduct;
(c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of
the Collateral shall be borne by Borrower.
10.3
Indemnification and Waiver
. Whether or not the transactions contemplated hereby
shall be consummated:
(a)
General Indemnity
. Borrower agrees upon demand to pay or reimburse Lender for all
liabilities, obligations and out-of-pocket expenses, including Lenders Expenses and reasonable
fees and expenses of counsel for Lender from time to time arising in connection with the
enforcement or collection of sums due under the Loan Documents, and in connection with any
amendment or modification of the Loan Documents or any work-out in connection with the Loan
Documents. Borrower shall indemnify, reimburse and hold Lender, and each of its respective
successors, assigns, agents, attorneys, officers, directors, shareholders, servants, agents and
employees (each an
Indemnified Person
) harmless from and against all liabilities, losses,
damages, actions, suits, demands, claims of any kind and nature (including claims relating to
environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent
they may be incurred or suffered by such Indemnified Person in connection therewith (including
reasonable attorneys fees and expenses), fines, penalties (and other charges of any applicable
Governmental Authority), licensing fees relating to any item of Collateral, damage to or loss of
use of property (including consequential or special damages to third parties or damages to
Borrowers property), or bodily injury to or death of any person (including any agent or employee
of Borrower) (each, a
Claim
), directly or indirectly relating to or arising out of the
use of the proceeds of the Loan or otherwise, the falsity of any representation or warranty of
Borrower or Borrowers failure to comply with the terms of this Agreement or any other Loan
Document. The foregoing indemnity shall cover, without limitation, (i) any Claim in connection
with a design or other defect (latent or patent) in any item of equipment or product included in
the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or other
30
intellectual property right, (iii) any Claim resulting from the presence on or under or the
escape, seepage, leakage, spillage, discharge, emission or release of any Hazardous Materials on
the premises owned, occupied or leased by Borrower, including any Claims asserted or arising under
any Environmental Law, (iv) any Claim for negligence or strict or absolute liability in tort, or
(v) any Claim asserted as to or arising under any Account Control Agreement or any Landlord
Agreement;
provided
,
however
, Borrower shall not indemnify Lender for any liability
incurred by Lender as a direct and sole result of Lenders gross negligence or willful misconduct.
Such indemnities shall continue in full force and effect, notwithstanding the expiration or
termination of this Agreement. Upon Lenders written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lender, each of its partners, and each
of their respective, agents, employees, directors, officers, shareholders, successors and assigns
against any indemnified Claim described in this
Section 10.3(a)
. Borrower shall not settle
or compromise any Claim against or involving Lender without first obtaining Lenders written
consent thereto, which consent shall not be unreasonably withheld.
(b)
Waiver
. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR
ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDER UNDER ANY THEORY OF LIABILITY
(INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
(c)
Survival; Defense
. The obligations in this
Section 10.3
shall survive
payment of all other Obligations pursuant to
Section 12.8
. At the election of any
Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory
to such Indemnified Person in such Persons reasonable discretion, at the sole cost and expense of
Borrower. All amounts owing under this
Section 10.3
shall be paid within thirty (30) days
after written demand.
11.
Notices
. Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in connection herewith
shall be in writing and (except for financial statements and other informational documents which
may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, by prepaid nationally recognized
overnight courier, or by prepaid facsimile to Borrower or to Lender, as the case may be, at their
respective addresses set forth below:
|
|
|
|
|
|
|
If to Borrower:
|
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eXegenics, Inc.
|
|
|
|
|
3701 Market Street
|
|
|
|
|
Philadelphia, PA 19104
|
|
|
|
|
Attention:
|
|
|
|
|
Fax: (215) 966-6186
|
|
|
|
|
Ph: (215) 966-6180
|
|
|
|
|
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|
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If to Lender:
|
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Horizon Technology Funding Company LLC
|
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76 Batterson Park Road
|
|
|
|
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Farmington, CT 06032
|
|
|
|
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Attention: Legal Department
|
|
|
|
|
Fax: (860) 676-8655
|
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|
|
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Ph: (860) 676-8654
|
31
The parties hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.
12.
General Provisions.
12.1
Successors and Assigns
. This Agreement and the Loan Documents shall bind and
inure to the benefit of the respective successors and permitted assigns of each of the parties;
provided
,
however
, neither this Agreement nor any rights hereunder may be assigned
by Borrower without Lenders prior written consent, which consent may be granted or withheld in
Lenders sole discretion. Lender shall have the right without the consent of or notice to Borrower
to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any
interest in Lenders rights and benefits hereunder. Lender may disclose the Loan Documents and any
other financial or other information relating to Borrower or any Subsidiary to any potential
participant or assignee of the Loan,
provided
that
such participant or assignee
agrees to protect the confidentiality of such documents and information using the same measures
that it uses to protect its own confidential information.
12.2
Time of Essence
. Time is of the essence for the performance of all obligations
set forth in this Agreement.
12.3
Severability of Provisions
. Each provision of this Agreement shall be several
from every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
12.4
Entire Agreement; Construction; Amendments and Waivers
.
(a)
Entire Agreement
. This Agreement and each of the other Loan Documents dated as of
the date hereof, taken together, constitute and contain the entire agreement between Borrower and
Lender and supersede any and all prior agreements, negotiations, correspondence, understandings and
communications between the parties, whether written or oral, respecting the subject matter hereof.
Borrower acknowledges that it is not relying on any representation or agreement made by Lender or
any employee, attorney or agent thereof, other than the specific agreements set forth in this
Agreement and the Loan Documents.
(b)
Construction
. This Agreement is the result of negotiations between and has been
reviewed by each of Borrower and Lender executing this Agreement as of the date hereof and their
respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or Lender. Borrower
and Lender agree that they intend the literal words of this Agreement and the other Loan Documents
and that no parol evidence shall be necessary or appropriate to establish Borrowers or Lenders
actual intentions.
(c)
Amendments and Waivers
. Any and all amendments and modifications of this
Agreement or of any of the other Loan Documents shall not be effective without the written consent
of Lender and Borrower. Any and all discharges or waivers of, or
32
consents to any departures from any provision of this Agreement or of any of the other Loan
Documents shall not be effective without the written consent of Lender. Any waiver or consent with
respect to any provision of the Loan Documents shall be effective only in the specific instance and
for the specific purpose for which it was given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or other circumstances.
Any amendment, modification, waiver or consent affected in accordance with this
Section
12.4
shall be binding upon Lender and on Borrower.
12.5
Reliance by Lender
. All covenants, agreements, representations and warranties
made herein by Borrower shall be deemed to be material to and to have been relied upon by Lender,
notwithstanding any investigation by Lender.
12.6
No Set-Offs by Borrower
. All sums payable by Borrower pursuant to this Agreement
or any of the other Loan Documents shall be payable without notice or demand and shall be payable
in United States Dollars without set-off or reduction of any manner whatsoever.
12.7
Counterparts
. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall constitute but one and the
same Agreement.
12.8
Survival
. All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations or commitment to fund remain
outstanding. The obligations of Borrower to indemnify Lender with respect to the expenses,
damages, losses, costs and liabilities described in
Section 10.3
shall survive until all
applicable statute of limitations periods with respect to actions that may be brought against
Lender have run.
13.
Relationship of Parties
. Borrower and Lender acknowledge, understand and agree
that the relationship between Borrower, on the one hand, and Lender, on the other, is, and at all
time shall remain solely that of a borrower and lender. Lender shall not under any circumstances
be construed to be a partner or a joint venturer of Borrower or any of its Affiliates; nor shall
Lender under any circumstances be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to
Borrower or any of its Affiliates. Lender does not undertake or assume any responsibility or duty
to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform Borrower or any of its Affiliates of any matter in connection with its or their
Property, any Collateral held by Lender or the operations of Borrower or any of its Affiliates.
Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by Lender in connection with such matters is solely for the protection of
Lender and neither Borrower nor any Affiliate is entitled to rely thereon.
14.
Confidentiality
. All information (other than periodic reports filed by Borrower
with the Securities and Exchange Commission) disclosed by Borrower to Lender in writing or through
inspection pursuant to this Agreement that is marked confidential shall be considered
33
confidential. Lender agrees to use the same degree of care to safeguard and prevent
disclosure of such confidential information as Lender uses with its own confidential information,
but in any event no less than a reasonable degree of care. Lender shall not disclose such
information to any third party (other than to Lenders partners, attorneys, governmental
regulators, or auditors, or to Lenders subsidiaries and affiliates and prospective transferees and
purchasers of the Loan, all subject to the same confidentiality obligation set forth herein or as
required by law, regulation, subpoena or other order to be disclosed) and shall use such
information only for purposes of evaluation of its investment in Borrower and the exercise of
Lenders rights and the enforcement of its remedies under this Agreement and the other Loan
Documents. The obligations of confidentiality shall not apply to any information that (a) was
known to the public prior to disclosure by Borrower under this Agreement, (b) becomes known to the
public through no fault of Lender, (c) is disclosed to Lender by a third party having a legal right
to make such disclosure, or (d) is independently developed by Lender. Notwithstanding the
foregoing, Lenders agreement of confidentiality shall not apply if Lender has acquired
indefeasible title to any Collateral or in connection with any enforcement or exercise of Lenders
rights and remedies under this Agreement following an Event of Default, including the enforcement
of Lenders security interest in the Collateral.
15.
CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER AND LENDER HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CONNECTICUT. BORROWER AND
LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
16.
No Defaults
. By virtue of its execution and delivery of this Amended and Restated
Loan Agreement, Lender hereby acknowledges as of the Execution Date that it has no knowledge of any
Default or Event of Default by Borrower under the Original Loan Agreement or Original Note.
[Remainder of page intentionally left blank.]
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Execution Date first above written.
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BORROWER:
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ACUITY PHARMACEUTICALS, LLC
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f/k/a e-ACQUISITION COMPANY II-B,
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LLC, a Delaware limited liability company
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successor by merger to ACUITY
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PHARMACEUTICALS, INC.
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By:
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Name:
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Title:
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EXEGENICS, INC.
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By:
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Name:
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Title:
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LENDER:
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HORIZON TECHNOLOGY FUNDING COMPANY LLC
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By: Horizon Technology Finance, LLC, its sole
member
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By:
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Name: Gerald A. Michaud
Title: Managing Member
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35
LIST OF EXHIBITS AND SCHEDULES
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Exhibit A
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Disclosure Schedule
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Exhibit B
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Intentionally Omitted
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Exhibit C
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Form of Note
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Exhibit D
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Intentionally Omitted
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Exhibit E
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Form of Officers Certificate
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EXHIBIT A
DISCLOSURE SCHEDULE
Acuity hereby certifies the following information to Lender:
Section 1.
Information For UCC Financing Statements and Searches and Deposit Accounts and
Accounts Holding Securities
.
(a) The exact corporate name of Acuity as it appears in its Articles of Formation, as amended
to date is:
Acuity Pharmaceuticals, LLC.
(b) Acuitys state of organization is:
Delaware.
(c) Acuitys taxpayer identification number is
33-1054746
.
(d) The following is a list of all corporate names, dba or trade names used by Acuity in the
past five years:
Acuity Pharmaceuticals, Inc. and e-Acquisition Company II-B, LLC
(e) The following is a list of all Subsidiaries of Acuity:
None.
(f) The address of Acuitys headquarters and chief executive office is:
3701 Market
Street, Philadelphia, PA 19104
. The following is a list of all States where Acuitys
headquarters and chief executive office has been located in the past five years:
Pennsylvania.
(g) The following is a list of all States where Acuitys property and assets have been located
in the past five years:
Pennsylvania
.
(h) The following is a list of all of Acuitys deposit accounts (bank name, address and
account names and numbers):
M & T Bank, 601 Dresher Road, Horsham, PA 19044, Account Name:
Acuity Pharmaceuticals, Inc., Checking Account Number 8892617781.
(i) The following is a list of all of Acuitys accounts holding securities (broker/bank name,
address and account names and numbers):
MTB Investment Group, 255 East Avenue, Rochester, NY
14604, Account Name: Acuity Pharmaceuticals, Inc., Account Number 2001552.
eXegenics hereby certifies the following information to Lender:
Information For UCC Financing Statements and Searches and Deposit Accounts and Accounts Holding
Securities
.
(a) The exact corporate name of eXegenics as it appears in its Certificate of Incorporation,
as amended to date is:
eXegenics, Inc.
(b) eXegenics state of incorporation is:
Delaware.
(c) eXegenics taxpayer identification number is
75-2402409
(d) The following is a list of all corporate names, dba or trade names used by eXegenics in
the past five years:
(e) The following is a list of all Subsidiaries of eXegenics:
Acuity and Froptix.
(f) The address of eXegenics headquarters and chief executive office is:
1250
Pittsford-Victor Road, Pittsford, NY 14534
.
(g) The following is a list of all States where Borrowers headquarters and chief executive
office has been located in the past five years:
New York.
(h) The following is a list of all States where eXegenics property and assets have been
located in the past five years:
New York
.
(i) The following is a list of all of Borrowers deposit accounts (bank name, address and
account names and numbers):
(j) The following is a list of all of Borrowers accounts holding securities (broker/bank
name, address and account names and numbers):
EXHIBIT B
(INTENTIONALLY OMITTED)
EXHIBIT C
AMENDED AND RESTATED SECURED PROMISSORY NOTE
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$4,000,000.00
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Dated as of: September ___, 2005
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Executed as of: March ___, 2007
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FOR VALUE RECEIVED, the undersigned, ACUITY PHARMACEUTICALS, LLC, a Delaware limited liability
company and EXEGENICS, INC., a Delaware corporation (collectively,
Borrower
), HEREBY,
JOINTLY AND SEVERALLY PROMISE TO PAY to the order of HORIZON TECHNOLOGY FUNDING COMPANY LLC, a
Delaware limited liability company (
Lender
) the principal amount of Four Million Dollars
($4,000,000.00) or such lesser amount as shall equal the outstanding principal balance of the Loan
made to Borrower by Lender pursuant to the Loan Agreement (as defined below), and to pay all other
amounts due with respect to the Loan on the dates and in the amounts set forth in the Loan
Agreement.
Interest on the principal amount of this Note from the date of this Note shall accrue at the
Loan Rate or, if applicable, the Default Rate. The Loan Rate for this Note is 12.23% per annum
based on a year of twelve 30-day months. If the Funding Date is not the first day of the month,
interim interest accruing from the Funding Date through the last day of that month shall be paid on
the first calendar day of the next calendar month. Borrower shall make payments of accrued
interest only on the outstanding principal amount of the Loan on the first day of each month
(
Payment Date
), commencing November 1, 2005, through and including July 1, 2007.
Commencing on August 1, 2007, and continuing on consecutive Payment Dates thereafter, Borrower
shall make to Lender twelve (12) level payments of principal plus accrued interest on the then
outstanding principal amount due hereunder of Three Hundred Fifty-Five Thousand Seven Hundred
Twenty-Five and 68/100 Dollars ($355,825.68). If not sooner paid, all outstanding amounts hereunder
and under the Loan Agreement shall become due and payable on July 1, 2008.
Principal, interest and all other amounts due with respect to the Loan, are payable in lawful
money of the United States of America to Lender as set forth in the Loan Agreement. The principal
amount of this Note and the interest rate applicable thereto, and all payments made with respect
thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Note.
This Note is referred to in, and is entitled to the benefits of, a certain Amended and
Restated Venture Loan and Security Agreement dated as of the date hereof by and among Borrower and
Lender (the Loan Agreement). The Loan Agreement, among other things, (a) provides for the making
of a secured Loan to Borrower, and (b) contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events.
This Note may not be prepaid, except as set forth in
Section 2.3
of the Loan
Agreement.
This Note and the obligation of Borrower to repay the unpaid principal amount of the Loan,
interest on the Loan and all other amounts due Lender under the Loan Agreement is secured under the
Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands and notices of any
kind in connection with the execution, delivery, performance and enforcement of this Note are
hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable
attorneys fees and costs, incurred by Lender in the enforcement or attempt to enforce any of
Borrowers obligations hereunder not performed when due. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Connecticut.
Note Register; Ownership of Note
. The ownership of an interest in this Note shall be
registered on a record of ownership maintained by Borrower or its agent. Borrower shall register
any transfers of any interest in this Note on such register within ten (10) days of notice by the
last registered holder of such transfer. Notwithstanding anything else in this Note to the
contrary, the right to the principal of, and stated interest on, this Note may be transferred only
if the transfer is registered on such record of ownership and the transferee is identified as the
owner of an interest in the obligation. Borrower shall be entitled to treat the registered holder
of this Note (as recorded on such record of ownership) as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or interest in this
Note on the part of any other person or entity.
This Note amends and restates in its entirety a certain Secured Promissory Note dated
September 14, 2005 (the Original Note) executed by Acuity Pharmaceuticals, LLC, successor by
merger to Acuity Pharmaceuticals, Inc., in favor of the Lender. Nothing contained herein shall be
deemed a repayment or novation of the Original Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers
thereunto duly authorized on the date hereof.
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BORROWER:
ACUITY PHARMACEUTICALS, LLC, successor by merger
to Acuity Pharmaceuticals, Inc.
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By:
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Name:
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Title:
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EXEGENICS, INC.
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By:
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Name:
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Title:
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EXHIBIT D
(INTENTIONALLY OMITTED)
EXHIBIT E
FORM OF OFFICERS CERTIFICATE
TO: HORIZON TECHNOLOGY FUNDING COMPANY LLC
Reference is made to the Amended and Restated Venture Loan and Security Agreement dated as of
March ___, 2007 and effective as of September 14, 2005 (as it may be amended from time to time, the
Loan Agreement
) by and among ACUITY PHARMACEUTICALS, LLC, successor by merger to ACUITY
PHARMACEUTICALS, INC., and EXEGENICS, INC. (collectively,
Borrower
) and HORIZON
TECHNOLOGY FUNDING COMPANY LLC (
Lender
). Unless otherwise defined herein, capitalized
terms have the meanings given such terms in the Loan Agreement.
The undersigned Responsible Officer of Borrower hereby certifies to Lender that:
1.
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No Event of Default or Default has occurred under the Loan Agreement. (If a Default or Event
of Default has occurred, specify the nature and extent thereof and the action Borrower
proposes to take with respect thereto.)
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2.
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The information provided in Section 1 of the Disclosure Schedule is currently true and
accurate, except as noted below.
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3.
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Borrower is in compliance with the provisions of
Sections 4, 6 and 7
of the Loan
Agreement, except as noted below.
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4.
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Attached herewith are the [monthly financial statements pursuant to Section 6.3(a) of the
Loan Agreement/annual audited financial statements pursuant to Section 6.3(b) of the Loan
Agreement]. These have been prepared in accordance with GAAP and are consistent from one
period to the next except as noted below.
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NOTES TO ABOVE CERTIFICATIONS
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BORROWER:
ACUITY PHARMACEUTICALS, LLC, successor by merger to
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Acuity Pharmaceuticals, Inc.
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By:
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Name:
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Title:
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EXEGENICS INC.
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By:
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Name:
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EXHIBIT 10.12
LICENSE AND COLLABORATION AGREEMENT
License and Collaboration Agreement (this Agreement) made as of June 2, 2005, by and between
Acuity Pharmaceuticals, Inc.,
a Delaware corporation, with its principal offices at 3701 Market
Street, Philadelphia, PA, 19104 (
Acuity
) and
Intradigm Corporation
with its principal offices at
12115 Parklawn Drive, Suite K, Rockville, MD 20852 (
Intradigm
), (Acuity and Intradigm are
sometimes referred to herein individually as a
Party
and collectively as the
Parties
).
BACKGROUND
WHEREAS, Intradigm is an RNAi delivery technology company, with proprietary technology and
expertise in drug delivery;
WHEREAS, Intradigm has developed formulation and drug delivery technology with commercial
promise for formulation of oligonucleotides to enhance and aid in delivery to desired target
tissues that may be applicable to the development of ophthalmic therapeutics that can be delivered
less invasively than intra-ocular injection, such as topical application.
WHEREAS, Acuity has proprietary technology and expertise in the area of ophthalmic
pharmaceutical clinical development;
WHEREAS, Acuity and Intradigm share a mutual interest in a collaboration aimed at the further
development and commercialization of a therapeutic encompassing or employing a short interfering
RNA (an
siRNA
) that is deliverable to the posterior pole of the eye which may be administered by
topical application for pharmaceutical use in humans (the
Topical siRNA
); and
WHEREAS, Acuity and Intradigm intend to utilize their capabilities, capitalize on each others
expertise, and put forth commercially reasonable efforts to achieve the objectives of this
collaboration.
NOW, THEREFORE, in consideration of the mutual promises, covenants, agreements,
representations and warranties hereinafter set forth, and intending to be legally bound, the
Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Acuity Improvements
means any improvements to the Acuity Patent Rights and Acuity Know-how,
in each case owned by Acuity as of the date hereof, that are conceived, created, developed, and/or
otherwise invented by Acuity, by Intradigm, or jointly by Acuity and Intradigm, under the Research
and Development Plan or pursuant to this Agreement.
Acuity Intellectual Property
means the Acuity Patent Rights, Acuity Improvements, and the
Acuity Know-how.
Acuity Know-how
means Technical Information owned, developed, or controlled by Acuity (other
than as a result of this Agreement) as of the date of this Agreement or during the Term of this
Agreement.
Acuity Patent Rights
means any valid claim of any Patent issued based on a patent
application previously or hereafter filed by or on behalf of Acuity or subsequently assigned,
licensed, or granted to, or acquired by, Acuity (other than pursuant to this Agreement), including
without limitation Patents and patent applications based on Acuity Improvements.
Affiliate
means any entity that directly or indirectly Owns, is Owned by, or is under common
Ownership with a Party to this Agreement. Owns or Ownership means direct or indirect
possession of more than fifty percent (50%) of the votes of holders of a corporations voting
securities or a comparable equity interest in any other type of entity.
Agency
means the FDA or any governmental regulatory authority responsible for granting
approvals for the sale of the Topical siRNA in the United States or any foreign country.
Agreement
means this Agreement, together with all exhibits and attachments.
Clinical Trials
means all trials and studies of the application of the Topical siRNA on
humans or clinical studies performed by Acuity for any purpose including without limitation for
purposes of obtaining Regulatory Approval in the United States or any foreign country and marketing
of the Topical siRNA in the United States or any foreign country.
Commercially Reasonable Efforts
means, with respect to the efforts to be expended by a Party
with respect to any objective, diligent, good faith efforts to accomplish such objective as such
Party would normally use to accomplish a similar objective under similar circumstances, it being
understood and agreed that with respect to the development and commercialization of Topical siRNA,
such efforts shall be substantially equivalent to those efforts and resources commonly used by a
bio-pharmaceutical company for a similar pharmaceutical product owned by it or to which it has
rights, which product is at a similar stage in its development or product life and is of similar
market potential taking into account efficacy, safety, approved labeling, the competitiveness of
alternative products in the marketplace, the patent and other proprietary position of the product,
the likelihood of regulatory approval given the regulatory structure involved, the profitability of
the product including the royalties payable to Third Parties, alternative products and other
relevant factors. In evaluating profit potential or strategic value Acuity shall not consider the
payments required to be made to Intradigm under this Agreement.
Confidential Information
has the meaning set forth in Section 9.1.
Control
means, with respect to an item of information or intellectual property right, the
possession of the ability to grant a license or sublicense as provided for herein under such item
or right without violating the terms of any agreement or other arrangement, express or implied,
with any Third Party.
Critical Field of Use
means the treatment of ophthalmic diseases characterized by excessive
or unwanted neovasculature, angiogenesis or leakage such as but not limited to Wet AMD, diabetic
retinopathy, diabetic macular edema, retinal vein occlusion, neovascular
-2-
glaucoma, retinopathy of prematurity, Von Hippel Angioma, von-hippel landau, Corneal
Neovascularization, Rubeosis, Pterygium or Iris Neovascularization as well as, dry AMD, drusen and
uveitis.
Effective Date
means the day and year first indicated above.
Excluded Field of Use
means the treatment of ophthalmic diseases in the Critical Field of
Use or Non-Critical Field of Use (other than through the use of the Topical siRNA) in which a drug
is delivered through systemic administration
only
(and not through, in whole or in part, topical
application, ocular injection or any other method).
Excluded Territory
means China, Hong Kong, Taiwan, Japan, Korea, Singapore, Thailand,
Indonesia, Malaysia, Australia and New Zealand.
FDA
means the United States Food and Drug Administration, or any successor thereto.
Fiscal Quarter
means each period of three (3) months ending on March 31, June 30, September
30, or December 31.
GAAP
means generally accepted accounting principles as in effect from time to time in the
United States.
IND
means an investigational new drug application as defined by the United States Food,
Drug, and Cosmetic Act, as amended (the Act), and applicable FDA rules and regulations or a
foreign equivalent.
Intradigm Improvements
means any improvements to the Intradigm Patent Rights and Intradigm
Know-how, in each case owned by Intradigm as of the date hereof, that are conceived, created,
developed, and/or otherwise invented by Intradigm, by Acuity, or jointly by Intradigm and Acuity,
under the Research and Development Plan or pursuant to this Agreement.
Intradigm Intellectual Property
means the Intradigm Patent Rights, Intradigm Improvements,
and the Intradigm Know-how.
Intradigm Know-how
means Technical Information owned, developed, or controlled by Intradigm
as of the date of this Agreement or during the Term of this Agreement.
Intradigm Novel siRNA Target
means a gene or mRNA that could be targeted with siRNA
identified in the Intradigm Patent Rights, where the gene or mRNA has not previously been described
in the literature or otherwise known to Acuity.
Intradigm Patent Rights
means any valid claim of any Patent issued based on a patent
application previously or hereafter filed by or on behalf of Intradigm or subsequently assigned,
licensed, or granted to, or acquired by, Intradigm, including without limitation Patents and patent
applications based on Intradigm Improvements.
Exhibit A
lists all the patents and patent
applications giving rise to Intradigm Patent Rights as of the date of this Agreement.
-3-
Intradigm Sublicensed Products
means Licensed Products (other than the Topical siRNA) that
are sold by a Third Party under a sublicense from Acuity for which Acuity would be required to pay
a royalty to Intradigm pursuant to Section 7.4 of this Agreement, if such product were sold by
Acuity or its Affiliates.
Jointly-Owned Intellectual Property
means developments, discoveries, inventions, ideas,
processes, methods, compositions, formulae, techniques, information and data, whether or not
patentable, conceived, developed or reduced to practice jointly by one or more employees of Acuity
on the one hand and one or more employees of Intradigm on the other hand in connection with the
research and development activities performed pursuant to this Agreement which are not Intradigm
Improvements or Acuity Improvements.
Launch
means the date of first commercial shipment of the Topical siRNA by Acuity, its
Affiliates, distributors, or sublicensees to Third Party customers in the United States or any
foreign country after receipt of Regulatory Approval for the Topical siRNA from the FDA or other
relevant Agency, as may be necessary in such country.
Licensed Products
means products whose manufacture, use or sale would, but for the existence
of this Agreement, infringe a valid claim of the Intradigm Patent Rights.
NDA
means a new drug application, as defined in the Act and applicable FDA rules and
regulations, including an application of the type described in section 505(b)(2) of the Act.
Net Sales
means the total gross proceeds to Acuity on sales to Third Parties representing
sales actually collected by Acuity and its Affiliates, less deductions for the following to the
extent actually paid or allowed with respect to the such sales:
(a) sales and excise taxes and duties (including import duties) paid or allowed by a selling
party and any other governmental charges imposed upon the manufacture or sale, after giving effect
to any rebates or refunds relating to such taxes or duties received by Acuity;
(b) rebates and chargebacks (including rebates to social and welfare systems) actually paid;
(c) allowances, chargebacks, and credits to Third Parties on account of rejected, damaged,
outdated, returned, withdrawn, or recalled product or on account of retroactive price reductions
affecting such product; and
(d) amounts paid to Third Parties on account of rebate payments, including Medicaid rebates.
Taxes, the legal incidence of which is on the purchaser and separately shown on Acuitys or
its Affiliates invoices, and transportation, insurance and postage charges, if prepaid by Acuity
or its Affiliates and billed on Acuitys or its Affiliates invoices as a separate item, shall not
be considered a component of Net Sales. Components of Net Sales shall be determined in the
ordinary course of business in accordance with Acuitys historical practice and using the accrual
method of accounting in accordance with GAAP.
-4-
The supply of a product as commercial samples or for use in clinical trials or studies shall
not be included within the computation of Net Sales.
Where (i) a product is sold by Acuity or an Affiliate as one of a number of items without a
separate price; or (ii) the consideration for a product shall include any non-cash element; or
(iii) the product is transferred by Acuity or an Affiliate in any manner other than an invoiced
sale, the Net Sales price applicable to any such transaction shall be deemed to be Acuitys average
Net Sales price for the applicable quantity of a product to the relevant class of customers at that
time.
Net Sublicense Payments
means (a) cash payments made to Acuity in consideration of the
sublicense; and (b) the fair market value of any non-cash consideration received by Acuity from a
sublicense in consideration of the sublicense other than; provided, however that the following
shall not be included in the calculation of Net Sublicense Payments (i) reasonable amounts received
in exchange for equity investments in Acuity by a sublicensee, (ii) sponsored research funding paid
to Acuity by a sublicensee in a bona fide transaction for future research to be performed by
Acuity; (iii) payments for consulting services actually performed by Acuity in a bona fide
transaction at arms length rates; and (iv) intellectual property rights received by Acuity from a
sublicensee, including, but not limited to, licenses or sublicenses to intellectual property
rights, covenants not to compete against Acuity, or agreements not to assert claims against Acuity.
Non-Critical Field of Use
means the treatment of any and all ophthalmic disease, other than
those included in the Critical Field of Use.
Patents
means all valid claims in all patent applications, and all foreign patents and
patent applications based thereon, including any continuations, divisionals, continuations-in-part,
extensions, reissues and re-examinations of any of the foregoing and all patents issuing from any
of the foregoing applications.
Product Success Criteria
means, with respect to the Topical siRNA, those criteria agreed
between the Parties and to be set forth in the Research and Development Plan.
Regulatory Approval
means the Topical siRNA license or marketing approval necessary as a
prerequisite for marketing the Topical siRNA in the United States or any foreign country.
Research and Development Plan
means the development program for the Topical siRNA as
described in Section 4.1 hereof which shall be agreed upon by the Parties within 30 days of the
date of this Agreement.
Technical Information
means all techniques and data and other know-how and technical
information, including inventions (including patentable inventions), practices, methods, concepts,
know-how, trade secrets, documents, computer data, source code, apparatus, clinical and regulatory
strategies and data, test data, analytical and quality control data, manufacturing data or
descriptions, development information, drawings, specifications, designs, plans, proposals and
technical data and manuals and all other proprietary information concerning the development,
manufacture, production, quality control, storage, distribution and sale of Licensed Products or
the Topical siRNA.
-5-
Third Party
means any entity other than Intradigm or Acuity or their Affiliates.
ARTICLE II
OWNERSHIP OF INTELLECTUAL PROPERTY; LICENSE GRANTS
2.1. Ownership of Inventions
.
(a) Except as provided in this Article II, Intradigm shall own all right, title, and interest
in and to the Intradigm Intellectual Property and Acuity shall assign any rights it may have in
such Intradigm Improvements to Intradigm. Acuity shall own all right, title, and interest in and
to the Acuity Intellectual Property and Intradigm shall assign any rights it may have in such
Acuity Improvements to Acuity.
(b) Any Intradigm Improvements conceived or reduced to practice during the Term shall become
the property of Intradigm, whether conceived or reduced to practice by or on behalf of Acuity and
Acuity shall assign any rights it may have in such Intradigm Improvements to Intradigm.
(c) Any Acuity Improvements conceived or reduced to practice during the Term shall become the
property of Acuity, whether conceived or reduced to practice by or on behalf of Intradigm and
Intradigm shall assign any rights it may have in such Acuity Improvements to Acuity.
(d) Jointly-Owned Intellectual Property shall be owned jointly by Acuity and Intradigm.
2.2. License Grants to Acuity.
(a) Intradigm hereby grants to Acuity, and Acuity hereby accepts from Intradigm, a sole and
exclusive (even as to Intradigm) irrevocable right and license, including the right to sublicense,
under and to Intradigm Intellectual Property to make, have made, use, sell, offer for sale, import
or otherwise commercialize Licensed Products in the Critical Field of Use.
(b) Intradigm hereby grants to Acuity, and Acuity hereby accepts from Intradigm, a sole and
exclusive (even as to Intradigm) irrevocable right and license, including the right to sublicense,
under and to Jointly-Owned Intellectual Property to make, have made, use, sell, offer for sale,
import or otherwise commercialize Topical siRNA and Licensed Products in the Critical Field of Use
and the Non-Critical Field of Use.
2.3. Revocable License Grant to Acuity.
(a) Intradigm hereby grants to Acuity, and Acuity hereby accepts from Intradigm, a sole and
exclusive (even as to Intradigm), revocable in part (pursuant only to Section 2.3(b) and (c)) right
and license, including the right to sublicense, under and to Intradigm Intellectual Property to
make, have made, use, sell, offer for sale, import or otherwise commercialize Licensed Products in
the Non-Critical Field of Use.
-6-
(b) After February 1, 2007, Intradigm may notify Acuity that Intradigm intends (by itself or
with a partner) to commercialize a therapeutic in the Non-Critical Field of Use which is not then
being pursued by Acuity (the
Optioned Therapeutic
). Intradigm shall be required to include with
such notification sufficient documentation to demonstrate to Acuity (through means reasonably
acceptable to Acuity) that Intradigm is financially and technologically capable of commercializing
the Optioned Therapeutic.
(i) Upon receipt of such notification and upon Acuitys acknowledgment (which shall not be
unreasonably withheld) that Intradigm is capable of such commercialization, Acuity shall have 120
days from such notification to provide Intradigm with a development plan demonstrating Acuitys
financial and technical ability (including Acuitys ownership of, or ability to obtain a license
to, intellectual property which is required to commercialize the Optioned Therapeutic) and intent
to commercialize the Optioned Therapeutic.
(ii) At this time, if Acuity desires to commercialize the Optioned Therapeutic, Acuity will
enter into a binding agreement with Intradigm that requires Acuity to expend a mutually agreed upon
amount of capital to commercialize the Optioned Therapeutic over an agreed upon time period.
(iii) If Acuity (A) fails to notify Intradigm during this 120-day period of Acuitys intent
to, and reasonably demonstrates its financial and technological ability to, commercialize the
Optioned Therapeutic or (B) Acuity materially breaches the agreement described in Section
2.3(b)(ii), Intradigm shall be free to pursue commercialization of the Optioned Therapeutic and the
license granted by Intradigm to Acuity in Section 2.2(a) shall be revoked to the extent
and only to
the extent
necessary for Intradigm to commercialize the Optioned Therapeutic.
2.4. Revocable License Grant to Intradigm.
(a) Acuity hereby grants to Intradigm, and Intradigm hereby accepts from Acuity, a sole and
exclusive (even as to Acuity), revocable (pursuant only to Section 2.4(b)), royalty free, right and
license, including the right to sublicense, under and to Intradigm Intellectual Property to make,
have made, use, sell, offer for sale, import or otherwise commercialize Licensed Products in the
Excluded Field of Use in the Excluded Territory.
(b) If Intradigm fails to enter into a binding agreement to develop therapeutic products for
the Excluded Field of Use in the Excluded Territory by December 31, 2005, the license granted by
Acuity to Intradigm in Section 2.4(a) shall be terminated without any further action by Acuity or
Intradigm.
2.5. Maintenance of Records.
Each Party shall maintain full and accurate records concerning
their activities under this Agreement for the purpose of documenting any intellectual property
developed hereunder. Such records shall be maintained for the later of either three (3) years
after the end of the Term or for the pendency of any patent application covering any Jointly-Owned
Intellectual Property.
-7-
ARTICLE III
OVERVIEW OF COLLABORATION
3.1. Scope of Collaboration
. The Parties shall work together to research and develop the
Topical siRNA. All research and development work shall be conducted in accordance with a Research
and Development Plan to be agreed upon by Acuity and Intradigm within thirty (30) days of the date
of this Agreement (the
Research and Development Plan
).
3.2. Additional Collaboration
. The Parties shall exercise good-faith negotiations to enter
into a separate collaboration aimed at the further development and commercialization of one or more
therapeutics encompassing or employing an siRNA that is deliverable to the posterior pole of the
eye which may be administered by systemic application for pharmaceutical use in humans (the
Systemic siRNA
). The financial terms of the Systemic siRNA collaboration shall be consistent
with and substantially similar to the provisions of Sections 7.1, 7.3, 7.4, 7.5 and 7.6(a) of this
Agreement, after taking into account and considering the relevant market for the Systemic siRNA and
its expected commercial success.
3.3. Recordkeeping
. Each Party shall record, to the extent practical, all Technical
Information relating to its research and development activities under the Research and Development
Plan in written form, which writing shall be consistent with standard practices of each Party and
what is normal and customary in the pharmaceutical industry in the United States or as may be
required by applicable law or regulation. All such written records of the Parties shall be
maintained in a form sufficient to satisfy all Agencies.
ARTICLE IV
RESEARCH AND DEVELOPMENT PROGRAM
4.1. Research and Development Plan
. The Research and Development Plan for the Topical siRNA,
including tasks, allocation of responsibilities, estimated development timelines, and estimated
development budgets, will be mutually agreed upon by Acuity and Intradigm within thirty (30) days
of the date of this Agreement. The Research and Development Plan will also include the Product
Success Criteria which will govern Acuitys obligation to commercialize the Topical siRNA. The
Parties may periodically modify the Research and Development Plan, within the scope of and in a
manner consistent with this Agreement, further detail the responsibilities of each Party within the
general scope of responsibilities set forth herein, each in accordance with Section 4.4. In the
event that an estimated development timeline will not be met, the Party with responsibility for
meeting that timeline shall notify the other Party and the Parties shall work together in good
faith to bring the project back on schedule.
4.2. Joint Development Committee
.
(b) The Development Program and all pre-clinical testing of the Topical siRNA shall be
conducted under the direction of a joint development committee (the
JDC
). The JDC shall be
composed of two (2) named representatives of Acuity and two (2) named representatives of Intradigm.
The named representatives shall designate one member to serve as chairperson of the JDC. Each
Party will identify its representatives to the JDC within
-8-
five (5) days after the date of this Agreement and each Party shall have the right to replace
its representatives at any time in its sole discretion after giving notice to the other Party.
(c) The purposes of the JDC shall be to review, direct, supervise and coordinate all
operational and scientific aspects of the development of the Topical siRNA and all pre-clinical
testing of the Topical siRNA (the
Development Program
). As part of its responsibilities, the JDC
shall (i) within thirty (30) days of the Effective Date, finalize the terms of the Research and
Development Plan, (ii) review the development of Intradigm under the Development Program, (iii)
monitor the progress of the Development Program and evaluate the work performed and the results
obtained in relation to the goals of the Development Program, (iv) approve any necessary or
desirable modifications to, the Development Program and the Research and Development Plan, and (v)
such other functions to which the Parties agree. The Party hosting each meeting of the JDC
promptly shall prepare and deliver to the other Party within fifteen (15) business days after the
date of such meeting, minutes of such meeting setting forth all decisions of the JDC relating to
the Development Program in form and content reasonably acceptable to the other Party.
(d) The JDC shall meet at least twice each quarter until the Development Program is completed
(the
Collaboration Term
), at such times and places as agreed to by Intradigm and Acuity. The JDC
and any of its members may meet or attend meetings by telephone or video conference. The JDC will
communicate regularly by telephone, facsimile and video conference. Meetings and telephone and
video conferences of the JDC may be attended by such other directors, officers, employees,
consultants and other agents of Intradigm and Acuity as the Parties from time to time reasonably
agree. Intradigm and Acuity will bear their own costs in attending such meetings.
(e) The JDC will review the characteristics of the compounds identified under the Development
Program, and the JDC will select the final compound or compounds which will be used for clinical
testing.
(f) All final decisions of the JDC shall be made by majority vote of all of the members.
4.3. Joint Obligations
.
(a) Each Party agrees to commit the qualified and experienced personnel, facilities,
equipment, expertise and other resources necessary to perform its obligations under this Agreement
and the Research and Development Plan.
(b) Except as set forth in Section 4.4, each Party will fund its own costs and expenses in the
performance of its research and development obligations provided pursuant to this Agreement and the
Research and Development Plan.
(b) The Parties shall keep each other fully informed of the status of the development of the
Topical siRNA including, without limitation, providing written reports as requested throughout the
performance of the Research and Development Plan, stating in reasonable detail all efforts made and
in process, and all significant progress achieved.
-9-
(c) The Parties will each designate a primary project contact with respect to the Topical
siRNA throughout the performance of the Research and Development Plan.
4.4. Intradigm Obligations.
(a) Intradigm shall use commercially reasonable efforts to diligently perform its obligations
under this Agreement, including, without limitation, those to be set forth in the Research and
Development Plan, all in accordance with all applicable laws, ordinances, rules, regulations,
orders, licenses and other requirements now or hereafter in effect.
(b) Intradigm shall be required to allocate one and one-half (1.5) FTEs (and no more) during
the term of the Collaboration for the areas of activity set forth in the Research and Development
Plan.
(c) Intradigm shall make available to Acuity all Intradigm Intellectual Property and Technical
Information and assistance as may reasonably be necessary for Acuitys development, submission for
applicable Regulatory Approval, and commercialization of the Topical siRNA, including formulation
and process development, development of stability indicating methods (including methods for
dissolution, assay and stability), and achievement of stability under accelerated stability
conditions for two months or under ambient conditions for six months, stability data, methods
validation, formulation trials, in-process and finished Products specifications, Product
development reports for the Topical siRNA, and identification and sourcing of any excipients used
in the formulation of the Topical siRNA, all as more particularly described herein and in the
Research and Development Plan.
(d) Intradigm shall maintain records in sufficient detail and otherwise in accordance with
good laboratory practices or current good manufacturing practices, as the case may be, and as are
required to properly reflect, and will document in a manner appropriate for purposes of supporting
any Agency filings, and pre-approval inspections, all work done and results achieved by Intradigm
in the performance of the Research and Development Plan (including all data in a form required
under any applicable governmental regulations). Subject to the confidentiality provisions of
Article X hereof, Intradigm shall provide Acuity with copies of all such records relating to the
Topical siRNA.
4.5. Acuity Obligations
.
(a) Acuity
shall use Commercially Reasonable Efforts to diligently perform its
obligations under this Agreement, including, without limitation,
those set forth in the Research and Development Plan, all in
accordance with all applicable laws, ordinances, rules, regulations,
orders, licenses and other requirements now or hereafter in
effect.
(b) In consideration for Intradigms performance of its obligations under this Agreement and the Research and Development Plan, Acuity shall pay Intradigm $180,000 per year per FTE employed by Intradigm pursuant
to Section 4.6(b).
(c) Acuity
shall maintain records in sufficient detail and otherwise in
accordance with good laboratory practices, good clinical practices,
or current good
-10-
manufacturing practices, as the case may be, and as are required to properly reflect, and will
document all work done and results achieved in the performance of the Research and Development Plan
including all records of any Clinical Trials. Subject to the confidentiality provisions of Article
IX hereof, Acuity shall provide Intradigm with the right to inspect such records relating to the
Topical siRNA.
(d) Acuity shall keep Intradigm fully informed as to the continuing status of its Clinical
Trials and development efforts for the Topical siRNA, including the status of the preparation and
filing of any Regulatory Approvals with applicable Agencies as well as the anticipated Launch of
the Topical siRNA and the status of the conduct and completion of Clinical Trials. In connection
therewith, Acuity shall provide to Intradigm quarterly reports during the Term, stating in
reasonable detail all efforts made and in process, and significant progress achieved. In addition,
Acuity shall communicate to Intradigm any material issues or problems. Acuity shall include in
such reports information concerning the status of the regulatory filings for the Topical siRNA and
shall notify Intradigm of the substance of all material written communications with any Agencies
relating to the Topical siRNA.
ARTICLE V
HEALTH REGISTRATION OBLIGATION
5.1. Clinical Development; Regulatory Approvals
. After the Topical siRNA compound is selected
and approved by the JDC, Acuity shall use its Commercially Reasonable Efforts to prepare, file,
and prosecute all Agency filings and applications to obtain all Regulatory Approvals for the
Topical siRNA in the United States and any foreign country that Acuity chooses in its sole
discretion, at Acuitys sole expense. Acuity shall own all right, title, and interest in any FDA
or other Regulatory Approvals which are obtained for the Topical siRNA, including all data
generated in the course of Clinical Trials and all applications and data submitted to the FDA or
other Agency.
5.2. NDA
. Acuity shall use Commercially Reasonable Efforts to file an NDA to seek Regulatory
Approval to use and sell the Topical siRNA in the United States and any foreign country that Acuity
chooses in its sole discretion, at Acuitys sole expense upon satisfaction of the Product Success
Criteria.
5.3. Maintenance of Regulatory Approvals
. Acuity shall use Commercially Reasonable Efforts to
maintain the Regulatory Approvals for use, sale and marketing of Topical siRNA in the United States
and any foreign country that Acuity chooses in its sole discretion, at Acuitys sole expense.
5.4. Intradigm Assistance
. Intradigm shall provide such assistance to Acuity in obtaining and
maintaining Regulatory Approvals in the United States and any foreign country as reasonably
requested by Acuity.
-11-
ARTICLE VI
MARKETING AND SALE OF THE PRODUCT
6.1. Marketing and Sale of the Topical siRNA
.
(a) Upon the Launch of the Topical siRNA, Acuity, either itself or through its Affiliates, or
distributors, shall use its Commercially Reasonable Efforts to market, distribute, and sell the
Topical siRNA in the United States and any foreign country that Acuity chooses in its sole
discretion and shall exercise such diligence in this regard as shall be reasonable in light of the
size of the market and potential market for the Topical siRNA and in a manner consistent with which
it markets other Acuity products of comparable market size in the particular country.
(b) Acuity shall control and make all decisions regarding the strategy and tactics of
marketing, selling, and otherwise commercializing the Topical siRNA, including, without limitation,
the method of sales and distribution, organization and management of sales and marketing, packaging
and labeling, appointment of distributors pursuant to Section 6.2, and other terms and conditions
for such sales and marketing, and shall exercise Commercially Reasonable Efforts in such regard to
maximize the economic opportunity for the Topical siRNA.
6.2. Distributors; Sublicensees
. Acuity may designate and appoint one or more Third Parties
to act as its agent(s) or sublicensees in connection with the marketing, sale and distribution of
the Topical siRNA.
6.3. Regulatory Compliance
. Acuity shall use Commercially Reasonable Efforts to comply with
applicable regulations regarding procedures for reporting to appropriate Agencies, and to report,
investigate, issue responses and execute any corrective action plan to post-marketing Topical siRNA
complaints/field reports in a timely manner in accordance with applicable regulations.
6.4. No Restrictions on Business
. Intradigm agrees that Acuity is in the business of
developing, and selling pharmaceutical products and that, subject to Acuitys obligations in
Articles IV, V and VI, nothing in this Agreement shall be construed as restricting such business or
imposing on Acuity the duty to develop, register, market, and/or to sell the Topical siRNA
hereunder to the exclusion of or in preference to any other product or otherwise preclude Acuity
from developing or practicing any Acuity Intellectual Property or developing other pharmaceutical
products. Correspondingly, except as expressly set forth herein, nothing herein shall be construed
as restricting the business of Intradigm.
ARTICLE VII
MILESTONES, FEES, AND ROYALTY PAYMENTS; ACCOUNTING
7.1. Milestones
.
(a) In consideration of Intradigms commitment to provide its research and development
obligations as provided herein, including, without limitation, under the Research and Development
Plan, Acuity agrees to pay to Intradigm, for the Topical siRNA developed hereunder, the following
milestone payments related to the development and
-12-
commercialization of one or more Topical siRNA therapeutics. It is also expected that
substantially similar milestone payments will be paid in connection with development of each of one
ore more Systemic siRNA therapeutics pursuant to a separate collaboration agreement to be
negotiated in good faith by the Parties.
|
|
|
|
|
Notice of Opening of IND from FDA
|
|
$
|
100,000
|
|
Enrollment of first patient in a Phase II Clinical Trial
|
|
$
|
500,000
|
|
Enrollment of first patient Phase III Clinical Trial
|
|
$
|
500,000
|
|
Phase III Clinical Trial completed successfully
|
|
$
|
1,000,000
|
|
NDA Approval in the U.S.
|
|
$
|
3,000,000
|
|
(b) Notwithstanding anything to the contrary contained herein, in the event Acuity exercises
its right to terminate the continued development and commercialization of the Topical siRNA
pursuant to Sections 12.2 or 12.3 hereof prior to the achievement of any or all of the applicable
milestones provided in Section 7.1 relating to the Topical siRNA, Acuity shall be required to make
payment to Intradigm only with respect to the milestones which were achieved prior to the
Termination Date and no further milestone payments relating to the Topical siRNA shall accrue after
the Termination Date.
7.2. License Fee
. In consideration for the license granted to Acuity under Section 2.1 of
this Agreement, Acuity agrees to pay to Intradigm, the following:
(a) $300,000 within 10 days of the execution of this Agreement; and
(b) $150,000 on December 31, 2005.
7.3. Royalty Payments on Topical siRNA
. During the Term, Acuity will pay to Intradigm a
royalty on all Net Sales of the Topical siRNA sold by Acuity and its Affiliates equal to four
percent (4%) of Net Sales of Topical siRNA. The royalty payments described in Section 7.4 shall
not be applicable for sales of the Topical siRNA.
7.4. Royalty Payments on Licensed Products other than Topical siRNA
. During the Term, Acuity
will pay to Intradigm a royalty equal to the percentage set forth below on all Net Sales of the
Licensed Products sold by Acuity and its Affiliates (other than the Topical siRNA), as follows:
(a) Acuity will pay to Intradigm a royalty on all Net Sales of Licensed Products which
incorporate a targeted nanoparticle covered by the Intradigm Patent Rights sold by Acuity and its
Affiliates equal to two percent (2%) of Net Sales of such Licensed Products.
(b) Acuity will pay to Intradigm a royalty on all Net Sales of Licensed Products which
incorporate a nucleic acid carrier covered by the Intradigm Patent Rights sold by Acuity and its
Affiliates equal to two percent (2%) of Net Sales of such Licensed Products.
-13-
(c) Acuity will pay to Intradigm a royalty on all Net Sales of Licensed Products which
incorporate a ligand covered by the Intradigm Patent Rights sold by Acuity and its Affiliates equal
to two percent (2%) of Net Sales of such Licensed Products.
(d) Acuity will pay to Intradigm a royalty on all Net Sales of Licensed Products which
incorporate an Intradigm Novel siRNA Target covered by the Intradigm Patent Rights sold by Acuity
and its Affiliates equal to eight percent (8%) of Net Sales of such Licensed Products.
(e) More than one royalty payment described in this Section 7.4 may be required to be paid
(e.g., for Licensed Products which incorporate a ligand covered by the Intradigm Patent Rights and
a targeted nanoparticle covered by the Intradigm Patent Rights);
provided however
, that the maximum
royalty on any Licensed Product sold by Acuity during the term shall be ten percent (10%) of Net
Sales of such Licensed Product.
7.5. Reduction of Royalties
. If Acuity is required to pay royalties to Intradigm and one or
more Third Parties that, in the aggregate, exceed ten percent (10%) of Net Sales (the
Total
Royalty
) to commercialize a Licensed Product or the Topical siRNA, the royalties due to Intradigm
with respect to such Licensed Product or Topical siRNA shall be reduced by one percent (1.0%) for
every one percent (1%) that the Total Royalty exceeds ten percent (10%). In no event shall the
royalties due to Intradigm be reduced below two percent (2%) pursuant to this Section 7.5.
7.6. Sublicense Fees.
(a) During the Term, Acuity will pay to Intradigm a sublicense fee equal to eight percent (8%)
of the Net Sublicense Payments received by Acuity from sublicensees who sell Topical siRNA pursuant
to a sublicense agreement with Acuity.
(b) During the Term, Acuity will pay to Intradigm a sublicense fee equal to thirty percent
(30%) of the Net Sublicense Payments received by Acuity from sublicensees who sell Intradigm
Sublicensed Products (other than Topical siRNA) pursuant to a sublicense agreement with Acuity.
7.7. Withholding Taxes
. Acuity shall be entitled to deduct from its payments to Intradigm the
amount of any withholding taxes, value-added taxes or other taxes, levies or charges with respect
to such amounts payable by Acuity, or any taxes in each case required to be withheld by Acuity to
the extent Acuity pays the appropriate governmental authority on behalf of Intradigm such taxes,
levies or charges. Acuity shall deliver to Intradigm, upon reasonable request, proof of payment of
all such taxes, levies and other charges and appropriate documentation which is necessary to obtain
a tax credit, to the extent such tax credit can be obtained.
-14-
7.8. Timing of Payments
(a) The milestone payments payable under Section 7.1 will be paid within thirty (30) days of
achievement of the applicable milestone.
(b) The Party having primary responsibility for the completion of the applicable milestone
shall provide written notice to the other Party not later than fifteen (15) days following the
satisfaction of such milestone trigger.
(c) Royalties payable under Section 7.3 or Section 7.4 will be paid not later than sixty (60)
days following the end of each Fiscal Quarter, or not later than sixty (60) days from the date that
is as soon thereafter as may be practicable in order for Acuity to determine the royalty payable.
All payments shall be accompanied by a report in writing showing for the quarter for which such
royalty payment applies: (i) the Net Sales of Topical siRNA and Licensed Products for which
royalties are required pursuant to Section 7.4 (along with a reasonably detailed description of the
calculation thereof); (ii) the royalties payable pursuant to Section 7.3 in United States dollars;
and (iii) the withholding taxes, if any, required by law to be deducted with respect to such
royalties and the amounts paid to the appropriate governmental authority with respect to such
royalties.
7.9. Stock Issuance.
(a) Within thirty (30) days following the Effective Date, Acuity will issue and register in
the name of Intradigm a certificate for 250,000 shares of Common Stock of Acuity (the
Restricted
Shares
).
(b) The Restricted Shares shall be grated to Intradigm pursuant to a stock grant agreement
between Acuity and Intradigm, the form of which is attached as Exhibit B (the
Stock Grant
Agreement
).
(c) The Restricted Shares will be subject to vesting pursuant to the milestones and time
periods described in the Stock Grant Agreement.
(d) Intradigm shall make such written disclosures and representations and warranties, and
shall fully cooperate with, Acuity and its counsel as may reasonably be requested by them
concerning compliance with any applicable securities laws, rules or regulations applicable to the
issuance of such Restricted Shares to Intradigm. The certificates for the Restricted Shares to be
issued to Intradigm will contain a legend on the face thereof which will preclude Intradigm from
selling or otherwise transferring such shares until the date upon which there is an effective
registration statement applicable to such shares which will allow them to be publicly traded.
7.10. No Other Payments.
Intradigm acknowledges and agrees that other than the payments
provided in this Article VII, and all other payment, indemnity and reimbursement obligations set
forth in this Agreement, Intradigm shall not be entitled to any amounts received by Acuity or its
Affiliates and sublicensees from the use, commercialization, license or sale of its rights under
this Agreement, regardless of the form or manner of payment (including milestones, royalties or
other amounts).
-15-
7.11. Audit.
Acuity shall maintain and shall require its Affiliates and sublicensees to
maintain, at their respective offices accurate and complete books and records of the Net Sales of
the Topical siRNA, consistent with sound business and accounting practices. Upon the written
request Intradigm, but not more than once in any calendar year, Acuity shall permit an independent
certified public accounting firm of nationally recognized standing, selected by Intradigm and
acceptable to Acuity, to have access during normal business hours to such records of Acuity as
shall be necessary to verify the accuracy of the royalty reports provided hereunder for any year
ending not more than thirty-six (36) months prior to the date of such request. The accounting firm
shall disclose to Intradigm only whether the records are accurate or not and the specific details
concerning any discrepancies, and shall provide a copy of its report to Acuity. No other
information shall be shared. If the audit of royalties shows an underpayment of royalty payments
by Acuity of more than the greater of (i) $25,000 or (ii) five percent (5%), then the expenses of
the audit of royalties shall be borne by Acuity; otherwise the expenses of the audit of royalties
shall be borne by Intradigm. If such accounting firm concludes that additional royalties were owed
or that royalties were overpaid during such period, then Acuity shall pay the additional royalties
or Intradigm shall credit or pay Acuity such overpayment within thirty (30) days of the date that
such accounting firms written report is delivered to the parties.
7.12. Confidential Financial Information
. Each Party shall treat all financial information of
the other Party as Confidential Information of the other Party, and shall retain and shall cause
its employees and agents to retain, all such financial information in confidence.
ARTICLE VIII
CERTAIN PROVISIONS REGARDING PATENTS
8.1. Patent Filings, Prosecution and Maintenance of Intradigm Patent Rights.
(a) Intradigm shall have the first right, using in-house or outside legal counsel selected at
Intradigms sole discretion, to prepare, file, prosecute, maintain and extend patent applications
and patents concerning all such Intradigm Patent Rights in the United States and any foreign
country that Intradigm chooses in its sole discretion, for which Intradigm shall bear the costs
relating to such activities. Intradigm shall solicit Acuitys advice and review of the nature and
text of any such patent applications in reasonably sufficient time prior to filing thereof, and
Intradigm shall take into account Acuitys reasonable comments related thereto. Intradigm and
Acuity shall treat all information disclosed to it under this Section 8.1 as Confidential
Information (as herein defined).
(b) If Intradigm elects not to file, prosecute or maintain any Intradigm Patent Rights or any
ensuing Patents or claims encompassed by any Intradigm Patent Rights in the United States or any
foreign country, Intradigm shall give Acuity notice thereof within a reasonable period prior to
allowing such patent applications or Patents or such claims encompassed by such patent applications
or Patents to lapse or become abandoned or unenforceable, and Acuity shall thereafter have the
right, at its sole expense and in the name of Intradigm, to prepare, file, prosecute and maintain
patent applications and patents or divisional applications related to such claims encompassed by
such patent applications or patents
-16-
concerning all such inventions and discoveries in countries of its choice throughout the
world. In such case, Intradigm shall assign (or grant Acuity a perpetual irrevocable royalty free
license, if an assignment can not be made) to Acuity all of its rights under such patent or patent
application in any country in which Acuity prosecutes and/or maintains such patent rights.
8.2. Enforcement of Intradigm Patent Rights
.
(a) In the event that a Party learns that any Intradigm Patent Rights necessary for the
development, manufacture, use and/or sale of the Topical siRNA are infringed or misappropriated by
activities of a Third Party in any country, or are subject to a declaratory judgment action arising
from such infringement in such country, such Party shall promptly notify the other Party hereto.
(b) Intradigm shall have the initial right (but not the obligation) to enforce such Intradigm
Patent Rights, or defend any declaratory judgment action with respect thereto, at its expense.
(c) In the event that Intradigm fails to initiate a suit to enforce such Intradigm Patent
Rights against such a Third Party in any jurisdiction within sixty (60) days after notification of
such infringement or decides that does not desire to defend such declaratory judgment action,
Acuity may initiate such suit in the name of Intradigm with regard to the applicable Intradigm
Patent Rights against such infringement or assume the defense of the declaratory judgment action,
at the expense of Acuity. The Party involved in any such claim, suit or proceeding (the
Enforcing
Party
), shall keep the other Party hereto reasonably informed of the progress of any such claim,
suit or proceeding and shall allow the other Party to participate in the action at the other
Partys sole cost and expense. Intradigm and Acuity shall recover their respective actual
out-of-pocket expenses, or equitable proportions thereof, associated with any litigation or
settlement thereof from any recovery made by any Party. Any remaining amounts shall be distributed
between the Enforcing Party, with the Enforcing Party receiving 75% of any such net recovery and
the other Party 25%.
8.3. Patent Filings, Prosecution and Maintenance of Joint Technology Patent Rights.
(a) Acuity shall have the first right, using in-house or outside legal counsel selected at
Acuity at its sole discretion, to prepare, file, prosecute, maintain and extend patent applications
and patents concerning all such Jointly Owned Intellectual Property in Rights in the United States
and any foreign country that Acuity chooses in its sole discretion, for which Acuity and Intradigm
shall equally share the costs relating to such activities. Acuity shall solicit Intradigms advice
and review of the nature and text of any such patent applications in reasonably sufficient time
prior to filing thereof, and Acuity shall take into account Intradigms reasonable comments related
thereto. Intradigm and Acuity shall treat all information disclosed to it under this Section 8.3
as Confidential Information (as herein defined).
(b) If Acuity elects not to file, prosecute or maintain any Jointly Owned Intellectual
Property or any ensuing Patents or claims encompassed by any Jointly Owned Intellectual Property in
the United States or any foreign country, Acuity shall give
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Intradigm notice thereof within a reasonable period prior to allowing such patent applications
or Patents or such claims encompassed by such patent applications or Patents to lapse or become
abandoned or unenforceable, and Intradigm shall thereafter have the right, in the name of Acuity
and Intradigm, to prepare, file, prosecute and maintain patent applications and patents or
divisional applications related to such claims encompassed by such patent applications or patents
concerning all such inventions and discoveries in countries of its choice throughout the world. In
such case, Acuity shall either: (i) continue to share equally in the costs of prosecuting or
maintaining such patent rights or (ii) assign (or grant to Intradigm a perpetual irrevocable
royalty free license, if an assignment can not be made) to Intradigm all of its rights under such
patent or patent application in any country in which Intradigm prosecutes and/or maintains such
patent rights.
8.4. Injunction and/or Failure to Obtain Third Party License
. Without limiting any other
remedy that may be available to Acuity under this Agreement, Acuity shall have the right to
terminate this Agreement in its entirety or only as to the affected country, immediately upon
written notice to Intradigm if at any time during the term of this Agreement: (i) a permanent
injunction is issued by a court of competent jurisdiction enjoining Acuitys sale of the Topical
siRNA in a country, or (ii) Acuity ceases the sale of the Topical siRNA in a country as a result of
a failure of either Party to obtain, upon commercially reasonable terms, a license (or immunity
from suit) from a Third Party alleging infringement in such country.
ARTICLE IX
CONFIDENTIALITY
9.1. Confidentiality and Non-Use Obligations
. (a) During the Term of this Agreement and for
five (5) years thereafter without regard to the means of termination, neither Acuity nor Intradigm
shall use, for any purpose other than the purposes of this Agreement, reveal or disclose to any
Third Party information and materials disclosed by the other Party (whether prior to or during the
Term of this Agreement), and marked as confidential or for which the receiving Party knows or has
reason to know are or contain trade secrets or other proprietary information of the other Party
(the Confidential Information) without first obtaining the written consent of the other Party.
(b) The Parties shall take all reasonable precautions to prevent the use or disclosure of such
Confidential Information without first obtaining the written consent of the other Party, except (i)
as may be required for securing Regulatory Approval, including pricing approval in the United
States and any foreign country, or as may otherwise be required to be disclosed to an Agency in the
United States and any foreign country; or (ii) as required in connection with any filings made by
the Securities and Exchange Commission or similar non-U.S. regulatory authorities or by the
disclosure policies of a major stock exchange. Each Party agrees that prior to the release or
dissemination of the other Partys Confidential Information to any Affiliate or sublicensee, such
Party shall cause the person to whom such Confidential Information is to be released to be bound by
a confidentiality agreement providing for a level of protection of such Confidential Information at
least equivalent to the terms of this Article X.
(c) These restrictions upon disclosure and use of Confidential Information shall not apply to
any specific portion of Confidential Information which:
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(i) is Confidential Information that can be demonstrated by the written records of the
recipient to have already been in the possession of the recipient free of any restrictions as to
its use or disclosure at the time of disclosure by the other Party;
(ii) is or later becomes available to the public, as evidenced by documents which were
generally published, other than by the fault of the recipient; or
(iii) is received from a Third Party having legitimate possession thereof and the independent
legal right to make such disclosure and such Third Party does not place any restriction as to the
use or disclosure on the recipient.
(d) Any patent applications and information therein filed or to be filed by either Party shall
be deemed (i) to be Confidential Information of that Party subject to the provisions of this
Article IX and (ii) to have been disclosed in confidence to the other Party.
(e) Notwithstanding the foregoing, the recipient may disclose any Confidential Information to
the extent required by an order of any court or other governmental authority having competent
jurisdiction, but only after the other Party is (i) notified in writing and provided with a copy of
such order; and (ii) given an opportunity to prevent such disclosure or obtain reasonable
protection for such Confidential Information. In any such event, the recipient shall cooperate
fully with other Party in connection with obtaining any protective order or other appropriate
remedy to prevent disclosure of Confidential Information.
9.2. Press Releases and Public Announcements
. Neither Party to this Agreement shall issue any
press release or other publicity materials, or make any public presentation with respect to the
terms or conditions of this Agreement without the prior written consent of the other Party (such
consent not to be unreasonably withheld or delayed). The restrictions provided in this Section 9.2
shall not apply to disclosures deemed by Acuity in its discretion to be required by law or
regulation, including as may be required in connection with any filings made with the Securities
and Exchange Commission or any similar non-U.S. regulatory authority, or by the disclosure
policies of the Nasdaq Stock Market, Inc.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
10.1. Legal and Governmental Compliance
. Each Party shall comply with all laws, rules and
regulations applicable to the activities undertaken by such Party hereunder.
10.2. Intradigm Representations and Warranties
. Intradigm represents and warrants to Acuity
that the following are true and correct as of the date hereof:
(a) Intradigm is a Delaware corporation duly organized, validly existing, and in good standing
under the laws of Delaware and has full corporate power to own its properties and conduct the
business presently being conducted by it, and is duly qualified to do business in, and is in good
standing under, the laws of all jurisdictions in which its activities or assets require such
status, except in any case where the failure to be so qualified and in good standing would not be
material.
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(b) Intradigm has full corporate right, power and authority to perform its obligations
pursuant to this Agreement, and this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of Intradigm. This
Agreement has been duly and validly executed by Intradigm. Upon execution and delivery of this
Agreement, it will be the valid and binding obligation of Intradigm, enforceable in accordance with
its terms, subject to equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors right and remedies generally.
(c) The execution, delivery and performance of this Agreement does not, and the consummation
of the transactions herein contemplated will not violate any law, rule, regulation, order, judgment
or decree binding on Intradigm, or result in a breach of any term of the certificate of
incorporation or by-laws of Intradigm or any contract, agreement or other instrument to which
Intradigm is a party, except in each case to an extent not material.
(d) Intradigm is the sole owner of the entire right, title and interest in and to the
Intradigm Patent Rights and no other Person (including any government) has any license, claim or
other right or interest in or to the Intradigm Patent Rights as of the Effective Date.
(e) To Intradigms actual knowledge, the use of the Intradigm Intellectual Property in the
development, manufacture and sale of the License Products or the Topical siRNA will not infringe,
misappropriate or otherwise conflict with any intellectual property or other rights of any Third
Party as of the Effective Date.
(f) Intradigm is not aware of any infringement of the Intradigm Patent Rights as of the
Effective Date.
(g) There are no judicial, arbitral, regulatory or administrative proceedings or
investigations, claims, actions or suits relating to the Intradigm Patent Rights pending against
or, to Intradigms knowledge, threatened against Intradigm or its Affiliates in any court or by or
before any governmental body or agency in the United States or any foreign country.
10.3. Representations and Warranties of Acuity.
Acuity represents and warrants to Intradigm
that the following are true and correct as of the date hereof:
(a) Acuity is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power to own its properties and conduct the
business presently being conducted by it, and is duly qualified to do business in, and is in good
standing under, the laws of all states in which its activities or assets require such status,
except in any case where the failure to be so qualified and in good standing would not be material.
(b) Acuity has full corporate right, power and authority to perform its obligations pursuant
to this Agreement, and this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Acuity. This Agreement has
been duly and validly executed by Acuity. Upon execution and
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delivery of this Agreement, it will be the valid and binding obligation of Acuity enforceable
in accordance with its terms, subject to equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors rights and remedies
generally.
(c) The execution, delivery and performance of this Agreement does not, and the consummation
of the transactions therein contemplated will not violate any law, rule, regulation, order,
judgment or decree binding on Acuity or result in a breach of any term of the certificate of
incorporation or by-laws of Acuity or any contract, agreement or other instrument to which Acuity
is a party, except in each case to an extent not material. No authorization is required by Acuity
for the execution, delivery, or performance of this Agreement by Acuity, except in each case to an
extent not material.
10.4. Limitation on Warranties
. Except as expressly provided in this Agreement, neither Party
makes any representation or warranty to the other, whether express or implied, either in fact or by
operation of law, by statute or otherwise, and both Parties specifically disclaim any and all
implied or statutory warranties, including, without limitation, any warranty of merchantability or
warranty of fitness for a particular purpose. In addition, each Party understands and agrees that
neither Party warrants or commits that the Topical siRNA will be successfully developed, be
submitted for applicable Regulatory Approval (except as expressly required under this Agreement),
receive applicable Regulatory Approval or be successfully marketed or commercialized. Without
limiting the indemnity obligations set forth in Article XII for the items described therein,
neither Party shall have liability or responsibility to the other Party for any such failure in the
research and development, Agency approval, manufacturing, marketing or sales efforts, except to the
extent such failure results from the Partys willful misconduct or gross negligence.
ARTICLE XI
INDEMNIFICATION; INSURANCE
11.1. Indemnification
.
(a)
Acuity Indemnification
. Acuity agrees to indemnify and hold forever harmless Intradigm
and its Affiliates and each of their agents, directors, officers and employees from and against any
loss, damage, action, proceeding, expense, liability, physical or emotional injury or death, or
loss of service or consortium, including reasonable attorneys fees (Loss) arising from or in
connection with (i) the research, development, manufacture, use, offer for sale, sale or
importation by Acuity or its Affiliates of Licensed Products or Topical siRNA,
except
for
any Loss for which Intradigm has agreed to indemnify Acuity pursuant to Section 11.1(b) below; (ii)
the breach or inaccuracy of any representations, warranties or covenants made by Acuity in this
Agreement; and (iii) the gross negligence or willful misconduct of Acuity or its Affiliates or any
of their agents, directors officers or employees.
(b)
Intradigm Indemnification
. Intradigm agrees to indemnify and hold forever harmless Acuity
and its Affiliates and each of their agents, directors, officers, and employees from and against
any Loss arising from or in connection with: (i) Intradigms or its Affiliates research and
development activities in connection with the Topical siRNA or the activities of any Intradigm
personnel in connection with the research, development, manufacture,
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use, sale, storage or handling of the Topical siRNA,
except
for any Loss for which
Acuity has agreed to indemnify Intradigm pursuant to Section 11.1(a) above; (ii) the breach or
inaccuracy of any representations, warranties or covenants made by Intradigm in this Agreement,
(iii) the gross negligence or willful misconduct of Intradigm or its Affiliates or any of their
agents, directors, officers or employees; and (iv) the research, development, manufacture, use,
offer for sale, sale or importation of Licensed Products by Intradigm or any of its Affiliates or
any of their distributors, sublicensees or agents.
11.2. Procedure
. A Party seeking indemnity hereunder (an
Indemnified Party
) shall promptly
notify the other Party (the
Indemnifying Party
) upon being notified or otherwise made aware of a
suit, action or claim; provided that failure to provide such notice shall not affect the obligation
of the Indemnifying Party to indemnify except to the extent that the Indemnifying Party is
materially prejudiced thereby. The Indemnifying Party shall defend and control any proceedings,
and the Indemnified Party shall be permitted to participate at its own expense, unless there shall
be a conflict of interest which would prevent representation by joint counsel, in which event the
Indemnifying Party shall pay for the Indemnified Partys separate counsel pursuant to Section 11.1
above. The Indemnifying Party may not settle the suit or otherwise consent to any judgment in such
suit without the written consent of the Indemnified Party (such consent not to be unreasonably
withheld or delayed). The Parties shall cooperate in the defense of any Third Party claim.
11.3. Limitation of Liability
. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES OR EXPENSES, INCLUDING DAMAGES FOR LOST PROFITS, LOSS
OF OPPORTUNITY OR USE OF ANY KIND, SUFFERED BY THE OTHER PARTY, WHETHER IN CONTRACT, TORT OR
OTHERWISE.
11.4. Insurance
.
(a) During the term of this Agreement and for a period of five (5) years after its expiration
or earlier termination, each Party shall obtain, at its sole cost and expense, liability insurance
applicable to its performance under this Agreement that meets the following requirements:
(b) the insurance shall insure such Party against all liability related to its activities
relating to the development, manufacture, use or sale of Products (whether such Partys liability
arises from its own conduct or by virtue of its participation in this Agreement), including
liability for bodily injury, property damage, wrongful death, and any contractual indemnity
obligations imposed by this Agreement; and
(c) the insurance shall be in amounts that are reasonable and customary in the United States
in the pharmaceutical industry, but in no event shall liability insurance relating to manufacture,
use, sale or distribution of a marketed Product maintained by such Party cover less than (a) two
million dollars ($2,000,000) per occurrence (or claim) and an annual aggregate of two million
dollars ($2,000,000) during clinical testing of Licensed Products and Topical siRNA and (b) a
commercially reasonable amount after completion of clinical testing. All such policies shall
include a contractual endorsement naming the other Party to this
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Agreement as an additional insured and require the insurance carriers to provide such other
Party with no less than thirty (30) days written notice of any change in the terms or coverage of
the policies or their cancellation.
ARTICLE XII
TERM; TERMINATION
12.1. Term.
This Agreement shall take effect as of the date hereof and shall continue in
effect for twenty years unless earlier terminated in accordance with the provisions of this Article
XII (such date being referred to as the
Termination Date
).
12.2. Acuity Product Specific Termination
.
(a) Acuity may terminate its obligations under Article IV, Article V, Section 7.1 and Section
7.3, in whole or in part on a country by country basis, if Acuity shall have reasonably determined
to terminate or discontinue the clinical testing, regulatory approval or commercialization of the
Topical siRNA.
(b) Upon such termination, the Parties rights and obligations under this Agreement (exclusive
of the confidentiality obligations of Article IX and indemnity obligations of Article XI hereof,
each of which shall survive the termination) shall terminate as to the countries so terminated and
be of no further force or effect as to the countries so terminated.
12.3. Notification of Termination by Acuity
. Acuity shall exercise its right of termination
by the provision of written notice to Intradigm within sixty (60) days of the occurrence of any of
the events set forth in Section 12.2, such notice to contain the details supporting such
termination.
12.4. Termination of Agreement by the Parties
. This Agreement may be terminated:
(a) By mutual written consent of each of Intradigm and Acuity; or
(b) Upon written notice by a Party if (i) the other Party shall have been dissolved, ceased
active business operations or liquidated, unless such dissolution, cessation or liquidation results
from reorganization, acquisition, merger or similar event, or (ii) bankruptcy or insolvency
proceedings, including any proceeding under Title 11 of the U.S. Code, have been brought by or
against the other Party and, in the event such a proceeding has been brought against the other
Party, remains undismissed for a period of sixty (60) days, or an assignment has been made for the
benefit of such Partys creditors or a receiver of such Partys assets has been appointed (a
Bankruptcy Event
); or
(c) By either Acuity or Intradigm, upon ninety (90) days prior written notice, if the other
Party is in material default, and fails to cure such breach within ninety (90) days following
receipt of written notice from the non-breaching Party specifying the breach to be cured.
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12.5. Consequences of Termination
.
(a) Upon termination of this Agreement in whole each Party shall return to the other all
relevant records and materials in its possession or control containing confidential information of
the other Party.
(b) At the time of any termination of this Agreement under Section 12.4 other than termination
by Intradigm under 12.4(c), if the Topical siRNA has been Launched in the affected country prior to
such termination, then Acuity shall have the option to maintain in effect the license granted
hereunder respecting the Topical siRNA, subject to Acuitys obligation to pay royalties under
Section 7.3 above.
12.6. Surviving Rights
. Termination of this Agreement for any reason shall be without
prejudice to:
(a) The rights and obligations of the parties provided in Section 2.1, Articles IX and XI
hereof, and the representations and warranties provided in Article X, all of which shall survive
such termination;
(b) Any other rights, obligations or liabilities which shall have accrued to the benefit of
either Party prior to such termination (including without limitation Acuitys obligation to pay all
milestone and royalty payments which shall have accrued hereunder up to and including the effective
date of such termination), all of which shall survive such termination; and
(c) Any other rights of remedies provided at law or in equity which either party may otherwise
have against the other.
ARTICLE XIII
MISCELLANEOUS
13.1. Force Majeure
. Neither Party shall lose any rights hereunder or be liable to the other
Party for damages or loss on account of failure of performance by the defaulting Party if the
failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo,
act of God, or any other similar cause beyond the reasonable control of the defaulting Party,
provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or
remedy such force majeure and given prompt notice to the other Party.
13.2. Notices
. All notices, requests, consents, and other communications under this Agreement
shall be in writing and shall be delivered by hand, sent via overnight courier, sent by facsimile,
or mailed by first class certified or registered mail, return receipt requested, postage prepaid:
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If to Acuity: to
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With a copy to:
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Acuity Pharmaceuticals, Inc.
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Pepper Hamilton LLP
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3701 Market Street
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3000 Two Logan Square
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Philadelphia, PA, 19104
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Philadelphia, PA 19103
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Attn: Dale R. Pfost, Ph.D.
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Attn: Ilan Katz
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If to Intradigm: to
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Intradigm Corporation
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12115 Parklawn Drive, Suite K
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Rockville, MD 20852
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Attn: John A. Spears, Ph.D.
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or to such other person or entity or at such other address as any party shall designate by notice
to the other in accordance herewith.
Notices provided in accordance with this Section 13.2 shall be deemed delivered (i) upon
personal delivery with signature required, (ii) one Business Day after they have been sent to the
recipient by reputable overnight courier service (charges prepaid and signature required) (iii)
upon confirmation, answer back received, of successful transmission of a facsimile message
containing such notice if sent between 9:00 a.m. and 5:00 p.m., local time of the recipient, on any
Business Day, and as of 9:00 a.m. local time of the recipient on the next Business Day if sent at
any other time, or (iv) three Business Days after deposit in the mail. The term Business Day as
used in this Section 13.2 shall mean any day other than Saturday, Sunday or a day on which banking
institutions are not required to be open in the State of New Jersey.
13.3. Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by the laws of the State of Delaware, as such laws are
applied to contracts entered into and to be performed within such state, as though made and to be
fully performed therein without regard to conflicts of law principles thereof. The Parties agree
to submit to the personal jurisdiction in any Federal or State court of competent jurisdiction
seated in the State of Delaware, and waive any objection as to venue or inconvenience of forum.
(b) The Parties shall initially attempt in good faith to resolve any significant controversy,
claim, allegation of a Default or dispute arising out of or relating to this Agreement (hereinafter
collectively referred to as a Dispute) through negotiations between senior executives of Acuity
and Intradigm. If the Dispute is not resolved within thirty (30) days (or such other period of
time mutually agreed upon by the Parties) of notice of the Dispute, then the Parties agree to
submit the Dispute to non-binding mediation on terms and procedures to be mutually agreed to for a
period of ninety (90) days. Any mediation proceedings shall be treated as settlement discussions
and therefore shall be confidential, and no mediator may testify for either Party in any later
proceeding relating to the dispute. No recording or transcript shall be made of the mediation
proceedings. Each Party shall bear its own costs and expenses of mediation, and the Parties shall
share equally the fees and expenses of the mediator.
(c) If the Dispute is not resolved through negotiations or mediation as set forth above, then
either Party may commence litigation; provided, that this Section 13.3 shall not be construed to
prevent a Party from seeking injunctive relief without observing the requirements of Section
13.3(b).
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13.4. Non-waiver of Rights
. Except as specifically provided for herein, the waiver from time
to time by any of the Parties of any of their rights or their failure to exercise any remedy shall
not operate or be construed as a continuing waiver of same or of any other of such Partys rights
or remedies provided in this Agreement.
13.5. No Agency
. Neither Party shall by virtue of this Agreement have any power to bind the
other to any obligation nor shall this Agreement create any relationship of agency, partnership or
joint venture.
13.6. Severability
. If any term, covenant, or condition of this Agreement or the application
thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable,
then (i) subject to clause (ii) of this Section 13.6 the remainder of this Agreement, or the
application of such term, covenant or condition other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant, or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law and (ii) the
Parties hereto covenant and agree to renegotiate any such term, covenant, or application thereof in
good faith in order to provide a reasonably acceptable alternative to the term, covenant, or
condition of this Agreement or the application thereof that is invalid or unenforceable.
13.7. Entire Agreement
. This Agreement, including the exhibits and schedules hereto as in
effect from time to time pursuant to the terms hereof, sets forth all the covenants, promises,
agreements, warranties, representations, conditions, and understandings between the Parties hereto
in the scope of the collaboration, and supersedes and terminates all prior agreements and
understanding between the parties under this Agreement. No subsequent alteration, amendment,
change, or addition to this Agreement shall be binding upon the Parties hereto unless reduced to
writing and signed by the respective authorized officers of the Parties.
13.8. Assignment
. No Party shall, without the prior written consent (not to be unreasonably
withheld or delayed) of the other Party having been obtained, assign or transfer this Agreement to
any Third Party, provided, however, that any Party may assign or transfer this Agreement to any
Affiliate, provided that the assigning Party shall guarantee the performance of that Affiliate, or
to any successor by merger of such Party, or to the Purchaser of all or substantially all of such
assets of its business, without the prior written consent of the other Party hereto. This
Agreement shall be binding upon and shall inure to the benefit of the Parties and their successors
and permitted assigns.
13.9. Facsimile Execution
. This Agreement may be executed in facsimile counterparts each of
which is hereby agreed to have the legal binding effect of an original signature. The Parties
hereto agree to forward the original signatures by overnight mail to the other Party upon
execution.
13.10. License Survival During Bankruptcy
. All rights and licenses granted under or pursuant
to this Agreement to the Intradigm Intellectual Property are, and shall otherwise be deemed to be,
for purposes of Paragraph 365(n) of the U.S. Bankruptcy Code, licenses of rights to Intellectual
Property as defined under Paragraph 101(35A) of the U.S. Bankruptcy Code. The parties agree that
Acuity, as a licensee of such rights under this Agreement, shall retain and may fully exercise all
of its rights and elections under the U.S.
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Bankruptcy Code, subject to performance by Acuity of its obligations under this Agreement.
The parties further agree that, in the event Intradigm elects to terminate this Agreement because
of a Bankruptcy Event and Acuity elects to continue the licenses under this Agreement as
contemplated by the preceding sentence, then Acuity shall be entitled, upon reasonable request, to
have access, in confidence, to such of Intradigm Intellectual Property not already in Acuitys
possession, as shall be reasonably necessary to make use of the license rights under this Agreement
without participation by Intradigm.
****
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IN WITNESS WHEREOF
, the parties have caused this Agreement to be executed by their duly
authorized representatives as of the day and year first indicated above.
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ACUITY PHARMACEUTICALS, INC.
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By:
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/s/ Dale R. Pfost
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Name: Dale R. Pfost
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Title: President and Chief Executive Officer
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INTRADIGM CORPORATION
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By:
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/s/ John A. Spears
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Name: John A. Spears
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Title: Chairman and Chief Executive Officer
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