As filed with the Securities and Exchange Commission on
April 25,
2006
Registration Number 333-
131918
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________________________
CLEVELAND BIOLABS, INC.
(Name of small business issuer in our charter)
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Delaware
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8731
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20-0077155
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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Incorporation or organization)
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Classification Code Number)
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Identification No.)
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11000 Cedar Ave.
Suite 290
Cleveland, Ohio 44106
(216) 229-2251
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
__________________________
Dr. Michael Fonstein
Chief Executive Officer & President
Cleveland BioLabs, Inc.
11000 Cedar Ave.
Suite 290
Cleveland, Ohio 44106
(216) 229-2251
(Name, address, including zip code, and telephone number, including area code, of agent for service)
__________________________
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Copies to:
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Ram Padmanabhan, Esq.
Katten Muchin Rosenman LLP
525 West Monroe Street
Chicago, Illinois 60661
(312) 902-5200 / (312) 902-1061 (Telecopy)
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Kenneth R. Koch, Esq.
Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.
666 Third Avenue
New York, New York 10017
(212) 692-6768 / (212) 983-3115 (Telecopy)
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Approximate date of commencement of proposed sale to the public
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As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.
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The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject To Completion, Dated
April 25,
2006
PRELIMINARY PROSPECTUS
____________ Shares
CLEVELAND BIOLABS, INC.
Common Stock, $0.005 Par Value
$_______ per share
This is our initial public offering of shares of our common stock. We are offering ______ shares of common stock and the selling stockholders identified in this prospectus are offering _____ shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. We expect the initial offering price of our common stock to be between
$6.00
and
$8.00
per share.
Currently, no public market exists for shares of our common stock. We
have applied
for our common stock to be quoted on the Nasdaq Capital Market under the symbol CBLI.
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on page 6.
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Per Share
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Total
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Price to the public
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$
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$
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Underwriting discount and commissions (1)
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$
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$
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Proceeds to us (before expenses)
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$
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$
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Proceeds to selling stockholders (before expenses)
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$
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$
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(1)
Includes a non-accountable expense allowance in the amount of 3% of the gross proceeds of the offering payable to Sunrise Securities Corp., the representative of the underwriters.
We and the selling stockholders have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase from the selling stockholders a maximum of ______ additional shares at the public offering price, less underwriting discounts and commissions within 45 days following the date of this prospectus to cover over-allotments, if any. If the selling stockholders do not fully participate in the over-allotment, then we, to the extent required to satisfy the exercise of the over-allotment, will issue the remaining shares in which the selling stockholders elected not to sell. If the underwriters exercise this option in full from the selling stockholders, the total underwriting discounts and commissions will be $______
and the total proceeds, before expenses,
to the selling stockholders will be $______. If the option is satisfied in full by the selling stockholders, total proceeds to us will not be affected by the options exercise.
The underwriters are offering the common stock as set forth under Underwriting. Delivery of the shares of common stock will be made on or about __________, 2006. Selling stockholders will pay no offering expenses.
___________________________
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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SUNRISE SECURITIES CORP.
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ROTH CAPITAL PARTNERS
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___________________________
The date of this prospectus is _______ , 2006.
TABLE OF CONTENTS
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Page No.
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PROSPECTUS SUMMARY
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1
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Our Company
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1
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Our Products and Technology
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1
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Our Markets
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2
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Our Industry
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3
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Our Strategies and Objectives
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3
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Our Information
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4
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THE OFFERING
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5
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SUMMARY FINANCIAL DATA
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6
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RISK FACTORS
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7
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Risks Specific to Us
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7
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Risks Related to the Biotechnology/Biopharmaceutical Industry
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19
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Risks Related to the Securities Markets and Investments in Our Common Stock
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20
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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25
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USE OF PROCEEDS
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26
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DIVIDEND POLICY
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26
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DILUTION
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27
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CAPITALIZATION
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28
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SELECTED FINANCIAL DATA
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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30
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Overview
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30
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Critical Accounting Policies
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Results of Operations
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31
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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
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32
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Year Ended December 31, 2004 Compared to Period from June 5, 2003 (inception)
to December 31, 2003
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33
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Liquidity and Capital Resources
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33
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BUSINESS
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35
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Our Company
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35
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Product Development
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35
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Protectan CBLB502
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37
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Curaxins
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38
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Product Development Schedule and Capital Requirements
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40
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Research and Development
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Licensing Revenues
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42
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Strategic Partnerships
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Our Intellectual Property
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Need and Opportunity
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43
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Competition
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45
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Governmental Regulation
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46
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Manufacturing and Marketing
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49
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Employees
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49
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Facilities
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Litigation
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Independent Accountants
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MANAGEMENT
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Executive Officers and Directors
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Audit Committee
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Code of Ethics
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Compensation of Directors
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Executive Compensation
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TABLE OF CONTENTS (continued)
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Page No.
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Employment and Consulting Agreements
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54
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Scientific Advisory Board
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PRINCIPAL STOCKHOLDERS
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SELLING STOCKHOLDERS
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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The Cleveland Clinic Foundation
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ChemBridge Corporation
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University of New South Wales
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Sunrise Securities Corp.
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Founders
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61
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DESCRIPTION OF THE SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK
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Series A
Rights Agreement
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Registration Rights
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Standstill
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Series A Preferred Stockholders
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DESCRIPTION OF OUR COMMON STOCK
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64
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Common Stock
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Voting
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Conversion
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Dividends
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Liquidation
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Other Terms
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Common Stockholders Agreement
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Common Stockholders
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Listing of Stock
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Transfer Agent and Registrar
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Directors Limitation of Liability
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SHARES OF THE COMPANY ELIGIBLE FOR FUTURE SALE
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Rule 144
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Rule 701
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Lock Up of Certain Shares
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Registration Rights
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UNDERWRITING
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LEGAL MATTERS
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71
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EXPERTS
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ADDITIONAL INFORMATION
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FINANCIAL STATEMENTS
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F-1 F-
20
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You should only rely on the information contained in this prospectus. Neither we, nor the selling stockholders have, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. The information contained in, or that can be accessed through, our website is not a part of this prospectus. We, the selling stockholders and the underwriters are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
Through and including _______, 2006 (the 25th day after commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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PROSPECTUS SUMMARY
This summary does not contain all of the information you should consider before buying shares of our common stock. We urge you to read the entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors and the financial statements and notes to those financial statements included elsewhere in this prospectus, before deciding to invest in shares of our common stock. In this prospectus, unless the context otherwise requires, the terms CBL, company, we, us, and our refer to Cleveland BioLabs, Inc., a Delaware corporation, and, unless the context otherwise requires, common stock refers to the common stock, par value $0.005 per share, of Cleveland BioLabs, Inc.
Our Company
We are a development-stage company engaged in drug discovery. Our goal is to identify and develop new types of drugs for protection of normal tissues from exposure to radiation and other stresses, such as toxic chemicals and for cancer treatment. Our initial target is to develop a drug to protect humans from the effects of exposure to radiation, whether as a result of military or terrorist acts or as a result of a nuclear accident. Recent acts of terrorism and the proliferation of nuclear weapons programs in rogue states have created a more immediate demand for further research and development in this area. Other potential applications of our
drug candidates
include reducing the side effects of cancer treatment as well as killing tumor cells.
Our development efforts are based on discoveries made in connection with the investigation of the cell-level process known as apoptosis. Apoptosis is a highly specific and tightly regulated form of cell death that can occur in response to external events such as exposure to radiation or toxic chemicals or to internal stresses. Apoptosis is a major determinant of tissue damage caused by a variety of medical conditions including cerebral stroke, heart attack or acute renal failure. Conversely, however, apoptosis also is an important protective mechanism that allows the body to shed itself of defective cells, which otherwise can cause cancerous growth.
Research has demonstrated that apoptosis is sometimes suppressed naturally. For example, most cancer cells develop resistance to apoptotic death caused by drugs or natural defenses of the human body. Our research is geared towards identifying the means by which apoptosis can be affected and manipulated depending on the need.
If the need is to protect healthy tissues against an external event such as exposure to nuclear radiation, we attempt to suppress apoptosis in those healthy tissues thereby imitating the apoptotic-resistant tendencies displayed by cancer cells. A drug with this effect would also be useful in ameliorating the often severe side effects of anticancer drugs and radiation that cause collateral damage to healthy tissues during cancer treatment. Because the severe side effects of anticancer drugs and radiation often limit their dosage in cancer patients, an apoptosis suppressant drug may enable a more aggressive treatment regimen using anticancer drugs and radiation and thereby increase their effectiveness.
On the other hand, if the need is to kill cancerous cells, we attempt to restore apoptotic mechanisms that are suppressed in tumors so that those cancerous cells will once again become vulnerable to apoptotic death. In this regard, we believe that our drug candidates could be vital to the treatment of cancer patients.
Our Products and Technology
Through our research and development, or R&D, and our strategic partnerships, we have established a technological foundation for the development of new pharmaceuticals and their rapid preclinical evaluation. We have acquired rights to develop and commercialize the following prospective drugs:
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Protectans
are modified proteins of microbes and tumors that protect cells from apoptosis, and which therefore have a broad spectrum of potential applications. These potential applications include both non-medical applications such as protection from exposure to radiation, whether as a result of military or terrorist action or as a result of a nuclear accident, as well as medical applications such as reducing cancer treatment side effects.
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Curaxins
are small molecules designed to kill tumor cells by simultaneously targeting two regulators of apoptosis. Initial test results indicate that curaxins can be effective against a number of malignancies, including renal cell carcinoma, or RCC (a highly fatal form of kidney cancer), soft-tissue sarcoma and hormone refractory prostate cancer.
1
In the area of radiation protection, we have achieved high levels of protection in animal models. With respect to cancer treatment, the biology of cancer is such that there is no single drug that can be successfully used to treat 100% or even 50% of all cancer patients. This means that there likely will be a need for additional anticancer drugs for each type of cancer.
These drug candidates demonstrate the value of our scientific foundation. Based on the expedited approval process currently available for
non-medical
applications such as protection from exposure to radiation, our most advanced drug
candidate, Protectan CBLB502, may be approved for such applications within 18-36 months. Another
drug candidate,
Curaxin CBLC102 is poised to enter Phase IIa clinical trials later in 2006.
A pilot study that began in December 2005 conducted by Frontier Biotechnologies, Inc. at the National Chengdu Center for Safety Evaluation of Traditional Chinese Medicine in China
in which 20
non-human primates received lethal doses of radiation demonstrated a
10-day
delay of radiation-associated mortality and a significant reduction in death rates (from 75% to 33%) in the group of animals treated with Protectan CBLB502 without any associated signs of toxicity. An equal degree of protection was achieved in a subgroup of non-human primates that were previously exposed to Protectan CBLB502 demonstrating that Protectan CBLB502 is effective despite multiple administrations, which is not always the case with most protein based drugs. In addition, in the Protectan CBLB502 treated group, half of the non-human primates that survived radiation showed no gross pathologies. In the rest of the survivors from this group, radiation-induced damage to the lymphoid organs and gastrointestinal tract was significantly less pronounced than that suffered by survivors in the control group, which received no radioprotectants.
Although these results are preliminary in nature and results discovered in animal trials are often not indicative of results in humans
, they are encouraging because they indicate that Protectan CBLB502 has radioprotective properties.
A pre-IND (Investigational New Drug application) meeting was held with the Food and Drug Administration, or FDA, on January 12, 2006. As a result of the meeting, the FDA stated that it will allow us to proceed with the initiation of clinical trials of Curaxin CBLC102 in patients (after submitting and gaining IND approval) using a staged-cohort escalating dose design in the first study, which means that we can initiate our first clinical study using a small number of patients to confirm the safety of the drug in humans before enrolling the full study at a higher dosage level.
Preparation of the IND data package and the clinical drug
candidate
are underway. We expect that one hurdle to gaining IND approval is that samples of a previously marketed formulation of a related compound (on which our claims of safety are based in part) are no longer available as a basis of comparison. The FDA has indicated that we may nonetheless proceed using lower dosage amounts until safety is demonstrated.
Upon IND approval, we will conduct the first study in prostate cancer patients at the Taussig Cancer Center of the Cleveland Clinic.
Our Markets
Protectan CBLB502 is being developed in part to address the unmet need of protection against exposure to nuclear radiation. Recent acts and threats of terrorism and the proliferation of nuclear weapons programs in rogue states have magnified the need for radiation-protecting agents, or radioprotectants, in
non-medical
applications. The Project BioShield Act, which President Bush signed into law in July 2004, allocated $5.6 billion over ten years to fund the research, development and procurement of drugs, biological products or devices to treat or prevent injury from exposure to biological, chemical, radiological or nuclear agents as a result of a military, terrorist or nuclear attack. The importance and urgency of developing tissue-protecting agents for these kinds of emergency applications are so great that the FDA approval process is scaled down to preclinical and Phase I trials. Under new FDA rules, costly and time-consuming Phase II and III studies are not required for these non-medical
applications. Because Phase II and Phase III testing, which each involve testing a drug candidate on large numbers of participants who suffer from the targeted disease and condition, can last for a total of anywhere from three to six or more years, being permitted to bypass those phases represents a significant time and cost savings towards obtaining FDA approval. Without Phase II and Phase III testing, the FDA approval process is based on efficacy testing in primates and safety testing in humans conducted during preclinical and Phase I trials.
The protection of healthy tissues against side effects of radiation treatment and anticancer drugs provides another application, and, therefore, another market opportunity for Protectan CBLB502. Approximately, 50 60% of cancer patients are treated with radiation sometime during the progression of the disease. To obtain optimal results, physicians attempt to strike a judicious balance between the total dose of radiotherapy and the adverse effect on surrounding healthy tissues. If there were a means by which these tissues could be protected from radiotherapy,
2
more aggressive treatment regimens could be possible. In contrast to non-medical applications, use of Protectan CBLB502 to ameliorate the side effects of radiation treatment and anticancer drugs is subject to the full FDA approval process.
CBLs primary targets for curaxins are three treatment-resistant forms of cancer RCC, soft-tissue sarcoma and hormone refractory prostate cancer.
RCC is a niche cancer that accounts for 3% of all cancer cases in the United States, but it is the most common type of kidney cancer in adults. In the United States, approximately
35,000
40,000
patients are diagnosed with RCC annually. Soft-tissue sarcomas are rare, representing only about 1% of all cancer cases. According to the American Cancer Society, approximately 9,400 new cases of soft-tissue sarcoma
are
projected to be diagnosed in the United States in
2006
, which
are
projected to be responsible for approximately
3,500
deaths. Other than skin cancer, prostate cancer is the most common cancer in men in the United States. According to the American Cancer Society, an estimated
234,460
cases
are
projected to be diagnosed with prostate cancer in
2006
.
Our Industry
CBL is a biotechnology, or biotech, company focused on developing bio-defense and cancer treatment products. Historically, biotech was defined by newly discovered genetic engineering technology, which was first developed in universities and new startup biotech companies in the mid-1970s. Later, other technologies (based on a constant flow of discoveries in the field of biology) started playing a leading role in biotech development. Medicine, and specifically drug development, is a lucrative field for use of these technologies. Large pharmaceutical, or Pharma, companies joined the biotech arena through licensing, sponsored research and corporate agreement relationships. Today, biotech is a $400 billion industry, which employs more than 200,000 people in the U.S. and includes large companies such as Amgen and Genentech.
The traditional biotech business model is a derivative of the long drug development process. Typical biotech companies go through the following stages:
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During the first stage, biotech companies fund their development through equity or debt financings while conducting R&D, which culminates in phased drug trials.
·
During the second stage, when their lead
drug
candidates enter the drug trials, biotech companies may start licensing their
drug
candidates to Pharma companies in order to (1) generate revenues, (2) gain access to additional expertise, and (3) establish relations with major players in the market who can eventually take a leading role in distributing successful
drugs
.
·
At the most advanced stage, biotech companies generate revenues by selling drugs or other biotech products to consumers or through alliances of equals.
Today, with the Project BioShield Act, biotech companies now have greater access to grants and contracts with the U.S. government. Several biotech companies have secured grants and contracts from the U.S. government to develop drugs and vaccines as a medical counter-measure against potential terrorist attacks. For biotech companies focused on these types of drugs and vaccines, this type of funding together with the scaled down FDA approval process are major departures from the traditional biotech business model.
CBL is focusing its R&D efforts in the following areas:
·
protecting against the effects of radiation;
·
reducing cancer treatment side effects; and
·
developing anticancer drugs against several specific forms of cancer.
While there are a number of biotech companies and Pharma companies that attempt to develop new anti-radiation and anticancer drugs to treat these medical conditions, these areas are nevertheless considered unmet medical needs, which means that there are currently no existing methods to satisfactorily treat these medical conditions.
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Our Strategies and Objectives
Our primary objective is to become a leading developer of drugs for the protection of human tissues against radiation and other stresses and for cancer treatment. Key elements of our strategy include:
Aggressively working towards the commercialization of Protectan CBLB502
. Our most advanced
drug
candidate, Protectan CBLB502, offers the potential to protect normal tissues against exposure to radiation. Because of the potential military and defense implications of such a drug, the normally lengthy FDA approval process for these non-medical applications is substantially abbreviated resulting in a large cost savings to us, and we anticipate having a developed drug available for these non-medical applications within 18-36 months.
Leveraging our relationship with the Cleveland Clinic Foundation.
The Cleveland Clinic Foundation, one of the top research medical facilities in the world, is one of our co-founders. In addition to providing us with
drug
leads and technologies, the Cleveland Clinic will share valuable expertise with us as clinical trials are performed on our
drug candidates.
Utilizing governmental initiatives to target our markets.
Our focus on
drug candidates
like Protectan CBLB502, which has applications that have been deemed useful for military and defense purposes, provides us with a built-in market for our
drug candidates
. This enables us to invest less in costly retail and marketing resources. In an effort to improve our responsiveness to military and defense needs, we have established a collaborative relationship with the Armed Forces Radiobiology Research Institute.
Utilizing other strategic relationships.
We have collaborative relationships with other leading organizations that enhance our
drug
development and marketing efforts. For example, one of our founders with whom we maintain a strategic partnership is ChemBridge Corporation. Known for its medicinal chemistry expertise and synthetic capabilities, ChemBridge provides valuable resources to our
drug
development research.
Risk Factors
Our business is subject to numerous risks as discussed more fully in the section entitled Risk Factors immediately following this prospectus summary. Principal risks of our business include:
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We are a development stage company with a history of operating losses. We expect to continue to incur losses and may exhaust our financial resources before we are able to complete the development of our drug candidates.
·
Development of our drug candidates will be an expensive and time-consuming process. We may therefore require substantial additional financing to meet our business objectives.
·
Our success depends in large part on the results as well as the cost of our R&D. Failures in our R&D efforts or substantial increases in our R&D costs would adversely affect our results of operations.
·
We are subject to significant and complex government regulations, which may delay or prevent the commercialization of any drug candidates.
·
Our intellectual property is based primarily upon licensed patents and license agreements with our collaborators. If we lose any of the rights under these agreements, our ability to commercialize our drug candidates would be materially harmed.
·
Before obtaining required regulatory approvals for the commercial sale of any of our drug candidates, we must demonstrate through pre-clinical testing and clinical trials that our drug candidates are safe and effective for use in humans. We are subject to numerous risks inherent in conducting clinical trials any of which could delay or prevent us from developing or commercializing our drug candidates.
Our Information
We were incorporated in Delaware in June 2003. Our principal executive offices are located at 11000 Cedar Avenue, Suite 290, Cleveland, Ohio 44106 and our telephone number is (216) 229-2251. Our website is located at http://www.cbiolabs.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information on our website as part of this prospectus.
4
THE OFFERING
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Common stock offered by us
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________shares
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Common stock offered by selling stockholders
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________shares
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Over-allotment option
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________shares of common stock to be offered if the underwriters exercise the over-allotment option in full
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Common stock outstanding immediately after the offering
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________shares
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Use of proceeds
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To
complete the development of
Protectan CBLB502;
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To continue the development of Curaxin CBLC102 through Phase II clinical trials in multiple cancers;
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To continue R&D related to a new generation of drugs (new protectans and new curaxins); and
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·
For working capital and other general corporate purposes.
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Proposed Nasdaq Capital Market Symbol
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CBLI
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The number of shares of common stock outstanding immediately after this offering is based on the number of shares outstanding as of
April 1, 2006, which includes 1,298,783 shares of restricted stock granted to certain of our common stockholders that are subject to repurchase by us, and assumes the automatic conversion upon the consummation of this offering of (i)
3,291,219 shares of
preferred stock into shares of common stock on a one-for-one basis and (ii) 122,176 shares as a result of
convertible notes in the aggregate principal amount of $283,500 into shares of common stock at a fixed conversion price of approximately $2.517 per share. The number of shares of common stock outstanding as of
April 1, 2006 excludes:
·
440,990
shares of common stock issuable upon exercise of outstanding options with exercise prices ranging from $0.66 to $3.00 per share;
·
594,424 shares of common stock issuable upon exercise of warrants with exercise prices ranging from $1.13 to $2.00 per share;
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____________ shares of common stock issuable upon exercise of warrants to be sold to the underwriters with an exercise price of $___________ per share upon consummation of this offering;
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____________ shares of common stock reserved for issuance under our stock option plan; and
·
____________ shares of common stock reserved for issuance as accumulated dividends on our preferred stock.
Unless otherwise indicated, all information in this prospectus assumes that the underwriters do not exercise their over-allotment option, which entitles them to purchase ______ shares of common stock from the selling stockholders (or alternatively, from us to the extent required to satisfy the exercise of the over-allotment option, if the selling stockholders do not elect to fully participate in the over-allotment).
5
SUMMARY FINANCIAL DATA
We have derived the following summary financial data for the years ended December 31, 2005, December 31, 2004 and December 31, 2003 from our audited financial statements. In the opinion of our management, this information contains all adjustments necessary for a fair presentation of our results of operations and financial condition for such periods. The information below is not necessarily indicative of the results of future operations and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes included elsewhere in this prospectus.
Statement of Operations Data
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December 31,
2005
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December 31,
2004
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December 31,
2003
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Total Revenues
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$
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1,138,831
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$
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636,341
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$
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75,000
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Operating Expenses
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Research and Development
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$
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2,640,240
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$
|
2,892,967
|
|
$
|
143,258
|
|
Selling, General and Administrative
|
|
$
|
986,424
|
|
$
|
262,817
|
|
$
|
68,636
|
|
Income (Loss) from Operations
|
|
$
|
(2,487,833
|
)
|
$
|
(2,519,443
|
)
|
$
|
(136,894
|
)
|
Net Income (Loss)
|
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
December 31,
2004
|
|
December 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
$
|
10,126
|
|
Total Assets
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
$
|
32,108
|
|
Total Liabilities
|
|
$
|
696,729
|
|
$
|
756,433
|
|
$
|
143,934
|
|
Total Stockholders Equity
|
|
$
|
3,556,604
|
|
$
|
(374,214
|
)
|
$
|
(111,826
|
)
|
6
RISK FACTORS
An investment in our common stock is highly speculative, involves a high degree of risk, and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors with all of the other information included in this prospectus before you decide whether to buy our common stock. Any of the following risks could materially adversely affect our business, financial condition or operating results and could result in a partial or complete loss of your investment. The risks and uncertainties described below are not, however, the only ones that we may face. Additional risks and uncertainties not currently known to us, or that we currently believe are not material, could also materially adversely affect our business, financial condition or operating results.
Risks Specific to Us
We are a development stage company with a history of operating losses. We expect to continue to incur losses
and may not continue as a going concern.
We are a development stage company with a history of losses and can provide no assurance as to future operating results. As a result of losses that will continue throughout our development stage, we may exhaust our financial resources and be unable to complete the development of our
drug candidates.
We have sustained losses from operations in each fiscal year since our inception in June 2003.
In 2004, we had operating losses of approximately $2,500,000, and in 2005, we had operating losses of approximately $2,400,000. We had an accumulated deficit of approximately $2,700,000 in 2004 and approximately $5,200,000 in 2005. To date, we have raised approximately $6,000,000 in equity financing. We expect
losses
to continue
for the next several years
as we
spend substantial additional sums on the continued R&D of proprietary
drugs
and technologies,
and there is
no certainty that
we will ever become profitable as a result of these expenditures.
Our ability to become profitable depends primarily on the following factors:
·
our ability to obtain approval for, and if approved, to successfully commercialize, Protectan CBLB502;
·
our ability to bring to market other proprietary
drugs
that are progressing through our development process;
·
our R&D efforts, including the timing and cost of clinical trials; and
·
our ability to enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution.
Even if we successfully develop and market our
drug
candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability.
Development of our drug candidates will be an expensive process and we therefore
may require substantial additional financing in order to meet our business objectives.
We anticipate that the net proceeds received from this offering, together with our existing cash holdings, will be sufficient to meet cash requirements for at least the next 24 months. Upon expiration of this 24-month period, or sooner if we experience unanticipated cash requirements, we may be required to issue equity or debt securities or enter into other financial arrangements, including relationships with corporate and other partners, in order to raise substantial additional capital during the period of
drug
development and FDA testing. Depending upon market conditions, we may not be successful in raising sufficient additional capital for our long-term requirements. If we fail to raise sufficient additional financing, we will not be able to develop our
drug
candidates, and may be required to reduce staff, reduce or eliminate R&D, slow the development of our
drug
candidates, outsource or eliminate several business functions or shut down operations. Even if we are successful in raising such additional financing, we may not be able to successfully complete planned clinical trials, development, and marketing of all, or of any, of our
drug
candidates. In such event, our business, prospects, financial condition and results of operations could be materially adversely affected.
7
We were formed in 2003 and commenced operations in the latter half of 2003. As a result, we have a
limited operating history , which
does not afford investors a sufficient history on which to base an investment decision.
We were formed in June 2003. Accordingly, we have a limited operating history. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in the rapidly evolving biopharmaceutical industry. Such risks include the following:
·
competition from companies that have substantially greater assets and financial resources than we have;
·
need for regulatory approval and commercial acceptance of
drugs
;
·
ability to anticipate and adapt to a competitive market and rapid technological developments;
·
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;
·
need to rely on multiple levels of outside funding due to the length of
drug
development cycles and government approved protocols associated with the biopharmaceutical industry; and
·
dependence upon key personnel including key independent consultants and advisors.
We cannot be certain that our strategies will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations could be materially and adversely affected.
Development of pharmaceutical products is a time-consuming process, subject to a number of factors, many of which are outside of our control. Consequently, we
can provide no assurance of the successful and timely development of new
drugs.
Our
drug candidates
are in their developmental stage. Further development and extensive testing will be required to determine their technical feasibility and commercial viability. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable, commercially competitive
drugs
on a timely basis.
Drugs
that we may develop are not likely to be commercially available for a few years. The proposed development schedules for our
drug candidates
may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our
drug candidates
could result either in such
drugs
being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in Risk Factors, we may not be able to complete successfully the development or marketing of any
drugs
.
We may fail to successfully develop and commercialize our
drug candidates
because they:
·
are found to be unsafe or ineffective in clinical trials;
·
do not receive necessary approval from the FDA or foreign regulatory agencies;
·
fail to conform to a changing standard of care for the diseases they seek to treat; or
·
are less effective or more expensive than current or alternative treatment methods.
Drug
development failure can occur at any stage of clinical trials and as a result of many factors and there can be no assurance that we or our collaborators will reach our anticipated clinical targets. Even if we or our collaborators complete our clinical trials, we do not know what the long-term effects of exposure to our
drug
candidates will be. Furthermore, our
drug candidates
may be used in combination with other treatments and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove that our
drug
candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations.
8
We must comply with significant and complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates.
The R&D, manufacture and marketing of drug candidates are subject to regulation, primarily by the FDA in the United States and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, R&D activities (including testing in primates and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including approval delays or refusals to approve drug licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recalls or seizures of products, injunctions against shipping drugs and total or partial suspension of production and/or refusal to allow a
company to enter into governmental supply contracts.
The process of obtaining FDA approval has historically been costly and time consuming. Current FDA requirements for a new human drug or biological product to be marketed in the United States include: (1) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the products safety; (2) filing with the FDA of an IND application to conduct human clinical trials for drugs or biologics; (3) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and (4) filing by a company and acceptance and approval by the FDA of a New Drug Application, or NDA, for a drug product or a biological license application, or BLA, for a biological product to allow commercial distribution of the drug or biologic. A delay in one or more of the procedural steps outlined above could be
harmful to us in terms of getting our drug candidates through clinical testing and to market.
The FDA reviews the results of the clinical trials and may order the temporary or permanent discontinuation of clinical trials at any time if it believes the drug candidate exposes clinical subjects to an unacceptable health risk. Investigational drugs used in clinical studies must be produced in compliance with current good manufacturing practice, or GMP, rules pursuant to FDA regulations.
Sales outside the United States of products that we develop will also be subject to regulatory requirements governing human clinical trials and marketing for drugs and biological products and devices. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. In most cases, even if the FDA has not approved a product for sale in the United States, the product may be exported to any country if it complies with the laws of that country and has valid marketing authorization by the appropriate authority. There are specific FDA regulations that govern this process.
We also are subject to the following risks and obligations, among others:
·
The FDA or foreign regulators may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them.
·
If regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution. In addition, many foreign countries control pricing and coverage under their respective national social security systems.
·
The FDA or foreign regulators may not approve our manufacturing processes or manufacturing facilities.
·
The FDA or foreign regulators may change its approval policies or adopt new regulations.
·
Even if regulatory approval for any product is obtained, the marketing license will be subject to continual review, and newly discovered or developed safety or effectiveness data may result in suspension or revocation of the marketing license.
·
If regulatory approval of the product candidate is granted, the marketing of that product would be subject to adverse event reporting requirements and a general prohibition against promoting products for unapproved or off-label uses.
·
In some foreign countries, we may be subject to official release requirements that require each batch of the product we produce to be officially released by regulatory authorities prior to its distribution by us.
9
·
We will be subject to continual regulatory review and periodic inspection and approval of manufacturing modifications, including compliance with current GMP regulations.
We can provide no assurance that our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable.
The testing, marketing and manufacturing of any product for use in the United States will require approval from the FDA. We cannot predict with any certainty the amount of time necessary to obtain such FDA approval and whether any such approval will ultimately be granted. For example, the FDA has raised concerns in connection with the clinical study regimens for Curaxin CBLC102 because part of our demonstration with respect to safety relies on samples of a previously marketed formulation of a related compound, which is no longer available. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products may require testing on human subjects of substances whose effects on humans are not fully understood or documented. Delays in obtaining FDA or any other
necessary regulatory approvals of any proposed drug and failure to receive such approvals would have an adverse effect on the drugs potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this event, we may be required to withdraw such proposed drug from the market. To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.
Even if we obtain regulatory approvals, our marketed drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market these drugs and our business would be seriously harmed.
Following any initial regulatory approval of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse experiences and clinical results that are reported after our drug candidates are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks to which we
would not be subject if we manufactured drugs ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our drug promotion and advertising is also subject to regulatory requirements and continuing FDA review.
Development of our drug candidates requires a significant investment in R&D. Our R&D expenses in turn, are subject to variation based on a number of factors, many of which are outside of our control. A sudden or significant increase in our R&D expenses could materially and adversely impact our results of operations.
Because we expect to expend substantial resources on R&D, our success depends in large part on the results as well as the costs of our R&D. A failure in our R&D efforts or substantial increase in our R&D expenses would adversely affect our results of operations.
R&D expenditures are uncertain and subject to much fluctuation. Factors affecting our R&D expenses include, but are not limited to:
·
the number and outcome of clinical studies we are planning to conduct; for example, our R&D expenses may increase based on the number of late-stage clinical studies that we may be required to conduct;
·
the number of
drugs
entering into development from late-stage research; for example, there is no guarantee that internal research efforts will succeed in generating sufficient data for us to make a positive development decision or that an external candidate will be available on terms acceptable to us, and some promising candidates may not yield sufficiently positive pre-clinical results to meet our stringent development criteria;
10
·
licensing
activities, including the timing and amount of related development funding or milestone payments; for example, we may enter into agreements requiring us to pay a significant up-front fee for the purchase of in-process R&D that we may record as R&D expense; or
·
future levels of revenue; R&D as a percentage of future potential revenues can fluctuate with the changes in future levels of revenue and lower revenues can lead to less spending on R&D efforts.
If we lose our funding from R&D grants, we may not be able to fund future R&D and implement technological improvements, which would materially harm our operating results.
We received $531,341 or 83.5% of our revenues in 2004 from grant and contract development work in connection with grants from the NIH, NASA and the Defense Advanced Research Projects Agency or DARPA (Department of Defense), as well as from universities and commercial companies related to
drug
development efforts for our radioprotectants and anticancer development work. We also received $20,000 as a subcontractor relating to a NIH grant to System Biosciences, LLC. We received approximately $999,556 in grant revenue in 2005 , which represented 87.8% of our total revenues in 2005
. During 2005, we received fundable scores for grants totaling $2,745,000. Also, we plan to submit follow-up
applications for grants
totaling $5,850,000 and new
applications for grants
totaling $8,160,000.
In addition, we have historically received approximately 40% of our grant revenues through the U.S. Small Business Administrations,
or SBA, Small Business Innovation Research, or SBIR,
grant program. We will continue to be eligible for these grants only so long as we are 51% owned and controlled by U.S. citizens and/or permanent resident aliens, and together with our affiliates employ fewer than 500 persons. Recently, the SBA advised us that the NIH had inquired as to whether we are eligible to receive grants under the SBIR program. We have responded to their inquiry and attempted to address any concerns. For example, the Cleveland Clinic and Dr. Gudkov have terminated their voting agreement (in which Dr. Gudkov had granted the Cleveland Clinic the right to vote his shares) so as to allow Dr. Gudkov the right to vote all of his shares. We are currently awaiting the SBAs determination. If we are found not to be, or not to have been, eligible for these types of grants, the loss of eligibility could materially and adversely affect our research efforts.
These revenues have funded some of our personnel and other R&D costs and expenses. However, if these awards are not funded in their entirety or if new grants and contracts are not awarded in the future, our ability to fund future R&D and implement technological improvements would be diminished, which would negatively impact our ability to compete in our industry.
We are subject to numerous risks inherent in conducting clinical trials any of which could delay or prevent us from developing or commercializing our
drug candidates
Before obtaining required regulatory approvals for the commercial sale of any of our
drug
candidates, we must demonstrate through pre-clinical testing and clinical trials that our
drug
candidates are safe and effective for use in humans. We must outsource our clinical trials and are in the process of negotiating with third parties to conduct such trials. We are not certain that we will successfully finalize agreements for the conduct of our clinical trials. Delay in finalizing such agreements would delay the commencement of the Phase I trials of Protectan CBLB502 for medical applications and Phase IIa clinical trials of Curaxin CBLC102 in multiple cancers.
Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize
Protectan CBLB502, Curaxin CBLC102 or other
drug
candidates.
We or regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with
11
applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our clinical trials.
Our clinical trial operations will be subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be inadequate, or are dissatisfied with the corrective actions that we or our clinical trial sites have implemented, our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow us to manufacture or market our
drug candidates
or we may be criminally prosecuted.
Certain of our
drug candidates
may be subject to the orphan drug provisions of the Federal Food, Drug, and Cosmetic Act, which, even if successfully marketed, may not yield sufficient returns to make us profitable.
We intend to seek orphan drug status with respect to
Curaxin CBLC102,
The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act provide incentives to drug and biologic manufacturers to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S. or, for a disease that affects more than 200,000 individuals in the U.S., where the sponsor does not realistically anticipate that its
drug
will become profitable. We believe that Curaxin CBLC102
may qualify as an orphan drug for purposes of treatment of RCC, soft-tissue sarcoma and hormone refractory prostate cancer.
Under these provisions, a manufacturer of a designated orphan
drug
can seek tax benefits, and the holder of the first designated orphan
drug
approved by the FDA will be granted a seven-year period of marketing exclusivity for that
drug.
There is no assurance that we will receive orphan drug status for
Curaxin CBLC102.
Even if we do receive orphan drug status, while the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same compound for the same indication, it would not prevent other types of drugs from being approved for the same indication and therefore may not provide sufficient protection against competitive products.
Efforts of government and third-party payors to contain or reduce the costs of health care may adversely affect our revenues.
Our ability to earn sufficient returns on our
drug candidates
may depend in part on the extent to which government health administration authorities, private health coverage insurers and other organizations will provide reimbursement for the costs of such
drugs
and related treatments. Significant uncertainty exists as to the reimbursement status of newly approved health care
drugs,
and we do not know whether adequate third-party coverage will be available for our
drug candidates.
If our current and proposed
drugs
are not considered cost-effective, reimbursement to the consumers may not be available or sufficient to allow us to sell
drugs
on a competitive basis. The failure of the government and third-party payors to provide adequate coverage and reimbursement rates for our
drug candidates
could adversely affect the market acceptance of our
drug candidates,
our competitive position and our financial performance.
If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of our trade secrets or proprietary information could compromise any competitive advantage that we have.
We depend upon confidentiality agreements with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations.
12
We will rely upon licensed patents to protect our technology. We may be unable to obtain or protect such intellectual property rights, and we may be liable for infringing upon the intellectual property rights of others.
Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our technologies and the proprietary technology of others with which we have entered into licensing agreements. We have exclusively licensed 11 patent applications from the Cleveland Clinic and have filed two patent applications on our own. There can be no assurance that any of these patent applications will ultimately result in the issuance of a patent with respect to the technology owned by us or licensed to us. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the United States Patent and Trademark Office 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. Further, we rely on a combination of trade secrets, know-how, technology and nondisclosure, and other contractual agreements and technical measures to protect our rights in the technology. If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.
We do not believe that any of the
drug candidates
we are currently developing infringe upon the rights of any third parties nor are they infringed upon by third parties; however, there can be no assurance that our technology will not be found in the future to infringe upon the rights of others or be infringed upon by others. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, 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, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements, or redesign our
drug candidates
so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claims against others that infringe upon our technology and the technology exclusively licensed from the Cleveland Clinic. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.
Moreover, the cost to us of any litigation or other proceeding relating to our patents and other intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our managements efforts. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
Other companies or organizations may assert patent rights that prevent us from developing and commercializing our
drug candidates.
We are in a relatively new scientific field that has generated many different patent applications from organizations and individuals seeking to obtain important patents in the field. Because the field is so new, very 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 proceedings in various patent offices, relating to patent rights in the field. Others may attempt to invalidate our patents or other intellectual property rights. Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of those intellectual property rights.
Thus, it is possible that one or more organizations will hold patent rights to which we will need 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
drug candidates,
which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations.
13
We are dependent upon our license agreement with the Cleveland Clinic, as well as proprietary technology of others. If we lose the right to utilize any of the proprietary information that is the subject of the Cleveland Clinic license agreement or any of the other third-party proprietary technology on which we depend, we may incur substantial delays and costs in development of our drug candidates.
The manufacture and sale of any products developed by us may involve the use of processes, products or information, the rights to certain of which are owned by others. Although we have obtained licenses with regard to the use of the Cleveland Clinics patent applications as described above and certain processes, products and information of others, we cannot assure you that such licenses will not be terminated or expire during critical periods, that we will be able to obtain licenses for other rights that may be important to us, or, if obtained, that such licenses will be obtained on commercially reasonable terms. While we have no reason to believe that our licenses will be terminated and our material licenses have no definitive expiration date, such licenses may be terminated if we breach certain material provisions and fail to cure the breach in a certain period of time.
If we are unable to maintain and/or obtain third-party
licenses, we may have to develop alternatives to avoid infringing upon the patents of others, potentially causing increased costs and delays in
drug
development and introduction or preclude the development, manufacture, or sale of planned products. Additionally, we can provide no assurance that the patents underlying any licenses will be valid and enforceable. To the extent any
drugs
developed by us are based on licensed technology, royalty payments on the licenses will reduce our gross profit from
drug
sales and may render the sales of such
drugs
uneconomical.
If we fail to comply with our obligations under our license agreement with the Cleveland Clinic, we could lose our license rights that are necessary for developing our
drug
candidates.
Our current exclusive license with the Cleveland Clinic imposes various development, royalty, diligence, record keeping, insurance and other obligations on us. If we breach any of these obligations and do not cure such breaches within the 90 day period provided, the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. In addition, while we cannot currently determine the dollar amount of the royalty obligations we will be required to pay on sales of future products, if any, the amounts may be significant. The dollar amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize
products, we may be unable to achieve or maintain profitability.
We will rely upon third-party manufacturers to manufacture our
drug candidates.
If these third-party manufacturers fail to produce our
drug candidates
in the volumes that we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical or drug manufacturers, we may face delays in the delivery of, or be unable to meet demand for, our
drug candidates.
We do not
intend to establish or operate
facilities to manufacture our
drug candidates
and therefore
will be
dependent upon third parties to do so. As we develop new products or increase sales of any
existing product, we must establish and maintain relationships with manufacturers to produce and package sufficient supplies of our finished pharmaceutical products. Reliance on third party manufacturing presents the following risks:
·
delays in the delivery of quantities needed for multiple clinical trials or failure to manufacture such quantities to our specifications, either of which could cause delays in clinical trials, regulatory submissions or commercialization of our
drug candidates;
·
inability to fulfill our commercial needs in the event market demand for our
drug candidates
suddenly increases, which may require us to seek new manufacturing arrangements, which, in turn, could be expensive and time consuming; or
·
ongoing inspections by the FDA and other regulatory authorities for compliance with rules, regulations and standards, the failure to comply with may subject us to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution.
14
Our collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return.
We anticipate substantial reliance upon strategic collaborations for marketing and the commercialization of our
drug candidates
and we may rely even more on strategic collaborations for R&D of our other
drug
candidates. Our business depends on our ability to sell
drugs
to both government agencies and to the general pharmaceutical market. Offering our
drug candidates
for
non-medical
applications to government agencies does not require us to develop new sales, marketing or distribution capabilities beyond those already existing in the company. Selling anticancer drugs, however, does require such development. We plan to sell anticancer
drugs
through strategic partnerships with pharmaceutical companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our revenue and
drug
development may be limited. To date, we have not entered into any strategic collaborations with third parties capable of providing these services. In addition, we have not yet marketed or sold any of our
drug
candidates or entered into successful collaborations for these services in order to ultimately commercialize our
drug
candidates.
If we determine to enter into R&D collaborations during the early phases of
drug
development, our success will in part depend on the performance of our research collaborators. We will not directly control the amount or timing of resources devoted by our research collaborators to activities related to our
drug
candidates. Our research collaborators may not commit sufficient resources to our programs. If any research collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements.
Manufacturers producing our drug candidates must follow current GMP regulations enforced by the FDA and foreign equivalents. If a manufacturer of our drug candidates does not conform to the current GMP regulations and cannot be brought up to such a standard, we will be required to find alternative manufacturers that do conform. This may be a long and difficult process, and may delay our ability to receive FDA or foreign regulatory approval of our
drug candidates
and cause us to fall behind on our business objectives.
Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of our
drug
candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, our
drug
revenues are likely to be lower than if we directly marketed and sold any
drugs
that we may develop.
Management of our relationships with our collaborators will require:
·
significant time and effort from our management team;
·
coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and
·
effective allocation of our resources to multiple projects.
As a consequence of our business, we are inherently at risk for product liability claims against us. If
our insurance coverage for those claims is inadequate , we may incur substantial liabilities.
We face an inherent risk of product liability exposure related to the testing of our
drug
candidates in human clinical trials and will face an even greater risk if the
drug
candidates are sold commercially or otherwise distributed.
An individual may bring a liability claim against us if one of the
drug
candidates causes, or merely appears to have caused, an injury. With respect to non-medical applications of Protectan CBLB502 pursuant to the Project BioShield Act of 2004, we do not believe the absence of certain typical regulatory requirements such as Phase II or Phase III testing will limit or diminish our potential
liability exposure.
If we cannot successfully defend ourselves against the product liability claim, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
15
·
decreased demand for our
drug
candidates;
·
injury to our reputation;
·
withdrawal of clinical trial participants;
·
costs of related litigation;
·
diversion of our managements time and attention;
·
substantial monetary awards to patients or other claimants;
·
loss of revenues;
·
the inability to commercialize
drug
candidates; and
·
increased difficulty in raising required additional funds in the private and public capital markets.
We currently do not have product liability insurance. We intend to obtain insurance coverage and to expand such coverage to include the sale of commercial
drugs
if marketing approval is obtained for any of our
drug
candidates. However, insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.
We employ the use at our laboratories of certain chemical and biological agents and compounds that may be deemed hazardous and we are therefore subject to various
environmental laws and regulations. Compliance with these laws and regulations may result in significant costs, which could materially reduce our ability to become profitable.
We use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. As appropriate, we safely store these materials and wastes resulting from their use at our laboratory facility pending their ultimate use or disposal. We contract with a third party to properly dispose of these materials and wastes. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes. We may incur significant costs complying with environmental laws and regulations adopted in the future.
If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages.
Our R&D and manufacturing activities will involve the use of biological and hazardous materials. Although we believe our safety procedures for handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of these materials. We carry limited biological or hazardous waste insurance coverage, workers compensation or property and casualty and general liability insurance policies, which include coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources and insurance coverages, and our clinical trials or regulatory approvals could be suspended.
With our limited resources, we may be unable to effectively manage growth.
As of the date of this prospectus, we have
24
employees and several consultants and independent contractors. We intend to expand our operations and staff materially. Our new employees will include a number of key managerial, technical, financial, R&D and operations personnel who will not have been fully integrated into our operations. We expect the expansion of our business to place a significant strain on our limited managerial, operational and financial resources. We will be required to expand our operational and financial systems significantly and to expand, train and manage our work force in order to manage the expansion of our operations. Our failure to fully integrate our new employees into our operations could have a material adverse effect on our business, prospects, financial condition and results of operations.
16
We may not be able to attract and retain highly skilled personnel.
Our ability to attract and retain highly skilled personnel is critical to our operations and expansion. We face competition for these types of personnel from other pharmaceutical companies and more established organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than us. We may not be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these personnel, our business, prospects, financial condition and results of operations will be materially and
adversely affected.
We depend upon our senior management and key consultants and their loss or unavailability could put us at a competitive disadvantage.
We currently depend upon the efforts and abilities of our management team, as well as the services of several key consultants. The loss or unavailability of the services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We have not obtained, do not own, nor are we the beneficiary of, key-person life insurance.
Political or social factors may delay or impair our ability to market our
drug candidates.
Drugs
developed to treat diseases caused by or to combat the threat of bio-terrorism will be subject to changing political and social environments. The political and social responses to bio-terrorism have been highly charged and unpredictable. Political or social pressures may delay or cause resistance to bringing our
drug candidates
to market or limit pricing of our
drug candidates,
which would harm our business. Changes to favorable laws, such as the Project BioShield Act, could have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations.
There may be conflicts of interest among our officers, directors and stockholders.
Our executive officers and directors and their affiliates may engage in other activities and have interests in other entities on their own behalf or on behalf of other persons. Neither we nor any of our stockholders will have any rights in these ventures or their income or profits. In particular:
·
Our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us.
·
Our executive officers or directors or their affiliates may have interests in entities that provide products or services to us. For example, two of our directors also hold positions with the Cleveland Clinic, the licensor of certain of our key product patent applications.
In any of these cases:
·
Our executive officers or directors may have a conflict between our current interests and their personal financial and other interests in another business venture.
·
Our executive officers or directors may have conflicting fiduciary duties to us and the other entity.
·
The terms of transactions with the other entity may not be subject to arms length negotiations and therefore may be on terms less favorable to us than those that could be procured through arms length negotiations.
We expect to enter into contracts with various U.S. government agencies.
U.S. government agencies have special contracting requirements that give the government agency various rights or impose on the other party various obligations that can make the contracts less favorable to the non-government party. Consequently, if a large portion of our revenue is attributable to these contracts, our business may be adversely affected should the governmental parties exercise any of these additional rights or impose any of these additional obligations.
We intend to enter into contracts with various U.S. government agencies. Substantially all of our revenue may be derived from government contracts and grants. In contracting with government agencies, we will be subject to various federal contract requirements. Future sales to U.S. government agencies will depend, in part, on our ability to meet these requirements, certain of which we may not be able to satisfy.
17
U.S. government contracts typically contain unfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which subjects us to additional risks. These risks include the ability of the U.S. government to unilaterally:
·
suspend or prevent us for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations;
·
terminate our existing contracts;
·
reduce the scope and value of our existing contracts;
·
audit and object to our contract-related costs and fees, including allocated indirect costs;
·
control and potentially prohibit the export of our
drug candidates;
and
·
change certain terms and conditions in our contracts.
The U.S. government may terminate any of its contracts with us either for its convenience or if we default by failing to perform in accordance with the contract schedule and terms. Termination for convenience provisions generally enable us to recover only our costs incurred or committed, and settlement expenses and profit on the work completed prior to termination. Termination for default provisions do not permit these recoveries and make us liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.
As a U.S. government contractor, we may become subject to periodic audits and reviews. Based on the results of these audits, the U.S. government may adjust our contract-related costs and fees, including allocated indirect costs. As part of any such audit or review, the U.S. government may review the adequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property, compensation and/or management information systems. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We could also suffer serious harm to our reputation if allegations of impropriety were made against us. In addition, under U.S.
government purchasing regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of our R&D costs and some marketing expenses, may not be reimbursable or allowed under our contracts. Further, as a U.S. government contractor, we may become subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which purely private sector companies are not.
We may fail to obtain contracts to supply the U.S. government, and we may be unable to commercialize our
drug
candidates.
The U.S. government has undertaken commitments to help secure improved countermeasures against bio-terrorism. The process of obtaining government contracts is lengthy and uncertain, and we must compete for each contract. Moreover, the award of one government contract does not necessarily secure the award of future contracts covering the same drug. If the U.S. government makes significant future contract awards for the supply of its emergency stockpile to our competitors, our business will be harmed and it is unlikely that we will be able to ultimately commercialize our competitive
drug candidate.
In addition, the determination of when and whether a
drug
is ready for large scale purchase and potential use will be made by the government through consultation with a number of government agencies, including the FDA, the NIH, the CDC and the Department of Homeland Security. Congress has approved measures to accelerate the development of bio-defense
drugs
through NIH funding, the review process by the FDA and the final government procurement contracting authority. While this may help speed the approval of our drug candidates, it may also encourage competitors to develop their own drug candidates.
The market for treating exposure to nuclear or radiological events is uncertain.
We do not believe that any drug has been approved and commercialized for treatment of large-scale radiation injury. Indeed, the incidence of large-scale exposure has been low. Accordingly, even if Protectan CBLB502 is approved by regulatory authorities, we cannot predict with certainty the size of the market, if any.
18
The U.S. governments commitment to funding the development of radioprotectant drugs under the Project BioShield Act is uncertain, and if it decides to curtail or limit allocations to radioprotectant drugs, it would materially harm our results of operations.
The potential market for Protectan CBLB502 is largely dependent on the size of procurement contracts, if any, from the U.S. government. While a number of federal contracts have historically been made by the U.S. government under the Project BioShield Act of 2004 to procure drugs to treat indications such as anthrax exposure and certain long-term effects of radiation exposure, we are unaware of any significant contract for drugs to treat radiation injury due to exposure to radiation. Any decision by the U.S. government to enter into a commitment to purchase Protectan CBLB502 prior to FDA approval could possibly occur if there are serious threats or accidents, but this possibility is remote and beyond our control. Our development plans and timelines may vary substantially depending on whether we receive such a commitment and the size of such commitment prior to FDA approval. In addition, even if CBLB502 is approved by regulatory
authorities, we cannot guarantee that we will receive any procurement contracts or that any such contract would be profitable to us or that Protectan CBLB502 will achieve market acceptance by the general public.
If the U.S. government fails to continue funding bio-defense
drug
candidate development efforts or fails to purchase sufficient quantities of any future bio-defense
drug
candidate, we may be unable to generate sufficient revenues to continue operations.
We hope to receive funding from the U.S. government for the development of our bio-defense
drug
candidates. Changes in government budgets and agendas, however, may result in future funding being decreased and de-prioritized, and government contracts typically contain provisions that permit cancellation in the event that funds are unavailable to the government agency. Furthermore, we cannot be certain of the timing of any future funding, and substantial delays or cancellations of funding could result from protests or challenges from third parties. If the U.S. government fails to continue to adequately fund R&D programs, we may be unable to generate sufficient revenues to continue operations. Similarly, if we develop a
drug
candidate that is approved by the FDA, but the U.S. government does not place sufficient orders for this
drug,
our future business may be harmed.
Risks Related to the Biotechnology/Biopharmaceutical Industry
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with enterprises equipped with more substantial resources than us.
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition based primarily on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain government approval for testing, manufacturing and marketing. We compete with specialized biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These
companies, as well as academic institutions, government agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital to us.
We are aware of numerous products under development or manufactured by competitors that are used for the prevention or treatment of certain diseases we have targeted for
drug
development. Various companies, such as Hollis-Eden, are developing biopharmaceutical products that potentially directly compete with our
non-medical
application
drug
candidates even though their approach to such treatment is different.
We expect that our
drug candidates
under development and in clinical trials will address major markets within the cancer sector. Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of the market introduction of some of our potential
drugs
or of competitors products may be an important competitive factor. Accordingly, the relative speed with which we can develop
drugs,
complete pre-clinical testing, clinical trials, approval processes
19
and supply commercial quantities to market are important competitive factors. We expect that competition among
drugs
approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent protection.
The successful development of biopharmaceuticals is highly uncertain. A variety of factors including, pre-clinical study results or regulatory approvals, could cause us to abandon development of our drug candidates.
Successful development of biopharmaceuticals is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Products that appear promising in the early phases of development may fail to reach the market for several reasons including:
·
pre-clinical study results that may show the product to be less effective than desired (e.g., the study failed to meet its primary objectives) or to have harmful or problematic side effects;
·
failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements for data analysis or a BLA, preparation, discussions with the FDA, an FDA request for additional pre-clinical or clinical data or unexpected safety or manufacturing issues;
·
manufacturing costs, pricing or reimbursement issues, or other factors that make the product not economical; and
·
the proprietary rights of others and their competing products and technologies that may prevent the product from being commercialized.
Success in pre-clinical and early clinical studies does not ensure that large-scale clinical studies will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical studies and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one product to the next, and may be difficult to predict.
Risks Related to the Securities Markets and Investments in Our Common Stock
The price of our common stock may be
subject to extreme price fluctuations that could adversely affect your investment.
The trading price of our common stock may fluctuate substantially. The price of the common stock that will prevail in the market after the sale of the shares of common stock by us may be higher or lower than the price you have paid, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part or all of your investment in our common stock. Factors that could cause fluctuations include, but are not limited to, the following:
·
price and volume fluctuations in the overall stock market from time to time;
·
fluctuations in stock market prices and trading volumes of similar companies;
·
actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts;
·
general economic conditions and trends;
·
major catastrophic events;
·
sales of large blocks of our stock;
·
departures of key personnel;
·
changes in the regulatory status of our
drug
candidates, including results of our clinical trials;
·
events affecting the Cleveland Clinic,
ChemBridge Corporation
or any other collaborators;
20
·
announcements of new products or technologies, commercial relationships or other events by us or our competitors;
·
regulatory developments in the United States and other countries;
·
failure of our common stock to be listed or quoted on the Nasdaq Capital Market, other national market system or any national stock exchange;
·
changes in accounting principles; and
·
discussion of us or our stock price by the financial and scientific press and in online investor communities.
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Regardless of its outcome, securities litigation could result in substantial costs and divert managements attention and resources from our business.
We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters.
Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the Securities and Exchange Commission, or SEC, and by the Nasdaq Capital Market, will result in increased costs to us as we evaluate the implications of these laws and regulations and respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring
developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements.
There is no assurance of an established public trading market for our common stock
.
A regular trading market for our common stock may not be established or sustained in the future. Nasdaq has enacted recent changes that limit quotation on the Nasdaq Capital Market to securities of issuers that are current in their reports filed with the SEC. The effect on the Nasdaq Capital Market of these rule changes and other proposed changes cannot be determined at this time. Quotes for stocks included on the Nasdaq Capital Market are listed in the financial sections of newspapers. Market prices for our common stock will be influenced by a number of factors, including:
·
the issuance of new equity securities pursuant to a future offering;
·
changes in interest rates;
·
competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
·
variations in quarterly operating results;
·
change in financial estimates by securities analysts;
·
the depth and liquidity of the market for our common stock;
·
investor perceptions of our company and the biopharmaceutical and biotech industries in general; and
·
general economic and other national conditions.
21
A limited public trading market may cause volatility in the price of our common stock that could adversely affect your investment.
We have applied to have our common stock quoted on the Nasdaq Capital Market. We cannot assure you that we will be successful in obtaining approval for such application. The quotation of our common stock on the Nasdaq Capital Market does not assure that a meaningful, consistent and liquid trading market will exist, and in recent years, the market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to this volatility. Sales of substantial amounts of common stock, or the perception that such sales might occur, could adversely affect the prevailing market prices of our common stock. Our stock price may decline substantially in a short time and our stockholders could suffer losses or be unable to liquidate their holdings.
We may not be able to achieve secondary trading of our stock in certain states because our common stock is not nationally traded.
Until our common stock is approved for trading on the Nasdaq National Market or listed for trading on a national securities exchange, trading in or the offer and sale of our common stock will be subject to the securities laws of the various states and jurisdictions of the United States in addition to federal securities law. These laws cover any primary offering and all secondary trading by our stockholders. While we intend to take appropriate steps to register our common stock or qualify for exemptions for our common stock in all of the states and jurisdictions of the United States, if we fail to do so, the investors in those jurisdictions where we have not taken such steps may not be allowed to purchase our stock or those who presently hold our stock may not be able to resell their shares without substantial effort and expense. These restrictions and potential costs could be significant burdens on our stockholders.
Our executive officers, directors and principal stockholders control our business and may make decisions that are not in our stockholders best interests.
As of
April 1, 2006, our officers, directors and principal stockholders, and their affiliates, in the aggregate, beneficially owned approximately 33% of the outstanding shares of our common stock on a fully diluted basis. As a result, such persons, acting together, have the ability to substantially influence all matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets, and to control our management and affairs. Accordingly, such concentration of ownership may have the effect of delaying, deferring or preventing a change in discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would be beneficial to other stockholders.
Sales of additional equity securities may adversely affect the market price of our common stock and your rights in us may be reduced.
The selling stockholders hereunder have the right to require us to register
4,092,837 shares
for resale by the 30
th
day following the consummation of this offering
that they hold pursuant to a rights agreement plus any additional shares of common stock issued with respect to the Series A Preferred Stock after
February 1, 2006
. We expect to continue to incur
drug
development and selling, general and administrative costs, and in order to satisfy our funding requirements, we may need to sell additional equity securities, which may be subject to similar registration rights. The sale or the proposed sale of substantial amounts of our common stock in the public markets may adversely affect the market price of our common stock and our stock price may decline substantially. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon sale of their shares. Also, any new securities issued may have greater rights, preferences or privileges than our existing common stock.
As a new investor, you will incur immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will experience an immediate and substantial dilution in pro forma net tangible book value per share of your investment as described in the section of this prospectus entitled Dilution. This means that the price you pay for the shares you acquire in this offering will be significantly higher than their net tangible book value per share. If we issue additional shares of common stock in the future, you may experience further dilution in the net tangible book value of your shares. Likewise, you will
22
incur additional dilution if the holders of outstanding warrants or options exercise their rights at prices below our net tangible book value per share after this offering.
Additional authorized shares of common stock available for issuance may adversely affect the market.
We are currently authorized to issue 12,000,000 shares of our common stock. As of
April 1, 2006, we had 6,542,637 shares of our common stock issued and outstanding, excluding shares issuable upon the exercise of our outstanding warrants and options or our convertible Series A Preferred Stock or convertible notes. Included in the total number of issued and outstanding shares of common stock are 1,298,783 shares of restricted stock granted to certain of our common stockholders that are subject to repurchase by us. As of April
1, 2006, we had outstanding
440,990
options to purchase shares of our common stock at a weighted exercise price of
$1.33
per share of which 88,560 options have vested or will vest within 60 days of April
1, 2006, outstanding warrants to purchase 594,424 shares of our common stock with exercise prices ranging from $1.13 to $2.00 per share, 3,291,219 shares of Series A Preferred Stock which will automatically convert into common stock on a one-for-one basis upon consummation of this offering and convertible notes in the aggregate principal amount of $283,500 which will automatically convert into shares of common stock at a fixed conversion price of approximately $2.517 per share upon consummation of this offering. To the extent the shares of common stock are issued or options and warrants are exercised, holders of our common stock will experience dilution. In addition, in the event of any future financing of equity securities or securities convertible into or exchangeable for, common stock, holders of our common stock may experience dilution.
Upon the consummation of this offering, we will sell to the underwriters or their respective designees (including officers) at an aggregate purchase price of $100, warrants to purchase up to an aggregate of 10% of the number of shares of our common stock sold in this offering, excluding the over-allotment option. Each warrant represents the right to purchase one share of common stock for a period of four years commencing on the first anniversary of the effective date of this offering. The exercise price of the warrants is 110% of the price at which our shares of common stock are sold pursuant to this offering. The warrants will contain certain demand and piggyback registration rights with respect to the common stock issuable upon exercise of the warrants. The demand registration right shall expire on the fourth anniversary of the date of this offering and the piggy-back registration rights shall expire on the sixth anniversary of the
date of this offering. The warrants are noncallable and have a cashless exercise option.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company who has satisfied a two-year holding period. Any substantial sale of our common stock pursuant to Rule 144
or pursuant to any resale prospectus may have an adverse effect on the market price of our securities.
An aggregate of _____ shares of common stock are being registered with the SEC in the registration statement of which this prospectus forms a part. These shares would otherwise be eligible for future sale under Rule 144 after passage of the minimum one-year holding period for holders who are not officers, directors or affiliates of the company. The registration and subsequent sales of such shares of common stock will likely have an adverse effect on the market price of our common stock when it commences trading.
Because we will not pay cash dividends, stockholders may have to sell shares in order to realize their investment.
We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements, which we may enter into with institutional lenders, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the
23
discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant.
We are able to issue shares of preferred stock with rights superior to those of holders of our common stock. Such issuances can dilute the tangible net book value of shares of our common stock.
Our Certificate of Incorporation currently provides for the authorization of 4,000,000 shares of blank check preferred stock. Of such authorized shares, 3,750,000 of these shares were previously designated as Series A Participating Convertible Preferred Stock, or Series A Preferred Stock. All of the outstanding Series A Preferred Stock will convert into common stock upon completion of this offering leaving 250,000 shares of blank check preferred stock. Pursuant to our Certificate of Incorporation, our board of directors is authorized to issue such blank check preferred stock with rights that are superior to the rights of stockholders of our common stock, at a purchase price then approved by our board of directors, which purchase price may be substantially lower than the market price of shares of our common stock, without stockholder approval.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the Use of Proceeds section of this prospectus. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could have a material adverse effect on our business.
Sunrise Securities Corp., one of the co-managing underwriters in this offering, will not make a market for our securities which could adversely affect the liquidity and price of our securities.
Sunrise Securities Corp., one of the co-managing underwriters in this offering, does not make markets in securities and will not be making a market in our securities. Sunrise Securities Corp. not acting as a market maker for our securities may adversely impact the liquidity of our securities.
Sunrise Securities Corp., one of the co-managing underwriters in this offering, has a conflict of interest due to its holdings in our securities.
The initial public offering price for our common stock will be determined by negotiations between the underwriters and us. Among the factors considered by the underwriters and us in determining the offering prices will be our current financial condition, our future prospects, the state of the market for our
drug candidates,
the experience of our management, the economics of the industry in general, the general conditions of the equity market and the demand for similar securities of companies comparable to us. The offering price should not be regarded as an indication of any future market price of our common stock. The provisions of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., or the NASD, apply to this offering because Sunrise Securities Corp., one of the co-managing underwriters in this offering, has a conflict of interest (as defined in Rule 2720(b)(7) of the NASD Conduct Rules) due to the ownership by Sunrise Securities Corp. and certain of its affiliates and related parties of our securities. Accordingly, the initial public offering prices can be no higher than that recommended by a qualified independent underwriter (as defined in Rule 2720(b)(15) of the NASD Conduct Rules). In accordance with this requirement, Roth Capital Partners, LLC
has agreed to act in such role and has recommended the initial public offering prices in compliance with the NASD Conduct Rules. See Underwriting.
24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These statements include, but are not limited to:
·
statements as to the anticipated timing of clinical tests and other business developments;
·
statements as to the development of new products and the commercialization of products;
·
expectations as to the adequacy of our cash balances to support our operations for specified periods of time and as to the nature and level of cash expenditures; and
·
expectations as to the market opportunities for our
drug candidates
as well as our ability to take advantage of those opportunities.
These statements may be found in the sections of this prospectus entitled Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business, as well as in this prospectus generally. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in Risk Factors and elsewhere in this prospectus.
In addition, statements that use the terms can, continue, could, may, potential, predicts, should, will, believe, expect, plan, intend, estimate, anticipate, scheduled and similar expressions are intended to identify forward-looking statements. All forward-looking statements in this prospectus reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from future results expressed or implied by the forward-looking statements. Many of these factors are beyond our ability to control or predict. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. Actual results will differ, and may differ
materially, from projected results as a result of certain risks and uncertainties. The risks and uncertainties include, without limitation, those described under Risk Factors
and elsewhere in this prospectus,
and include, among others, the following:
·
our limited operating history and ability to continue as a going concern;
·
our ability to successfully develop and commercialize products;
·
a lengthy approval process and the uncertainty of the FDA and other government regulatory requirements;
·
clinical trials that fail to demonstrate the safety and effectiveness of our applications or therapies;
·
the degree and nature of our competition;
·
our ability to employ and retain qualified employees; and
·
the other factors referenced in this prospectus, including, without limitation, under the section entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business.
These risks are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or to the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. These forward-looking statements are made only as of the date of this prospectus. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you
concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.
25
USE OF PROCEEDS
We expect to receive net proceeds of approximately $_______ from the sale of_____ shares of common stock by us based on an assumed public offering price of
$7.00
per share , the mid-point of the range shown on the cover of the prospectus,
and after deducting underwriting discounts and estimated offering expenses.
We will retain broad discretion in the allocation of the net proceeds of this offering. We currently intend to use the balance of our net proceeds for the following purposes and in the following approximate percentages, which may be increased or decreased as we deem necessary:
·
to complete the development of Protectan CBLB502 (24%),
·
to continue the development of Curaxin CBLC102 through Phase II clinical trials in multiple cancers (18%),
·
to continue R&D related to a new generation of drugs (new protectans and new curaxins) (36%), and
·
for general corporate purposes, including working capital (22%).
We intend to use the proceeds of this offering to complete the development of Protectan CBLB502 by (1) arranging for manufacture of the drug candidate by a GMP contract manufacturing organization, (2) completing formal preclinical animal studies, (3) filing an IND application, (4) performing a Phase I human safety study, and (5) filing a NDA application. We also intend to use the proceeds of this offering to continue the development of Curaxin CBLC102 through Phase II clinical trials in multiple cancers by (1) developing a high-throughput method for the manufacturing of drug capsules, (2) continuing drug trials in multiple cancers, (3) performing tests and assays depicting pharmacological characteristics of the drug candidate during trials, and (4) monitoring of the trials with an outside contract research organization. Lastly, we intend to use the proceeds of this offering to continue R&D related to a new generation of drugs
(new protectans and new curaxins). This R&D process includes (1) hit-to-lead optimization of new curaxins discovered in the primary screening of Curaxin CBLC102, and (2) preclinical development of new protectans, which demonstrate high degrees of radiation protection in preliminary animal experiments.
Until we use the net proceeds of this offering, we intend to invest the funds in short-term, investment-grade, interest-bearing securities. We cannot predict whether the proceeds invested will yield a favorable return.
We anticipate that the net proceeds received from this offering, together with our existing cash holdings, will be sufficient to meet our cash requirements for at least the next 24 months.
Notwithstanding the estimates above,
the amounts and timing of our actual expenditures will depend upon numerous factors, including the status of our R&D efforts, the timing and success of preclinical testing, the timing and success of any clinical trials we may commence in the future, the timing of regulatory submissions, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, the amount of competition we face and how successful we are with obtaining any required licenses and entering into collaboration arrangements. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business. However, we have no present understandings, commitments or agreements to enter into any potential acquisitions or investments.
DIVIDEND POLICY
We have neither declared nor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and therefore do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that our board of directors considers significant.
26
DILUTION
Purchasers of our common stock in this offering will suffer an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the offering price paid by the purchasers of our common stock exceeds the pro forma as adjusted net tangible book value per share of our common stock after the offering. Pro forma net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of our common stock deemed to be outstanding on the date the book value is determined. For such purposes, the following are deemed to be outstanding: (i) shares of restricted stock granted to certain of our common stockholders that are subject to repurchase by us, (ii) shares of our common stock underlying Series A Preferred Stock which convert upon the consummation of this offering, and (iii) shares
underlying convertible notes which convert upon the consummation of this offering.
At December 31, 2005, we had a net tangible book value of $3,556,604, or $.56 per share of common stock. After giving effect to adjustments relating to this offering as if they had occurred on December 31, 2005, our pro forma as adjusted net tangible book value at December 31, 2005 would have been $______, or $______ per share of common stock. This represents an immediate increase in net tangible book value to existing stockholders of $______ per share and an immediate dilution to new investors of $______ per share. The adjustments made to determine pro forma as adjusted net tangible book value per share are:
·
the sale by us of ______ shares of our common stock in this offering at an assumed public offering price of
$7.00
per share, the mid-point of the range shown on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed public offering price per share
|
|
|
|
$
|
|
Pro forma net tangible book value per share at December 31, 2005 before this offering
|
|
$
|
.56
|
|
|
|
|
Increase in pro forma net tangible book value per share resulting from this offering
|
|
$
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share at December 31, 2005 after this offering
|
|
|
|
|
$
|
|
|
Dilution per share to new investors
|
|
|
|
|
$
|
|
|
The following table summarizes on a pro forma as adjusted basis, as of December 31, 2005, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing common stock in this offering, assuming a public offering price of
$7.00
per share, the mid-point of the range shown on the cover of this prospectus (before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
Total Cash Consideration
|
|
Average Price
|
|
|
Number
|
|
%
|
|
Amount
|
|
%
|
|
per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
%
|
$
|
|
|
|
|
%
|
$
|
|
New investors
|
|
|
|
|
|
%
|
$
|
|
|
|
|
%
|
$
|
|
Total
|
|
|
|
|
100
|
%
|
$
|
|
|
|
100
|
%
|
$
|
|
The discussion and tables above exclude 324,240 shares of common stock issuable upon the exercise of outstanding stock options issued under our equity incentive arrangements as of December 31, 2005, with a weighted average exercise price of $.82 per share, and 594,424 shares of common stock issuable upon exercise of warrants with exercise prices ranging from $1.13 to $2.00 per share. To the extent that any of our outstanding options are exercised, there will be further dilution to new investors.
27
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of the company as of December 31, 2005. The pro forma capitalization gives effect to (i) the conversion upon the closing of this offering of all outstanding shares of Series A Preferred Stock into shares of common stock, (ii) the issuance of accrued dividends and penalty shares
on the Series A Preferred Stock payable in common stock, (iii) the conversion upon the closing of this offering of all outstanding convertible notes into shares of common stock, and (iv) the issuance and sale by the company of ______ shares of common stock at an assumed initial public offering price of
$7.00
per share, the mid-point of the range shown on the cover of the prospectus (after deducting underwriting discounts and commissions and estimated offering expenses payable by the company) and the application of the net proceeds therefrom. This table should be read in conjunction with our Financial Statements and the Notes thereto, Managements Discussion and Analysis of Financial Condition and Results of Operations and the other financial information included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
Actual
|
|
Pro Forma
|
|
|
|
|
|
|
(Unaudited)
|
|
Long-term obligations, net of current portion
|
|
$
|
0
|
|
$
|
0
|
|
Convertible notes payable
|
|
$
|
303,074
|
|
$
|
0
|
|
Series A convertible preferred stock; 3,750,000 shares authorized,
3,051,219 shares outstanding actual and no shares outstanding pro forma
|
|
$
|
4,948,141
|
|
|
|
|
Unissued penalty shares - preferred stock
|
|
$
|
360,000
|
|
|
|
|
Common stock, $0.005 par value: 12,000,000 shares authorized, 6,396,801 shares
outstanding actual and shares outstanding pro forma
|
|
|
31,984
|
|
|
|
|
Additional paid-in capital
|
|
$
|
3,338,020
|
|
|
|
|
Unissued penalty shares - common stock
|
|
$
|
81,125
|
|
|
|
|
Accumulated deficit
|
|
$
|
(5,202,666
|
)
|
$
|
(5,202,666
|
)
|
Total stockholders equity (deficit)
|
|
$
|
3,556,604
|
|
|
|
|
Total capitalization
|
|
$
|
3,859,678
|
|
$
|
0
|
|
The above table excludes as of December 31, 2005:
·
324,240 shares of common stock issuable upon exercise of outstanding options with exercise prices ranging from $0.66 to $3.00 per share;
·
594,424 shares of common stock issuable upon exercise of warrants with exercise prices ranging from $1.13 to $2.00 per share;
·
________ shares of common stock issuable upon exercise of warrants to be sold to the underwriters with an exercise price of $___________ per share upon consummation of this offering; and
·
________ shares of common stock reserved for issuance under our stock option plan.
28
SELECTED FINANCIAL DATA
We have derived the following selected financial data for the years ended December 31, 2005, December 31, 2004 and December 31, 2003 from our audited financial statements. In the opinion of our management, this information contains all adjustments necessary for a fair presentation of our results of operations and financial condition for such periods. The information below is not necessarily indicative of the results of future operations and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes included elsewhere in this prospectus.
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
December 31,
2004
|
|
December 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,138,831
|
|
$
|
636,341
|
|
$
|
75,000
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Research and Development
|
|
$
|
2,640,240
|
|
$
|
2,892,967
|
|
$
|
143,258
|
|
Selling, General and Administrative
|
|
$
|
986,424
|
|
$
|
262,817
|
|
$
|
68,636
|
|
Income (Loss) from Operations
|
|
$
|
(2,487,833
|
)
|
$
|
(2,519,443
|
)
|
$
|
(136,894
|
)
|
Net Income (Loss)
|
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
December 31,
2004
|
|
December 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
$
|
10,126
|
|
Total Assets
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
$
|
32,108
|
|
Total Liabilities
|
|
$
|
696,729
|
|
$
|
756,433
|
|
$
|
143,934
|
|
Total Stockholders Equity
|
|
$
|
3,556,604
|
|
$
|
(374,214
|
)
|
$
|
(111,826
|
)
|
29
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This managements discussion and analysis of financial condition and results of operations and other portions of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking information. Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, results of our R&D efforts and clinical trials, product demand, market acceptance and other factors discussed in this prospectus under the heading Risk Factors. This managements discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus.
Overview
We were formed in June 2003. We have devoted substantially all of our resources to the identification, development and commercialization of new types of drugs for protection of normal tissue from exposure to radiation and other stresses, such as toxic chemicals and for cancer treatment. Our R&D efforts are supported by agreements with our institutional founders, the Cleveland Clinic and ChemBridge. In September 2003, we started our operations funded by a R&D contract from the Cleveland Clinic employing two research scientists. At the same time, our management team started our fund-raising efforts, which generated funding from NASA, NIH and DARPA. This funding, along with equity financing, allowed us to build a team consisting of
24
employees and several consultants and independent contractors as of the date of this prospectus. More grants followed, including a
$1,500,000
NIH R01 grant, bringing the total number of grant commitments awarded to CBL to 10 totaling
$2,745,000
as of January 1, 2006. We also received $20,000 as a subcontractor relating to a NIH grant to System Biosciences, LLC.
An exclusive license from the Cleveland Clinic serves as a foundation for our intellectual property. As a result of this license, we have filed, on the Cleveland Clinics behalf, 11 patent applications covering new classes of anticancer and radiation-protecting compounds, their utility and mode of action. The relationship with ChemBridge has provided us with a 180,000 compound library to use in our high-throughput screening facility. Access to these compounds provides our scientists with a valuable resource to assist them in generating highly-promising hits against critically important cancer targets.
We secured a
$6,000,000
investment via a private placement of Series A Preferred Stock in March 2005. Such investment, together with grants we have received, has supported our R&D activities to date. We are actively seeking new grants
and
co-development contacts with premier pharmaceutical partners
to support further development of other promising leads resulting from our R&D program.
Critical Accounting Policies
Our managements discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, expenses and other reported disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
The notes to our financial statements include disclosure of our significant accounting policies. While all decisions regarding accounting policies are important, we believe that the following policies could be considered critical.
Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition. Our revenue sources consist of government grants, government contracts and commercial development contracts.
Grant revenue is recognized in two different methods depending on the type of grant. Cost reimbursement grants require us to submit proof of costs incurred that are invoiced by us to the government agency which then pays the invoice. In this case, grant revenue is recognized at the time of submitting the invoice to the government agency.
30
Fixed-cost grants require no proof of costs and are paid as collected for expenses incurred and accordingly, the grant revenue is recognized when received by us. Government contract revenue is recognized periodically upon delivery of an invoice for allowable R&D expenses according to the terms of the contract. Commercial development revenues are recognized when the service or development is delivered.
Assumptions and estimates are used to recognize revenue. These assumptions and estimates are developed in coordination with the principal investigator performing the work under the government grant or contract arrangement to determine key milestones, expenses incurred, and deliverables to perform a percentage-of-completion analysis to ensure that revenue is appropriately recognized. Critical estimates involved in this process include total costs anticipated to be incurred under the terms of the agreement.
R&D Expenses
R&D costs are expensed as incurred. These expenses consist primarily of our proprietary R&D efforts, including salaries and related expenses for personnel, costs of materials used in our R&D, costs of facilities and the legal costs of pursuing patent protection of our intellectual property, as well as costs incurred in connection with our third-party collaboration efforts. Pre-approved milestone payments made by us to third parties under contracted R&D arrangements are expensed when the specific milestone has been achieved. To date, no milestone payments have been made. Once a
drug
receives regulatory approval, we will record any subsequent milestone payments in identifiable intangible assets, less accumulated amortization, and amortize them evenly over the remaining agreement term or the expected
drug
life cycle, whichever is shorter. We expect our R&D expenses to increase as we continue to develop our
drug
candidates.
Intellectual Property Related Costs
We capitalize costs associated with the preparation, filing and maintenance of our intellectual property rights. Capitalized intellectual property is reviewed annually for impairment. If a patent application is approved, costs paid by us associated with the preparation, filing and maintenance of the patent will be amortized on a straight line basis over the shorter of 17 years or the anticipated useful life of the patent. If the patent application is not approved, costs paid by us associated with the preparation, filing and maintenance of the patent will be expensed as part of selling, general and administrative expenses at that time.
We have capitalized $76,357 in expenditures associated with the preparation, filing and maintenance of certain of our patents, which we incurred during the year ended December 31, 2005. These costs previously were expensed in selling, general and administrative expenses through December 31, 2004. For the periods ending December 31, 2004 and December 31, 2003, these costs were $49,275 and $21,690, respectively.
Stock-based Compensation
We value stock-based compensation pursuant to the provisions of SFAS 123(R). Accordingly, effective January 1, 2005, all stock-based
compensation,
including grants of employee stock options, are recognized in the statement of operations based on their fair values. We accounted for all stock options through the use of the Black-Scholes model.
Results of Operations
Our operating results for the past three fiscal years have been nominal. The following table sets forth our statement of operations data for the period from June 5, 2003 (inception) to December 31, 2003, the year ended December 31, 2004 and for the year ended December 31, 2005, and should be read in conjunction with our financial statements and the related notes appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2005
|
|
Year Ended
December 31,
2004
|
|
Period from
June 5, 2003
(Inception) to
December 31,
2003
|
|
|
|
Audited
|
|
Audited
|
|
Audited
|
|
Revenues
|
|
$
|
1,138,831
|
|
$
|
636,341
|
|
$
|
75,000
|
|
Operating expenses
|
|
|
3,626,664
|
|
|
3,155,784
|
|
|
211,894
|
|
Net interest expense (income)
|
|
|
(101,378
|
)
|
|
3,699
|
|
|
(68
|
)
|
Net income (loss)
|
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
31
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Revenue
Revenue increased from $636,341 for the year ended December 31, 2004 to $1,138,831 for the year ended December 31, 2005 representing an increase of $502,490 or 79.0%
. This increase is primarily due to the increase from grants and contracts received through various government
agencies including DARPA (Army) and NIH during 2005. Grant and contract revenue increased from $531,341 for the year ended
December 31, 2004 to $999,556 for the year ended
December 31, 2005 representing an increase of $468,216 or 88.1%. See the table below for further details regarding the sources of our grant and contract revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
Program
|
|
Amount
|
|
Period of
Performance
|
|
Revenue
2005
|
|
Revenue
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASA
|
|
Phase I NASA SBIR program
|
|
$
|
70,000
|
|
01/2004-06/2004
|
|
|
|
|
$
|
69,925
|
NIH
|
|
Phase I NIH SBIR program
|
|
$
|
100,000
|
|
08/2004-04/2005
|
|
$
|
49,998
|
|
$
|
49,750
|
NIH
|
|
NIH SBIR Contract, Topic 186
|
|
$
|
100,000
|
|
09/2004-03/2005
|
|
|
|
|
$
|
99,993
|
NIH
|
|
Phase I NIH STTR program
|
|
$
|
100,000
|
|
08/2004-04/2005
|
|
|
|
|
$
|
99,990
|
DARPA
|
|
DARPA, program BAA04-12
|
|
$
|
475,000
|
|
11/2004-08/2005
|
|
$
|
283,185
|
|
$
|
191,683
|
NIH
|
|
Phase I NIH SBIR program
|
|
$
|
100,000
|
|
06/2005-01/2006
|
|
$
|
100,000
|
|
$
|
|
NIH
|
|
BioShield program (NIAID)
|
|
$
|
1,500,000
|
|
07/2005-01/2007
|
|
$
|
399,707
|
|
$
|
|
NIH
|
|
Phase I NIH SBIR program
|
|
$
|
100,000
|
|
08/2005-01/2006
|
|
$
|
66,666
|
|
$
|
|
NIH
|
|
Phase I NIH SBIR program
|
|
$
|
100,000
|
|
09/2005-02/2006
|
|
$
|
100,000
|
|
$
|
|
NASA
|
|
Phase I NASA STTR program
|
|
$
|
100,000
|
|
01/2006-01/2007
|
|
$
|
0
|
|
$
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
999,556
|
|
$
|
531,341
|
Revenue from other sources for the years ended
December 31, 2005 and 2004 was $139,275 and $105,000 respectively. Other revenue in 2005 was earned solely through a commercial agreement with Peprotech, Inc. to further develop chemical compounds. Other revenue in 2004 was earned from high throughput screening services for the Cleveland Clinic.
We anticipate our revenue over the next year to be derived mainly from grants and to a lesser degree from the Peprotech, Inc. agreement
. In addition, it is common in our industry for companies to enter into licensing agreements with large pharmaceutical companies. To the extent we enter into such licensing arrangements, we will receive additional revenue from licensing fees.
Operating Expenses
Operating expenses have historically consisted of costs relating to R&D and selling, general and administrative expenses. R&D expenses have consisted mainly of supporting our R&D team, process development, sponsored research at the Cleveland Clinic and consulting fees. Selling, general and administrative expenses include all corporate and administrative functions that serve to support our current and future operations while also providing an infrastructure to support future growth. Major items in this category include management and staff salaries, rent/leases, professional services and travel-related expenses. We expect these expenses to increase as a result of increased legal and accounting fees anticipated in connection with our compliance with ongoing reporting and accounting requirements of the SEC and to the extent that we expand our business.
Operating expenses increased from $3,155,784 for the year ended December 31, 2004 to $3,626,664 for the year ended December 31, 2005. This represents an increase of $470,880 or 14.9%. Of the $3,155,784 in operating expenses for the year ended December 31, 2004, $2,250,000 represents a non-cash expense regarding the valuation of 2,250 pre-stock split shares issued to the Cleveland Clinic in exchange for use of their licenses and technologies. Excluding this one-time, non-cash transaction, operating expenses increased from $905,784 for the year ended December 31, 2004 to $3,626,664 for the year ended December 31, 2005. This represents an increase of $2,720,880 or 300.4%. This increase resulted primarily from an increase in R&D expenses from $642,967 for the year ended December 31, 2004 (excluding the $2,250,000 one-time, non cash transaction) to $2,640,240 for the year ended
December 31, 2005 incurred to service the above referenced operating revenue as well as for R&D expenses for internal projects. Research expenditures
increased over time in 2004
reflecting our growth from two scientists at the beginning of the year
to six scientists by year-end as compared to 2005 when there were
16 scientists at year-end. Research costs totaled $1,782,155 for 2005 and $471,195 in 2004 excluding the one-time, non-cash transaction with the Cleveland Clinic. Development activities did not begin until
July 2005 and totaled $546,252 in 2005. In
32
addition, selling, general and administrative expenses of $851,319 were incurred in 2005 versus $434,450 in 2004 as a result of creating and improving our infrastructure as we moved into larger lab facilities in
May 2005. Accounting and auditing fees also increased to $70,667 in 2005 from $2,246 in 2004 as we raised equity capital in
March 2005 and began plans for this initial public offering.
Until we introduce a product to the market, expenses in the categories mentioned above will be the largest factor in our statement of operations.
Year Ended December 31, 2004 Compared to Period from June 5, 2003 (inception) to December 31, 2003
Revenue
Operating revenue increased from $75,000 for the period from June 5, 2003 (inception) to December 31, 2003 to $636,341 for the year ended December 31, 2004 representing an increase of 748% resulting primarily from an increase in government grants. We received grants and contracts totaling $531,341 from various government agencies including NASA, DARPA (Army), and NIH in 2004. Other revenue for the years ended
December 31, 2004 and 2003 were $105,000 and $75,000, respectively, resulting from high throughput screening services for the Cleveland Clinic.
Operating Expenses
Operating expenses increased from $211,874 for the period from June 5, 2003 (inception) to December 31, 2003 to $3,153,485 for the year ended December 31, 2004. This represents an increase of $2,941,611 or 1,388%. $2,250,000 of the 2004 expenses represents a non-cash expense regarding the valuation of 2,250 pre-stock split shares issued to the Cleveland Clinic. The common shares were issued to the Cleveland Clinic in December 2004, in exchange for use of their licenses and technologies. Excluding this one-time, non-cash transaction, operating expenses increased from $211,874 to $903,485. This represents an increase of $691,611 or 326%. This increase resulted primarily from an increase in R&D expenses incurred to service the above referenced operating revenue as well as selling, general and administrative expenses incurred as a result of a full year of operations.
Liquidity and Capital Resources
We have incurred annual operating losses since our inception, and, as of December 31, 2005, we had an accumulated deficit of approximately $5,202,666. Our principal sources of liquidity have been cash provided by government grants and sales of our securities. Our principal uses of cash have been R&D and working capital. We expect our future sources of liquidity to be primarily equity capital raised from investors, as well as government grants, licensing fees and milestone payments in the event we enter into licensing agreements with third parties, and research collaboration fees in the event we enter into research collaborations with third parties. We anticipate that the proceeds of this offering should be sufficient to fully develop Protectan CBLB502 for non-medical applications; however, to complete the development of Curaxin CBLC102 and Protectan CBLB502 for medical applications, additional investment or revenue sources
will be needed.
Net cash used in operating activities totaled $1,730,512 for the year ended December 31, 2005, compared to $220,911 used in operating activities for the same period in 2004. Net cash used in operating activities for the year ended December 31, 2004 totaled $207,911 compared to $11,289 provided by operating activities for the period from June 5, 2003 (inception) through December 31, 2003. For both periods, the increase in cash used was primarily attributable to increased R&D activities.
Net cash used in investing activities was $2,805,113 for the year ended December 31, 2005 and $27,991 for the same period in 2004. The increase resulted from investments in long-term certificates of deposit and by purchases of property and equipment. Net cash used in investing activities was $27,991 for the year ended December 31, 2004 and $1,196 for the period from June 5, 2003 through December 31, 2003. This increase resulted from purchases of equipment.
Net cash provided by financing activities totaled $5,647,347 for the year ended December 31, 2005, compared to $320,517 for the same period in 2004. The increase was attributable primarily to the net proceeds from our private placement of Series A Preferred Stock in March 2005. Net cash provided by financing activities totaled $320,517 for the year ended December 31, 2004 primarily from the issuance of convertible debt compared to $33 for the period from June 5, 2003 (inception) through December 31, 2003.
33
Although we believe that the net proceeds to be received by us from this offering and existing cash resources will be sufficient to finance our currently planned operations for the near-term (approximately 24 months), such amounts may not be sufficient to meet our longer-term cash requirements, including our cash requirements for the commercialization of certain of our
drug
candidates currently in development. We may be required to issue equity or debt securities or to enter into other financial arrangements, including relationships with corporate and other partners, in order to raise additional capital. Depending upon market conditions, we may not be successful in raising sufficient additional capital for our long-term requirements. In such event, our business, prospects, financial condition and results of operations could be materially adversely affected.
The following factors, among others, could cause actual results to differ from those indicated in the above forward-looking statements: the status of our R&D efforts, the timing and success of preclinical testing, the timing and success of any clinical trials we may commence in the future, the timing of regulatory submissions, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, the amount of competition we face and how successful we are with obtaining any required licenses and entering into collaboration arrangements.
Under our exclusive license agreement with the Cleveland Clinic, we may be responsible for making milestone payments to the Cleveland Clinic in amounts ranging from $50,000 to $4,000,000. The milestones and corresponding payments for Protectan CBLB502 and Curaxin CBLC102 are set forth below:
|
|
|
File IND application for Protectan CBLB502
|
$
|
50,000
|
Complete Phase I studies for Protectan CBLB502
|
$
|
100,000
|
File NDA application for Protectan CBLB502
|
$
|
350,000
|
Receive regulatory approval to sell Protectan CBLB502
|
$
|
1,000,000
|
|
|
|
File IND application for Curaxin CBLC102
|
$
|
50,000
|
Commence Phase II clinical trials for Curaxin CBLC102
|
$
|
250,000
|
Commence Phase III clinical trials for Curaxin CBLC102
|
$
|
700,000
|
File NDA application for Curaxin CBLC102
|
$
|
1,500,000
|
Receive regulatory approval to sell Curaxin CBLC102
|
$
|
4,000,000
|
Our agreement with the Cleveland Clinic also provides for payment by us to the Cleveland Clinic of royalty payments calculated as a percentage of the net sales of the drug candidates ranging from 1-2%, and sublicense royalty payments calculated as a percentage of the royalties received from the sublicenses ranging from 5-35%. However, any royalty payments and sublicense royalty payments assume that we will be able to commercialize our drug candidates, which are subject to numerous risks and uncertainties, including those associated with the regulatory approval process, our R&D process and other factors discussed above in Risk Factors. Each of the above milestone payments, royalty payments and sublicense royalty payments will be accrued until the Cleveland Clinic owns less than five percent of
our common stock on a fully-diluted basis or we receive more than $30,000,000 in funding and/or revenues from sources other than the Cleveland Clinic, neither of which have occurred.
Impact of Inflation
We believe that our results of operations are not dependent upon moderate changes in inflation rates.
Recent Accounting Pronouncements
In March 2004, the Financial Accounting Standards Board, or FASB, issued EITF Issue No. 03-1: The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments. EITF Issue No. 03-1 requires certain quantitative and qualitative disclosures with respect to securities in an unrealized loss position accounted for under SFAS No. 115 and SFAS No. 124 and for cost method investments. We have provided the disclosure information required by EITF Issue No. 03-1 in Note 7 to the Financial Statements accompanying this prospectus. EITF Issue No. 03-1 also describes a three-step model to measure and recognize other-than-temporary impairments of investments in marketable securities, however, the effectiveness of the measurement and recognition guidance of EITF Issue No. 03-1 has been indefinitely delayed. We do not expect that the adoption of the measurement and recognition guidance of EITF Issue No. 03-1, as currently
contemplated, will have a material impact on operating results and financial position.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
34
BUSINESS
Our Company
We are a development-stage company engaged in drug discovery. Our goal is to identify and develop new types of drugs for protection of normal tissues from exposure to radiation and other stresses, such as toxic chemicals and for cancer treatment. Our initial target is to develop a drug to protect humans from the effects of exposure to radiation, whether as a result of military or terrorist acts or as a result of a nuclear accident. Recent acts of terrorism and the proliferation of nuclear weapons programs in rogue states have created a more immediate demand for further research and development in this area. Other potential applications of our
drug candidates
include reducing the side effects of cancer treatment as well as killing tumor cells.
Our development efforts are based on discoveries made in connection with the investigation of the cell-level process know as apoptosis. Apoptosis is a highly specific and tightly regulated form of cell death that can occur in response to external events such as exposure to radiation or toxic chemicals or to internal stresses. Apoptosis is a major determinant of tissue damage caused by a variety of medical conditions including cerebral stroke, heart attack or acute renal failure. Conversely, however, apoptosis also is an important protective mechanism that allows the body to shed itself of defective cells, which otherwise can cause cancerous growth.
Research has demonstrated that apoptosis is sometimes suppressed naturally. For example, most cancer cells develop resistance to apoptotic death caused by drugs or natural defenses of the human body. Our research is geared towards identifying the means by which apoptosis can be affected and manipulated depending on the need.
If the need is to protect healthy tissues against an external event such as exposure to nuclear radiation, we attempt to suppress apoptosis in those healthy tissues thereby imitating the apoptotic-resistant tendencies displayed by cancer cells. A drug with this effect would also be useful in ameliorating the often severe side effects of anticancer drugs and radiation that cause collateral damage to healthy tissues during cancer treatment. Because the severe side effects of anticancer drugs and radiation often limit their dosage in cancer patients, an apoptosis suppressant drug may enable a more aggressive treatment regimen using anticancer drugs and radiation and thereby increase their effectiveness.
On the other hand, if the need is to kill cancerous cells, we attempt to restore apoptotic mechanisms that are suppressed in tumors so that those cancerous cells will once again become vulnerable to apoptotic death. In this regard, we believe that our drug candidates could be vital to the treatment of cancer patients.
Our initial
drug
development is based on drug prototypes discovered at the Cleveland Clinic and exclusively licensed to us. Our core competency, which adds critical value to these prototypes, is our ability to develop and enhance these prototypes through preclinical and clinical development. Our strength in the therapeutic areas of protection from radiation and cancer therapy is another critical component of our core competency.
We intend to continue feeding our drug discovery pipeline with new projects. The early, high-risk stages of target discovery, concept validation and assay development will be predominantly performed as focused, short-term sponsored research projects by our collaborators, primarily in the laboratories of Dr. Andrei Gudkov at the Cleveland Clinic.
Product Development
Process
In general, the process for drug discovery and development includes:
·
target discovery finding what part of the cell is affected by the drug;
·
validation confirmation that hitting the target does what we think and nothing else;
·
isolation of prototype drugs using high throughput screening applying robotics to large collections of chemicals to find the ones that hit the target or effect whole cells in a desirable way;
·
hit-to-lead optimization improving properties of selected chemicals to make drug prototypes by generating chemical derivatives of initial hit and testing properties in an array of assays;
35
·
formal preclinical pharmacological and toxicological drug product characterization testing safety and efficiency of drugs in primates using highly regulated standard approaches; and
·
clinical trials testing drug safety and actions using humans.
Scientific Foundation
CBL concentrates on the development of small molecule drugs and biologics focusing on two major therapeutic directions:
·
Development of drugs that protect normal tissues from the damaging effects of ionizing radiation and chemotherapy (protectans). This consists more specifically of:
►
development of radioprotectants for non-medical applications, e.g., protection against the military or terrorist use of nuclear weapons; and
►
development of cancer treatment supplements that decrease the side effects of radiation treatment and anticancer drugs and allow for an increased dose of radiation and anticancer drugs to be safely received by a patient.
·
Development of anticancer drugs targeting a newly discovered way of regulating cell death (curaxins).
Our drug development strategy is based on several original concepts that view a cells inherent ability to commit suicide as a target for pharmacological treatment. Depending on the desired outcome, we develop both cell-death inhibiting (for normal tissue protection) and cell-death inducing (for cancer treatment) pharmaceuticals.
Pharmacological modulation of programmed cell death for protection of normal tissues
. Apoptosis is considered a major determinant of tissue damage associated with a variety of stresses including cerebral stroke, heart attack or acute renal failure. Consequently, pharmacological inhibition of apoptosis is considered a therapeutic strategy for treatment of these conditions. Cancer treatment side effects, resulting from injuries caused by radiation and chemotherapy to normal sensitive tissues, are also associated with apoptosis. This includes injuries to the hematopoietic and immune systems, the epithelium of the digestive tract and hair follicles. We are employing pharmacological inhibition of programmed cell death to combat the side effects of cancer treatment. Indeed, whereas normal sensitive tissues respond to traditional DNA-damaging (genotoxic) anticancer treatment by apoptosis, those tumor cells, which have lost suicidal
properties, are killed by these drugs through alternative mechanisms. Therefore, temporary and reversible inhibitors of apoptosis are expected to selectively protect normal tissues having no effect on the tumors sensitivity to the anticancer drugs. To further assure the selectivity of normal tissue protection, we will embark upon the pharmacological imitation of survival mechanisms that are already active in tumor cells inhibition of p53 (pro-apoptotic) and/or activation of NF-kB (anti-apoptotic). These concepts are in contrast with conventional views on p53 and NF-kB as cancer treatment targets, which generally hold that p53 should be stimulated and NF-kB should be suppressed.
As the basis for the development of NF-kB-inducing tissue protecting drugs, we will explore a unique source of natural modulators of apoptosis microbes inhabiting the human body as well as tumors themselves. Both microbial parasites and tumors depend on the viability of the host cells. Therefore, they secrete a variety of factors inhibiting apoptosis of host cells as part of their survival strategy. These natural anti-apoptotic factors, when optimized, form the core of our tissue protecting drugs known as protectans.
Pharmacological modulation of programmed cell death for cancer treatment
. Apoptosis is an important natural biological mechanism that removes defective cells. Cancer cells, however, frequently acquire defects in their apoptotic machinery as part of their progression strategy, which inhibits the death of these cells. In many tumors, this happens due to the deregulation of two major mechanisms controlling apoptosis p53 and NF-kB pathways. Thus, in cancer cells, p53 is usually physically or functionally lost, whereas NF-kB becomes constitutively active. As a result, the natural therapeutic procedures that cause death in normal sensitive tissues may not be effectively damaging to cancer cells. Deciphering mechanisms of apoptosis deactivation in tumors allows for the rational design of new, targeted therapeutic approaches aimed at their restoration, and therefore at the increased killing of cancer cells. Our team has discovered
a novel mechanism of tumor resistance to apoptosis that involves functional repression of p53 by constitutively active NF-kB thereby leading to the inhibition of apoptosis. We are developing small molecules, curaxins, capable of killing tumor cells by reversing this mechanism, thereby restoring the ability
36
to undergo apoptosis. Since constitutively active NF-kB is present only in tumor cells, curaxins are harmless to normal tissues.
Protectan CBLB502
Non-Medical Applications
Protectan CBLB502 is our leading radioprotectant molecule in the protectans series. Protectan CBLB502 represents a rationally designed derivative of the microbial protein, flagellin. Flagellin is secreted by
Salmonella typhimurium
and acts as a natural activator of NF-kB. Protectan CBLB502 is administered through injection.
In collaboration with the Cleveland Clinic, our scientists have demonstrated that injecting Protectan CBLB502 into mice protects them from lethal doses of total body gamma radiation. An important advantage of Protectan CBLB502 above any radioprotectant known to us is its ability to effectively protect not only the hematopoietic system but also the gastrointestinal tract, which are among the most sensitive areas of the human body to radiation. High levels of radiation, among other effects, induce moderate to severe bone marrow damage. The immune and blood stem cells are also depleted and death is caused by anemia, infection, bleeding and poor wound healing
.
Protectan CBLB502s ability to effectively protect the hematopoietic system and gastrointestinal tract
may make Protectan CBLB502 uniquely useful as a radioprotective antidote. In addition, Protectan CBLB502 has proved to be a stable compound for storage purposes. It has been found to be able to be stored at temperatures close to freezing, room temperature or extreme heat. Manufacture of Protectan CBLB502 is relatively inexpensive due to its high yield bacterial producing strain and simple purification process.
Extraordinary radioprotective properties, an excellent toxicity profile, outstanding stability and inexpensive production of Protectan CBLB502 make
it
a primary candidate for entering formal preclinical studies. Initially, Protectan CBLB502 will be developed for non-medical purposes as a radioprotectant antidote for the protection of people from severe doses of ionizing radiation. This drug development strategy complies with recently adopted FDA rules for investigational drugs that address situations such as radiation injury, where it would be unethical to conduct efficacy studies in humans. While Phase II and Phase III human clinical trials are normally required for the marketing approval of an investigational drug, under the new FDA rules Protectan CBLB502 would be considered for approval for this indication based on Phase I safety studies in humans and efficacy studies in relevant primates. Based upon such expedited approval process, Protectan CBLB502 may be approved for
non-medical
applications within 18-36 months. Because Phase II and Phase III testing, which each involve testing a drug candidate on large numbers of participants who suffer from the targeted disease and condition, can last for a total of anywhere from three to six or more years, being permitted to bypass those phases represents a significant time and cost savings in getting FDA approval. Without Phase II and Phase III testing, the FDA approval process is based on efficacy testing in primates and safety testing in humans conducted during preclinical and Phase I trials.
As part of this expedited approval process, the FDA has indicated that it intends to engage in a highly interactive review of IND and NDA applications and to provide for accelerated review or approval of certain medical products for counterterrorism applications, including granting eligible applications Fast Track approval status (as described in this prospectus under the section titled Government Regulation). In cases where priority review is given to Fast Track applications, the applicant is permitted to submit applications on a rolling basis. We plan to apply for fast track approval upon the filing of our IND application for Protectan CBLB502. If Protectan CBLB502 is approved, we may market it outside of the United States to the extent permitted by U.S. and foreign government authorities.
In order for us to receive final FDA approval for Protectan CBLB502 for non-medical applications we need to: (1) manufacture our drug candidate according to GMP guidelines, (2) repeat our animal studies with the GMP-manufactured drug candidate, (3) file an IND and receive a response from the FDA, (4) perform a Phase I human study, which does not require GMP-manufactured material and can be done simultaneously with the rest of the steps, and (5) file an NDA. In the most optimistic scenario, these steps could be accomplished in 18 months, whereas in a more conservative scenario, it could take up to 36 months or more to complete the development and approval of Protectan CBLB502 for non-medical applications. We have not
begun the formal approval process with the FDA.
The Project BioShield Act of 2004, which further expedites approval of drug candidates for certain uses, is aimed to bolster the nations ability to provide protections and countermeasures against biological, chemical, radiological or nuclear agents that may be used in a military, terrorist or nuclear attack. The principal provisions of
37
this law are to: (1) facilitate R&D of biomedical countermeasures by the NIH, (2) provide for the procurement of needed countermeasures through a special reserve fund of $5.6
billion over ten years, and (3) authorize, under limited circumstances, the emergency use of medical products that have not been approved by the FDA. The law also allows the use of expedited peer review when assessing the merit of grants and contracts of up to $1,500,000 for countermeasure research. We have been awarded a $1,500,000 research grant pursuant to this law.
Congress recently has enacted the Support Anti-Terrorism by Fostering Effective Technologies (SAFETY) Act and the Public Readiness and Emergency Preparedness (PREP) Act, each of which provide some level of liability protection to companies involved in the production or distribution of anti-terrorism or military and defense related goods. The SAFETY Act provides to certain sellers of anti-terrorism technologies a qualified limitation of liability based on an amount of liability insurance coverage, a limitation on joint and several liability for non-economic damages, and limitations on punitive damages. The PREP Act offers liability protections to companies involved in the development, manufacturing and deployment of pandemic and epidemic products, and security countermeasures. In addition, as a result of the scaled down FDA approval process and the Project BioShield Act, members of Congress have proposed the Project BioShield II Act
of 2005, which would provide for additional product liability protection for companies that create vaccines or biological defense drugs that could cause injury to patients. Each of these acts and proposed acts are of recent vintage and have not been subject to much clarification or been subject to much litigation, and therefore, the scope and availability of these protections, as interpreted by courts, have not been fully demonstrated. While we anticipate that our drug candidates developed for these types of uses will be afforded some level of protection under these laws, we cannot predict with any certainty that the enactment of these laws will provide us with a defense to any potential litigation or claim of liability.
Medical Applications
In addition to military or other non-medical applications, Protectan CBLB502 has been observed preliminarily to dramatically increase the efficacy of radiotherapy of experimental tumors in mice. Protectan CBLB502 appears to increase the tolerance of mice to radiation while having no effect on the radiosensitivity of tumors, thus opening the possibility of combining radiotherapy with Protectan CBLB502 treatment to improve overall anticancer efficacy of radiotherapy. Our animal efficacy studies showed that up to 100% of mice treated with Protectan CBLB502 prior to being exposed to radiation survived without any associated signs of toxicity versus a 100% mortality rate in the animal group that received the placebo drug.
A pilot study that began in
December 2005 conducted by Frontier Biotechnologies, Inc. at the National Chengdu Center for Safety Evaluation of Traditional Chinese Medicine in China in which 20 non-human primates received lethal doses of radiation demonstrated a 10-day delay of radiation-associated mortality and a significant reduction in death rates (from 75% to 33%) in the group of animals treated with Protectan CBLB502 without any associated signs of toxicity. An equal degree of protection was achieved in a subgroup of non-human primates that were previously exposed to Protectan CBLB502 demonstrating that Protectan CBLB502 is effective despite multiple administrations, which is not always the case with most protein based drugs. In addition, in the Protectan CBLB502 treated group, half of the non-human primates that survived radiation showed no gross pathologies. In the rest of the survivors from this group, radiation-induced damage to the lymphoid organs and gastrointestinal tract was significantly less pronounced than
that suffered by survivors in the control group, which received no radioprotectants. Although these results are preliminary in nature and results discovered in animal trials are often not indicative of results in humans, they are encouraging because they indicate that Protectan CBLB502 has radioprotective properties.
In contrast to non-medical applications, the use of Protectan CBLB502 to ameliorate the side effects of radiation treatment and anticancer drugs is subject to the full FDA approval process.
Curaxins
We are developing drugs to treat one of the most treatment resistant types of cancer renal cell carcinoma, or RCC. Unlike many cancer types that frequently mutate or delete p53, one of the major tumor suppressor genes, RCC belongs to a rare category of cancers that typically maintain a wild type form of this protein. Nevertheless, RCC cells are resistant to apoptosis, suggesting that in spite of its normal structure, p53 is functionally disabled. The work of our founders has shown that p53 function is indeed inhibited in RCC by an unknown dominant factor. We have established a drug discovery program to identify small molecules that selectively kill tumor cells by restoring the normal function to functionally impaired p53 in RCC. This program yielded a series of chemicals with the desirable
38
properties named curaxins (CBLC100 series). We have isolated three chemical classes of curaxins. One of them includes relatives of 9-aminoacridine, the compound that is the core structure of many existing drugs. This characteristic has allowed us to skip preclinical development and Phase I studies and bring one of these
drug candidates
into Phase IIa clinical trials, saving years of R&D and improving the probability of success.
Curaxins represent a novel class of anticancer drugs with a unique combination of therapeutic properties. Unlike conventional chemotherapy, they kill tumor cells by simultaneously hitting two important molecular targets activating p53 and deactivating NF-kB rather than through DNA damage.
Probably one of the most important outcomes of this drug discovery program was the identification of the mechanism by which curaxins deactivate NF-kB. This mechanism of action makes curaxins potent inhibitors of the production and the activity of NF-kB not only in its stimulated, but also in its basal form. The level of active NF-kB is usually also increased in cancer cells. Moreover, due to curaxin-dependent functional conversion of NF-kB-DNA complexes, the cells with the highest basal or induced NF-kB activity are supposed to be the most significantly affected by curaxins. Clearly, this paradoxical activity makes deactivation of NF-kB by curaxins more advantageous compared to conventional strategies targeting NF-kB activators.
Active Pharmaceutical Ingredient, or API, for the initial clinical studies has been manufactured by Regis Technologies, Inc. and Aptuit (Kansas City), LLC, pharmaceutical producers with whom we have contracted. Initial trial batches have been prepared, and purification methods are being refined. In preparation for the IND clinical studies, a stability program for API will be conducted by the producers. For Phase IIb, Phase III and final production, several other vendors will also be reviewed on a competitive basis to select the site for large-scale manufacturing.
Curaxin CBLC102
One of the curaxins from the 9-aminoacridine group is a long-known anti-infective compound known as quinacrine which we refer to as Curaxin CBLC102. It has been used for over 40 years to treat malaria, osteoarthritis and autoimmune disorders. But we have discovered new mechanisms of action for quinacrine in the area of apoptosis. Through assay testing done in a variety of human tumor-derived cell lines representing cancers of different tissue origin, including RCC, sarcomas, prostate, breast and colon carcinomas performed at Dr. Gudkovs laboratories at the Cleveland Clinic beginning in 2002,
we
have observed that Curaxin CBLC102 behaves as a potent NF-kB suppressor and activator of p53 in these
types of cancer cells. It has favorable pharmacological and toxicological profiles and demonstrates the anticancer effect in transplants of human cancer cells into primates. These features make Curaxin CBLC102 our prime IND drug
candidate among other curaxins. The drug candidate will be used for Phase II clinical trials to treat RCC, soft-tissue sarcoma and hormone refractory prostate cancer patients.
Clinical trials with Curaxin CBLC102 will be initially performed at the Cleveland Clinic and will be later expanded to other centers. Selection of the types of malignancies for these initial trials is based on their documented status of p53 (wild type, mutant, deleted) and NF-kB activity. The primary target indications are RCC, soft-tissue sarcoma and hormone refractory prostate cancer. We will apply our therapy to patients who have failed to respond satisfactorily after undergoing established cancer treatments and will use the suppression of tumor growth and prolonged patient survival as major endpoints. An additional endpoint, PSA level reduction, will be used in the prostate trials. Elevated PSA levels are indicative of the progression of prostate cancer.
We have an agreement with Regis Technologies, Inc., a GMP manufacturer, that has produced sufficient quantities of Curaxin CBLC102 according to the process previously used for production of this drug when it was in common use. We are currently in the process of preparing clinical trials protocols and identifying interested physicians. We have had a pre-IND meeting with the FDA and an IND submission is planned for later in 2006. As a result of the meeting, the FDA stated that it will allow us to proceed with the initiation of clinical trials of
Curaxin CBLC102 in patients (after submitting and gaining IND approval) using a staged-cohort escalating dose design in the first study, which means that we can initiate our first clinical study using a small number of patients to confirm the safety of the drug in humans before enrolling the full study at a higher dosage level
. Preparation of the IND data package and the clinical drug
candidate
are underway. Upon IND approval, we will conduct the first study in prostate cancer patients at the Taussig Cancer Center of the Cleveland Clinic. We expect that one hurdle to gaining IND approval is that samples of the previously marketed formulation of quinacrine are no longer available as a basis of comparison thereby raising concerns from the FDA about whether Curaxin CBLC102 will have the same safety and efficacy profile compared to the previously used quinacrine. The FDA has indicated that we may nonetheless
39
proceed using lower dosage levels until safety is demonstrated, meaning that we will be allowed to increase the dosage levels if the adverse effects of Curaxin CBLC102 are acceptable to the FDA.
We have applied for the patent covering use of Curaxin CBLC102 as an anticancer agent based on a newly discovered unique mechanism of action, and we are also planning to seek orphan drug status marketing protection from the FDA for the use of Curaxin CBLC102 to treat RCC, soft-tissue sarcoma and hormone refractory prostate cancer.
Other Curaxins
As mentioned above, screening of the chemical library for compounds capable of restoring normal function to wild type p53 in the context of RCC yielded three chemical classes of compounds. Generation of focused chemical libraries around the hits from one of these classes and their structure-activity optimization brought about a new generation of curaxins. These molecules have a chemical structure different from 9-aminoacridine (Curaxin CBLC102) and are more active and appear to be more selective of tumor cells than the representatives of the first generation of curaxins (e.g., Curaxin CBLC102).
Following additional optimization we are planning to embark upon the formal development of two to three additional second generation curaxins.
Product Development Schedule and Capital Requirements
Drug development is a slow, expensive, risky and highly volatile process.
A survey conducted by the Tufts Center for the Study of Drug Development in 2001 estimated that from the commencement of R&D to FDA approval of a drug, a drug company typically spends approximately $800
million dollars over a 10 to 15 year period.
We intend to continue R&D of our innovative drug candidates by utilizing technologies and product prototypes licensed from research institutions (e.g., the Cleveland Clinic and The University of New South Wales), which advances our efforts at producing a final product, and adding to them new compounds discovered in-house. Specifically, our efforts are focused on Protectan CBLB502 with potential applications in both non-medical and medical areas and on its newly discovered properties, which allow us to develop this drug candidate as a supportive agent during radiotherapy. We will also continue our work on Curaxin CBLC102 for anticancer therapy. This development will be supplemented with discovery efforts preparing new generations of our drugs. Our development projects are prioritized based on our estimate of the distance from a final product or licensing end-point and the probability of success. Projects will be
implemented in parallel or sequential fashion, as resources permit.
We plan to use the net proceeds of this offering together with existing funds to achieve the following objectives:
·
Phase I safety clinical trials for non-medical applications of Protectan CBLB502;
·
pivotal study of Protectan CBLB502 using primates for non-medical applications (an equivalent of Phase II/III clinical study);
·
filing an IND followed by an NDA to receive all necessary regulatory approvals to manufacture and sell Protectan CBLB502 for non-medical applications;
·
preclinical studies, IND filing and Phase I clinical studies for the medical use of Protectan CBLB502;
·
filing IND for Curaxin CBLC102 and subsequent clinical studies (Phase IIa in multiple cancers); and
·
additional discovery, lead optimization and preclinical studies aimed at developing new generation of curaxins and protectans.
Our selected development projects are unified by a common therapeutic focus and are built upon a common scientific paradigm. We believe that our distinct projects expand the potential value of a common technology. Our seasoned management team will constantly monitor the progress of our projects at the key objectives and compare them with pre-established developmental milestones. By supporting and carefully managing several projects simultaneously, we will attempt to reduce short-term risk and contribute to our long-term potential.
As a result of the outlined development, Protectan CBLB502 may be approved for
non-medical
applications within 18-36 months. During the same period of time, we also expect to conduct Phase I trials of Protectan
40
CBLB502 with a view to demonstrating its utility for cancer treatment. Additionally, we expect to have conducted Phase II clinical trials of Curaxin CBLC102 later in 2006 with a view to demonstrating its efficacy for RCC, soft-tissue sarcoma and hormone refractory prostate cancer.
In addition to the proceeds of this offering, we will pursue other sources of capital to fund additional development of products.
·
Grants
Through December 31, 2005, we have received ten government grant commitments from NIH, DOD and NASA totaling
$2,745,000
including the prestigious
$1,500,000
R01 award from NIH. Each grant awarded is confined to the scope of work described in the grant application and the grant funds cannot be used for any other purpose. The grantee provides the grantor with a final report detailing the results of the work and, depending on the terms of the specific grant, may need to provide status reports on an ongoing basis. The table below lists each of the ten government grants awarded to us to date.
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Agency
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Title
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Amount
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Project
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Status
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|
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NASA
|
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New class of biological radioprotectors
|
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$
|
70,000
|
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Protectans
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Completed
|
NIH
|
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N-myc targeted therepeutics for childhood neuroblastoma
|
|
$
|
100,000
|
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Curaxins
|
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Completed
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NIH
|
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Radioprotectors targeting p53
|
|
$
|
100,000
|
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Protectans
|
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Completed
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NIH
|
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Development of new inhibitors of androgen receptors
|
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$
|
100,000
|
|
Curaxins
|
|
Completed
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DARPA
|
|
Tissue protecting antidotes from anti-apoptotic factors of Mycoplasma
|
|
$
|
475,000
|
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Protectans
|
|
Completed
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NIH
|
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Bacterial proteins as cancer drugs and radioprotectors
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
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NIH
|
|
Protecting immune system by modulators of p53 and NF-kB
|
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$
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1,500,000
|
|
Protectans
|
|
Funded
|
NIH
|
|
New approach to improve abdominopelvic radiotherapy by protecting small intestine
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
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NIH
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Effective Radioprotectants Targeting Toll-like Receptor 5
|
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$
|
100,000
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Protectans
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Completed
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NASA
|
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Use of CBLB502 against biologically harmful effects of ionizing radiation during space flight
|
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$
|
100,000
|
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Protectans
|
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Funded
|
Besides being a source of non-dilutive cash, grants play two very important roles:
►
validating our science by passing a rigorous review process; and
►
creating awareness by exposure to a professional bio-medical community.
·
License of Early-Stage Leads
— In addition to Protectan CBLC502 and Curaxin CBLC102, we possess certain compound prototypes which we are developing with a view to offering them to a pharmaceutical or biotechnology company for strategic alliance or licensing transactions.
We cannot be certain that we will be successful in attracting additional
capital from any of the foregoing sources to fund our development of
drugs.
In the event that we do not successfully attract additional capital, our business, prospects, financial condition and results of operations could be adversely affected.
Research and Development
Over nearly two years of operations, we have been able to build an R&D team headed by our founder and Chief Scientific Officer, Dr. Andrei Gudkov, and Vice President of R&D, Dr. Elena Feinstein, both distinguished scientists with numerous publications and patents. Our Vice President of Drug Development, Dr. Farrel Fort, who spent 20 years at Abbott Laboratories and TAP Pharmaceutical where he was the Director of Drug Safety, supervises our drug development efforts. Over the last 10 years, the labs of Drs. Gudkov and George Stark of the Cleveland Clinic have received more than $20 million of grant funding for the development of the basic science forming our technological foundation. Our fully equipped 5,000 square foot research facilities include a modern high-throughput screening, or HTS, core and versatile molecular biology and cell culture capabilities.
Besides academic grants already received by the labs of our scientific founders, we are eligible for government support. Both NIH and DARPA participate in the
U.S. Small Business Innovation Research, or SBIR,
grant program, which is specifically designed to support R&D in small
companies with fewer than 500 employees and 51% owned or controlled by U.S. citizens or permanent resident aliens
such as ours, and whose programs present us
41
with opportunities to leverage our core
drug
development activities. A new and very promising feature of SBIR funding is its multi-million dollar Phase III awards, which can be used to pay for clinical trials. This Phase III opportunity is limited to a few therapeutic areas, including our field of activity.
We have historically received approximately 40% of our grant revenues through the SBIR program. Recently, the SBA advised us that the NIH had inquired as to whether we are eligible to receive grants under the SBIR program. We have responded to their inquiry and attempted to address any concerns. For example, the Cleveland Clinic and Dr. Gudkov have terminated their voting agreement (in which Dr. Gudkov had granted the Cleveland Clinic the right to vote his shares) so as to allow Dr. Gudkov the right to vote all of his shares. We are currently awaiting the SBAs determination. If we are found not to be, or not to have been, eligible for these types of grants, the loss of eligibility could materially and adversely affect our research efforts.
We have submitted 14 grant applications to NIH, DOD and NASA. As of January 1, 2006, 10 of the 14 grant applications have been awarded to us bringing more than
$2,700,000
in grant commitments to our R&D programs.
Licensing Revenues
Licensing and other payments from large pharmaceutical companies (and other institutions, including the U.S. government) are a major revenue source for biotech companies in the process of developing drugs. Licensing and acquisition transactions with large pharmaceutical companies are struck at all stages of drug development, from early discovery to Phase III clinical trials. For example, large pharmaceutical companies, such as Bristol-Myers Squibb Co., Johnson & Johnson, Amgen Inc., AstraZeneca and Novartis AG, that dominate the anticancer drug market, distribute major anticancer drugs that were initially developed by biotech companies. Over the last decade, there has been a substantial increase in the number of collaborative deals between large pharmaceutical companies and biotech companies with the average deal amount increasing to $30 million in 2003. Such licensing deals can be an attractive way to realize the value of a
potential product of a biotech company early in the R&D process an approach we intend to strategically employ. Historically, some of the larger biopharmaceutical licensing deals have been in the field of cancer research. In addition to bringing in early revenues, such discussions can also serve as an invaluable opportunity to gauge the true market value of specific
drug
candidates. However, as of the date of this prospectus, we have not realized any revenue from licensing arrangements.
Strategic Partnerships
CBLs development is supported by its strategic partners and founders, the Cleveland Clinic and ChemBridge. Besides being a source of critical intellectual property, the Cleveland Clinic provides access on favorable economic terms to its multiple research cores and animal care facilities, which allows us to avoid building this type of infrastructure and focus instead on mission-critical research and drug development. Even more importantly, leading physicians of the Cleveland Clinic are involved in the design of our clinical trials, which will take place at the Cleveland Clinic, providing invaluable expertise in various cancer types and radiological treatment. Additionally, we may license certain future intellectual property developed in a laboratory at the Cleveland Clinic headed by one of our founders through our existing exclusive license for cancer applications and tissue protection with the Cleveland Clinic, which we believe
will provide a good supply of new concepts and leads for future development.
ChemBridge provided us with access to 180,000 compounds of its compound library in exchange for 357,600 shares of our common stock and warrants to purchase 264,624 shares of our common stock.
ChemBridge also expects to play a key role in hit-to-lead optimization providing necessary chemical expertise and synthetic capabilities. Our agreement with ChemBridge allows us to utilize these capabilities for a 50%
share in
the ownership of two lead compounds selected by ChemBridge and all derivative compounds thereof
in lieu of cash reducing our development exposure.
We are actively seeking new strategic partnerships to support the development of our
drug candidates.
We are engaged in discussions with several leading pharmaceutical and biotech entities as well as various government institutions. In
August 2004, we entered into five-year cooperative research and development agreement, or CRADA, with the Uniformed Services University of the Health Sciences which includes the Armed Forces Radiobiology Research Institute (AFRRI), the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. (Henry Foundation) and the Cleveland Clinic to: (1) evaluate radioprotectant candidates originating from the Cleveland Clinic, (2) obtain information on the effects of the radioprotectant candidates originating from AFRRI on intracellular and extracellular signaling pathways, and (3) if promising candidates emerge from the
42
radioprotectant candidates supplied by the Cleveland Clinic, develop a plan and initiate studies of these compounds to the FDA to obtain IND status. The agreement may be unilaterally terminated by any party upon 30 days prior written notice with or without cause. Under the terms of the agreement, all parties are financially responsible for their own expenses related to the agreement. We are also
discussing other collaborations with other potential partners. However, there can be no assurance that any of these discussions will result in collaborations on favorable terms or at all.
Our Intellectual Property
Our intellectual property platform is based primarily on 11 patent applications exclusively licensed to us by the Cleveland Clinic and two patent applications, which we have filed and own, all in the field of regulating cell death that cover new cancer treatment concepts, methods of drug discovery and drug candidates isolated in the laboratory of Dr. Andrei Gudkov. Our license with the Cleveland Clinic is for an indefinite term and we may license additional intellectual property in the same licensed field from the Cleveland Clinic in the future. The Cleveland Clinic may terminate the license upon a material breach by us as specified in the agreement, however, we may avoid such termination if within 90 days of receipt of such termination notice we cure the breach. As consideration for this license, we issued the Cleveland Clinic 1,341,000 shares of common stock and agreed to make certain milestone, royalty and sublicense royalty
payments. No milestone payments, royalties or sublicense royalties were recognized or paid during the year ended December 31, 2004 or December 31, 2005.
The aforementioned 11 patent applications licensed from the Cleveland Clinic are as follows:
·
Methods of Inhibiting Apoptosis Using Latent TFGß;
·
Methods of Identifying of Modulators of Apoptosis From Parasites and Uses Thereof;
·
Methods of Inhibiting Apoptosis Using Inducers of NF-kB;
·
Methods of Protecting Against Radiation Using Inducers of NF-kB;
·
Methods of Protecting Against Radiation Using Flagellin;
·
Small Molecules Inhibitors of MRP1 and Other Multidrug Transporters;
·
Flagellin Related Polypeptides and Uses Thereof;
·
Inhibition of NF-kB;
·
Modulation of Immune Responses;
·
Methods of Protecting Against Apoptosis Using Lipopeptides; and
·
Modulation of Cell Growth.
The aforementioned two patent applications, which we filed and own, are as follows:
·
Quinacrine Isomers; and
·
Modulation of Androgen Receptor for Treatment of Prostate Cancer.
Need and Opportunity
Our portfolio of
drug candidates
and our technological platform are intended to address a broad array of medical problems. We see utility of our potential
drug candidates
in the following areas:
·
protection from the biological effects of a terrorist attack, military use of nuclear devices and accidents involving radiation (protectans);
·
reduction of side effects of anticancer treatment (protectans); and
·
new therapies aimed at orphan cancer types such as RCC, soft-tissue sarcoma and hormone refractory prostate cancer using drugs capable of restoring apoptosis in tumors (curaxins).
43
Upon development of the first generation of
drug candidates,
we intend to extend our potential market, focusing on one or more major cancer types, such as prostate and colon cancers, and other diseases caused by genotoxic stress.
Non-Medical Applications of Protectans
Recent acts of terrorism and the proliferation of nuclear weapons programs in rogue states have magnified the importance of radioprotectants in military applications. The potential threat of a terrorist attack using a conventional explosive embedded with radioactive material, or dirty bomb, or a nuclear device has caused the U.S. government to appropriate significant dollars in the area of Homeland Security and Emergency Preparedness. In a recent legislative act, the Project BioShield Act of 2004, the U.S. government allocated an extra $5.6 billion over ten years for countermeasures against these threats. As of
March 26, 2006, under the Project BioShield Act of 2004, there have only been three contracts awarded for the treatment of radiation, which accounted for approximately $38
million of the over approximately $1
billion awarded.
Should either threat become a reality, emergency responders would have to enter the impact area to rescue survivors, assess damage, make repairs and perform containment, thereby potentially exposing themselves to lethal doses of radiation. An emergency of any magnitude, combined with the limited window after radiation exposure in which a drug is effective, would require a stockpile of any drug used to treat the effects of radiation.
The core meltdown, and resulting explosions, at the Chernobyl nuclear power plant in the Ukraine in April 1986 illustrates the impact such events could have on a surrounding population and the need for stockpiling radioprotectants. Officials estimate that at least 600,000 people were involved in some aspect of cleanup and more than 15 million people were exposed to heightened radiation, resulting in medical costs of more than $60 billion.
High-risk areas include military installations and theater of operations, any urban or metropolitan areas at risk of radiation attack, and a 10-50 mile radius around nuclear power plants or spent fuel facilities. In the New York City metropolitan area, for example, approximately 20 million people live within 50 miles of the Indian Point nuclear power plant located just 35 miles north of New York City thereby creating a large market for stockpiling radioprotectants. In addition, similar market opportunities may exist in both Europe and Asia.
Currently, the only drug that is considered appropriate for stockpiling for protection against radiation injury is potassium iodide (KI). While KI is useful in protecting the thyroid from the long-term risk of thyroid cancer, it is not useful in protecting against the acute effects of radiation injury and ensuing infections. In Europe, KI has been stockpiled for years in sufficient quantities to treat all civilians living within a number of miles of any of the 300 nuclear power plants in the event of a nuclear accident. Stockpiling of KI has also recently begun for civilians living within 10-50 miles of the 103 active nuclear power plants in the U.S. For example, California recently announced plans to buy 880,000 doses of KI to protect people living close to either of the states two nuclear plants.
Medical Applications of Protectans
Radiotherapy is the most common modality for treating human cancers. Approximately 50%-60% of cancer patients need radiotherapy at some stage of treatment, either for curative or palliative purposes. To obtain optimal results, a judicious balance between the total dose of radiotherapy delivered and the threshold of the surrounding normal critical tissues is required. In order to obtain better control with a higher dose, normal tissue must be protected against radiation injury. Thus, the role of radioprotective compounds is very important in clinical radiotherapy.
Currently, the only available radioprotectant for cancer patients on the market is Ethyol® (aminofostine), which is produced by MedImmune Inc. Aminofostine is considered an inadequate radioprotectant because of its severe side effects and sub-optimal efficacy. Consequently, its sales have been limited.
The U.S. market for anticancer therapeutics is large and growing. The American Cancer Society estimates overall annual cancer costs in the United States at $189.8 billion: $69.4 billion for direct medical costs, $16.9 billion for morbidity costs, and $103.5 billion for mortality costs. Treatment of breast, lung and prostate cancer accounts for over half of the direct medical costs. The market for anticancer drugs, valued at more than $15 billion in 1998, was projected to nearly double by 2003, and, ultimately, exceeded this projection.
44
Excessive loss of normal, non-cancerous cells through the mechanism of apoptosis occurs during both drug and radiation cancer treatments. The adverse effects of these therapies include injuries to the hematopoietic and immune systems, the epithelium of the digestive tract and hair follicles. Despite significant efforts in the anticancer drug market, some cancer patients die from complications from the drugs, and a significant number of patients cannot tolerate chemotherapy drug regimens due to their toxic side effects. Some of the side effects are dose limiting in that they do not allow the patient to take higher doses or longer treatment, ultimately reducing the potency of the therapy. Two of the most common side effects, chemo-nausea and fatigue, are likely to be reduced by drugs protecting the hematopoietic and gastrointestinal systems similar to Protectan CBLB502. This creates an opportunity
for us to offer our drug candidate to a substantial number of patients in a multibillion dollar anti-cancer drug market.
New therapies aimed at cancer (Curaxins)
We have prioritized our primary disease targets for Curaxin CBLC102 as RCC, soft-tissue sarcoma and hormone refractory prostate cancer based on several factors, including the results of our preliminary research, readily identifiable partnering opportunities, potential or orphan drug status and alternative treatments in other cancer areas.
RCC is a niche cancer that accounts for 3% of all cancer cases in the United States, but is the most common type of kidney cancer in adults. In the United States, approximately
35,000 40,000
patients are diagnosed with RCC annually. For early-stage cancer, the five-year survival rate is 60% to 70%. If the cancer has spread to the lymph nodes, the five-year survival rate is 5% to 15%. If it has spread to other organs, the five-year survival rate is less than 5%. Although the market for RCC treatment is relatively small and large pharmaceutical companies generally are unlikely to enter into the market with their own products that compete directly with us, we may see competition in the RCC market from Wyeth Research and Aeterna Laboratories which are in the late stage development of second-line therapies to combat RCC. These products are aimed at achieving better toxicity profiles and greater survival benefits than conventional treatments for stage IV RCC. Nevertheless, the high mortality rate and small market size may cause other large pharmaceutical companies to license products from a company such as us instead of developing their own products.
Soft-tissue sarcomas are rare, representing only about 1% of all cancer cases. According to the American Cancer Society, approximately 9,400 new cases of soft-tissue sarcoma
are
projected to be diagnosed in the United States in
2006
, which
are
projected to be responsible for approximately
3,500
deaths per year. If detected early, before it has had a chance to spread, the five-year survival rate is approximately 90%. Treatment requires surgery and radiation therapy with chemotherapy used as an additional means to deal with distant reoccurrences and metastases.
Prostate cancer is the most common cancer in men in the United States other than skin cancer. According to the American Cancer Society, an estimated
234,460
cases
are
projected to be diagnosed with prostate cancer in
2006
. The majority of patients who are diagnosed with localized prostate cancer are treated and cured with either radiation or surgery. Patients in whom treatment with curative intent is unsuccessful and those who present with metastasis are candidates for androgen suppression. The majority of men who are deprived of androgens, however, ultimately progress to an androgen-independent phase where the initial androgen suppression regimen no longer controls the tumor. As a result, treatment for the androgen-independent phase of prostate cancer is a clear unmet medical need.
Competition
In the area of radiation-protective antidotes, the most visible market participant is Hollis-Eden, a biopharmaceutical company that is working on the development of a new class of investigational drugs known as Immune Regulating Hormones (IRHs). Hollis-Eden’s major developmental focus is on HE2100 (also known as NEUMUNE™ and 5-Adrostenediol), which is licensed from Virginia Commonwealth University. In addition, Hollis-Eden recently entered into a CRADA with the United States Department of Defense to jointly develop HE2100 as a radioprotectant. The compound is currently in preclinical trials.
The arsenal of medical radiation-protectors is limited to Aminofostine developed by MedImmune, which is limited due to the serious side effects of the drug. Other radiation-protectors may enter the market.
Biomedical research for anticancer therapies is a large industry, with many companies, universities, research institutions and foreign government-sponsored companies competing for market share. The top
ten
public U.S.-
45
based companies involved in cancer therapy have a combined market capitalization exceeding
$1 trillion.
In addition, there are several hundred biotech companies who have as their mission anticancer drug development. These companies account for the
approximately 150
anticancer compounds currently in drug trials. However, despite the numerous players with deep pockets, there is still a clear, unmet need in the anticancer drug development market.
Each of the approximately
200 types of cancer recognized by the National Cancer Institute, or NCI, has dozens of subtypes, both etiological and on a treatment basis. Due to this market segmentation, the paradigm of a one-size-fits-all, super-blockbuster approach to drug treatments does not work well in cancer therapy. Currently, even the most advanced therapeutics on the market do not provide substantial health benefits.
This suggests that innovative anticancer therapies are driven by the modest success of current therapeutics, the need for an improved understanding of the underlying science, and a shift in the treatment paradigm towards more personalized medicine. Our technology addresses this need for an improved understanding of the underlying science and implements a fundamental shift in the approach to developing anticancer therapies.
In addition to the direct competition outlined above, there is a potential for adverse market effects from other outside developments. For example, producing a new drug with fewer side effects reduces the need for anti-side-effects therapies. Because of this, we must monitor a broad area of anticancer R&D and be ready to fine-tune our development as needed.
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and intense competition. This competition comes both from biotech firms and from major pharmaceutical and chemical companies. Many of these companies have substantially greater financial, marketing and human resources than we do (including, in some cases, substantially greater experience in clinical testing, manufacturing and marketing of pharmaceutical products). Our
drug candidates
competitive position among other biotech and biopharmaceutical companies may be based on, among other things, patent position, product efficacy, safety, reliability, availability, patient convenience/delivery devices and price, as well as, the development and marketing of new competitive products.
We also experience competition in the development of our
drug candidates
from universities and other research institutions and compete with others in acquiring technology from such universities and institutions. In addition, certain of our
drug candidates
may be subject to competition from products developed using other technologies, some of which have completed numerous clinical trials. As a result, our actual or proposed
drug candidates
could become obsolete before we recoup any portion of our related R&D and commercialization expenses. However, we believe our competitive position is enhanced by our commitment to research leading to the discovery and development of new products and manufacturing methods.
Some of our competitors are actively engaged in R&D in areas where we also are developing
drug
candidates. The competitive marketplace for our
drug
candidates is significantly dependent upon the timing of entry into the market. Early entrants may have important advantages in gaining product acceptance and market share contributing to the products eventual success and profitability. Accordingly, in some cases, the relative speed with which we can develop products, complete the testing, receive approval, and supply commercial quantities of the product to the market is vital towards establishing a strong competitive position.
Our ability to sell to the government also can be influenced by indirect competition from other providers of products and services. For instance, a major breakthrough in an unrelated area of bio-defense could cause a major reallocation of government funds from radiation protection. Likewise, an outbreak or threatened outbreak of some other form of disease or condition may also cause a re-allocation of funds away from the condition that Protectan CBLB502 is intended to address.
Governmental Regulation
The Drug Regulation Process
The FDA requires that pharmaceutical and certain other therapeutic products undergo significant clinical experimentation and clinical testing prior to their marketing or introduction to the general public in the United States. Clinical testing, also known as clinical trials or clinical studies, is either conducted internally by
46
pharmaceutical or biotech companies or is conducted on behalf of these companies by contract research organizations.
The process of conducting clinical studies is highly regulated by the FDA, as well as by other government and professional bodies. Below, we describe the principal framework in which clinical studies are conducted, as well as describe a number of the parties involved in these studies.
Protocols
. Before commencing human clinical studies, the sponsor of a new drug must submit an investigational new drug application, or IND, to the FDA. The application contains what is known in the industry as a protocol. A protocol is the blueprint for each drug study. The protocol sets forth, among other things, the following:
·
who must be recruited as qualified participants;
·
how often to administer the drug;
·
what tests to perform on the participants; and
·
what dosage of the drug to give to the participants.
Institutional Review Board
. An institutional review board is an independent committee of professionals and lay persons that reviews clinical research studies involving human beings and is required to adhere to guidelines issued by the FDA. The institutional review board does not report to the FDA, but its records are audited by the FDA. Its members are not appointed by the FDA. An institutional review board must approve all clinical studies. The institutional review boards role is to protect the rights of the participants in the clinical studies. It approves the protocols to be used, the advertisements that the company or contract research organization conducting the study proposes to use to recruit participants, and the form of consent that the participants will be required to sign prior to their participation in the clinical studies.
Clinical Trials
. Human clinical studies or testing of a potential product are generally done in three stages known as Phase I through Phase III testing. The names of the phases are derived from the regulations of the FDA. Generally, there are multiple studies conducted in each phase.
Phase I
. Phase I studies involve testing a drug or product on a limited number of healthy participants, typically 24 to 100 people at a time. Phase I studies determine a drugs basic safety and how the drug is absorbed by, and eliminated from, the body. This phase lasts an average of nine months to a year.
Phase II
. Phase II trials involve testing up to 200 participants at a time who may suffer from the targeted disease or condition. Phase II testing typically lasts an average of one to two years. In Phase II, the drug is tested to determine its safety and effectiveness for treating a specific illness or condition. Phase II testing also involves determining acceptable dosage levels of the drug. If Phase II studies show that a new drug has an acceptable range of safety risks and probable effectiveness, a company will continue to study the substance in Phase III studies.
Phase III
. Phase III studies involve testing large numbers of participants who suffer from the targeted disease or condition, typically several hundred to several thousand people. The purpose is to verify the effectiveness and long-term safety on a large scale. These studies generally last two to three years and are conducted at multiple locations or sites. Like the other phases, Phase III requires the site to keep detailed records of data collected and procedures performed.
New Drug Approval
. The results of the clinical trials are submitted to the FDA as part of a new drug application, or NDA. Following the completion of Phase III studies, assuming the sponsor of a potential product in the United States believes it has sufficient information to support the safety and effectiveness of its product, it submits an NDA to the FDA requesting that the product be approved for marketing. The application is a comprehensive, multi-volume filing that includes the results of all clinical studies, information about the drugs composition, and the sponsors plans for producing, packaging and labeling the product. The FDAs review of an application can take a few months to several years, with the average review lasting 18 months. Once approved, drugs and other products may be marketed in the United States, subject to any conditions imposed by the FDA.
Phase IV
. The FDA may require that the sponsor conduct additional clinical trials following new drug approval. The purpose of these trials, known as Phase IV studies, is to monitor long-term risks and benefits, study different dosage levels or evaluate safety and effectiveness. In recent years, the FDA has increased its reliance on these trials.
47
Phase IV studies usually involve thousands of participants. Phase IV studies also may be initiated by the company sponsoring the new drug to gain broader market value for an approved drug. For example, large-scale trials may also be used to prove the effectiveness and safety of new forms of drug delivery for approved drugs. Examples may be using an inhalation spray versus taking tablets or a sustained-release form of medication versus capsules taken multiple times per day.
The drug approval process is time-consuming, involves substantial expenditures of resources, and depends upon a number of factors, including the severity of the illness in question, the availability of alternative treatments and the risks and benefits demonstrated in the clinical trials.
On November 21, 1997, former President Clinton signed into law the Food and Drug Administration Modernization Act. That law codified the FDAs policy of granting Fast Track approval for cancer therapies and other therapies intended to treat serious or life threatening diseases and that demonstrate the potential to address unmet medical needs. The Fast Track program emphasizes close, early communications between the FDA and the applicant to improve the efficiency of preclinical and clinical development, and to reach agreement on the design of the major clinical efficacy studies that will be needed to support approval. Under the Fast Track program, a sponsor also has the option to submit and receive review of parts of the NDA or BLA on a rolling schedule approved by the FDA, which expedites the review process.
The FDAs Guidelines for Industry Fast Track Development Programs require that a clinical development program must continue to meet the criteria for Fast Track designation for an application to be reviewed under the Fast Track Program. Previously, the FDA approved cancer therapies primarily based on patient survival rates or data on improved quality of life. While the FDA could consider evidence of partial tumor shrinkage, which is often part of the data relied on for approval, such information alone was usually insufficient to warrant approval of a cancer therapy, except in limited situations. Under these Guidelines, Fast Track designation ordinarily allows a product to be considered for accelerated approval through the use of surrogate endpoints to demonstrate effectiveness. As a result of these provisions, the FDA has broadened authority to consider evidence of partial tumor shrinkage or other surrogate endpoints of clinical
benefit for approval. This new policy is intended to facilitate the study of cancer therapies and shorten the total time for marketing approvals. Under accelerated approval, the manufacturer must continue with the clinical testing of the product after marketing approval to validate that the surrogate endpoint did predict meaningful clinical benefit. To the extent applicable, we intend to take advantage of the Fast Track programs to obtain accelerated approval on our future
drugs,
however, it is too early to tell what effect, if any, these provisions may have on the approval of our
drug
candidates.
The Orphan Drug Act provides incentives to develop and market drugs for rare disease conditions in the United States. A drug that receives orphan drug designation and is the first product to receive FDA marketing approval for its product claim is entitled to a seven-year exclusive marketing period in the United States for that product claim.
Although we may not obtain it, we
plan to seek orphan drug status for marketing protection from the FDA for the use of Curaxin CBLC102 in the treatment of
RCC, soft-tissue sarcoma and hormone refractory prostate cancer. However, it should be noted that a drug that is considered by the FDA to be different than such FDA-approved orphan drug, is not barred from sale in the United States during this exclusive marketing period, even if it receives approval for the same claim.
The FDA requires that any drug or formulation to be tested in humans be manufactured in accordance with its current GMP regulations. The current GMP regulations set certain minimum requirements for procedures, record-keeping and the physical characteristics of the laboratories used in the production of these drugs.
Other Regulations
Various federal and state laws, regulations, and recommendations relating to safe working conditions, laboratory practices, the experimental use of primates, and the purchase, storage, movements, import, export, use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, are applicable to our activities. They include, among others, the United States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Resources Conservation and Recovery Act, national restrictions on technology transfer, import, export, and customs regulations and other present and possible future local, state, or federal regulation. The extent of government regulation that might result from future legislation or administrative action cannot be accurately predicted.
48
Hazardous Materials
Our R&D processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We do not expect the cost of complying with these laws and regulations to be material. We have no manufacturing capabilities. We plan to rely on third parties to manufacture bulk compounds and finished investigational medicines for clinical trials. Commercial quantities of any drugs that we may seek to develop will have to be manufactured in facilities and by processes that comply with FDA and other regulations. We plan to rely on third parties to manufacture commercial quantities of any products that we successfully develop.
Manufacturing and Marketing
We have no manufacturing or marketing capabilities. We plan to rely on third parties to manufacture and market bulk compounds and finished investigational medicines for clinical trials. Commercial quantities of any drugs that we may seek to develop will have to be manufactured in facilities and by processes that comply with FDA and other regulations. We plan to rely on third parties to manufacture and market commercial quantities of any products that we successfully develop. If our drug candidates are approved for medical application, we expect to market such products by using the sales and marketing capabilities of pharmaceutical companies with which we plan to develop alliances. If our drug candidates are approved for radiation treatment, we plan to sell our
drug candidates
to the limited number of governmental agencies with which we have already established relationships, for example, the Armed Forces Radiobiology Research Institute, HHS and DOD, creating an opportunity for us to sell our
drug candidates
without partnering with other commercial entities thereby retaining all of the revenues.
Employees
As of the date of this prospectus, we have
24
employees working in our fully-equipped research facility located near the Cleveland Clinic and the campus of Case Western Reserve.
Facilities
Our principal executive offices are located at 11000 Cedar Avenue, Suite 290, Cleveland, Ohio 44106. We also rent office space for research in Rosemont, Illinois. Our rent is currently $7,526 per month in Cleveland and $1,130 per month in Rosemont. We currently do not own any real property.
Litigation
As of the date of this prospectus, we are not a party to any litigation or other legal proceeding.
Independent Accountants
On May 25, 2005, we engaged the accounting firm of Meaden & Moore, Ltd. as our independent accountants. Meaden & Moore replaced our previous accountants Hausser & Taylor, LLC. Hausser & Taylor, which had audited our financial statements for the years ending December 31, 2003 and 2004, had been engaged in late May 2005 to reissue their opinion specifically to remove the going concern clause as a result of our $6 million Series A Preferred Stock financing. During the course of that engagement, Hausser & Taylor notified us that as a result of their having provided assistance to management in the drafting of notes to the financial statements, they could not satisfy the independence requirement of the SEC.
Meaden & Moore has reaudited our financial statements for the years ended December 31, 2003 and 2004. The change in accountants was approved by our board of directors.
In connection with our audits for the years ended December 31, 2003 and 2004, and during the period from the date of its audit of our financial statements for the year ended December 31, 2003 through May 25, 2005, there were no disagreements with Hausser & Taylor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Hausser & Taylor would have caused them to make reference to the disagreement in their report on our financial statements for those years. During the two most recent fiscal years, there have been no reportable events, as described in Regulation S-B Item 304(a)(1)(v) promulgated under the Securities Act of 1933, as amended.
49
MANAGEMENT
Executive Officers and Directors
The following are our executive officers and directors , as well as our director nominees,
and their respective ages and positions as of
April 1, 2006.
Prior to the consummation of this offering, we expect to appoint three independent directors, consisting of Bernard L. Kasten, H. Daniel Perez, and James Antal. They have consented to serve as directors.
|
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|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Michael Fonstein
|
|
46
|
|
Director, Chairman of the Board, CEO & President
|
Andrei Gudkov
|
|
49
|
|
Director, Chief Scientific Officer
|
Yakov Kogan
|
|
32
|
|
Director, Executive Vice President of Business Development
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Paul DiCorleto
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54
|
|
Director
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John A. Marhofer Jr.
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43
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|
Chief Financial Officer
|
Bernard L. Kasten
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|
59
|
|
Director Nominee
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H. Daniel Perez
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56
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|
Director Nominee
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James Antal
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|
55
|
|
Director Nominee
|
Michael Fonstein, Ph.D
. Dr. Fonstein has served as our Chairman of the Board, Chief Executive Officer and President since our inception in June 2003. He served as Director of the DNA Sequencing Center at the University of Chicago from its creation in 1994 to 1998, when he left to found Integrated Genomics, Inc. located in Chicago, Illinois. He served as CEO and President of Integrated Genomics from 1997 to
2003.
Dr. Fonstein has won several business awards, including the Incubator of the Year Award from the Association of University Related Research Parks. He was also the winner of a coveted KPMG Illinois High Tech Award.
Andrei Gudkov, Ph.D, D. Sci
. Dr. Gudkov has served as one of our directors and as our Chief Scientific Officer since our inception in June 2003. Prior to 1990, he worked at The National Cancer Research Center in Moscow (USSR) where he led a broad research program focused on virology and cancer drug resistance. In 1990, he reestablished his lab at the University of Illinois at Chicago where he became a tenured faculty member in the Department of Molecular Genetics. His lab concentrated on the development of new functional gene discovery methodologies and the identification of new candidate cancer treatment targets. In 1999, he defined p53 as a major determinant of cancer treatment side effects and suggested this protein as a target for therapeutic suppression. In 2001, Dr. Gudkov moved his laboratory to the Lerner Research Institute at the Cleveland Clinic where he became Chairman of the Department of Molecular
Biology and Professor of Biochemistry at Case Western Reserve University. Dr. Gudkov is not employed full time by us but rather divides time between his work for us and for the Cleveland Clinic.
Yakov Kogan, Ph.D
. Dr. Kogan has served as one of our directors and as our Executive Vice President of Business Development since our inception in June 2003. From 2001 to 2004, as Director for Business Development at Integrated Genomics, he was responsible for commercial sales and expansion of the companys capital base. Prior to his tenure in business development, Dr. Kogan worked as a Group Leader/Senior Scientist at Integrated Genomics and ThermoGen, Inc. and as Research Associate at the University of Chicago. Dr. Kogan holds a Ph.D. degree in Molecular Biology from VNII Genetica, as well as an M.S. degree in Biology from Moscow State University.
Paul E. DiCorleto, Ph.D
. Dr. DiCorleto has served as one of our directors since 2004. He is the Chairman of the Lerner Research Institute of the Cleveland Clinic and Chairman of the Department of Molecular Medicine at the Case School of Medicine. Dr. DiCorleto received his undergraduate training in chemistry at Rensselaer Polytechnic Institute and his doctorate in biochemistry from Cornell University. Dr. DiCorletos research focuses on the molecular and cellular basis of atherosclerosis. He has been with the Cleveland Clinic since 1981, having served previously as Chairman of the Department of Cell Biology, as an Associate Chief of Staff, and as a member of the Clinics Board of Governors and Board of Trustees. Dr. DiCorleto is currently serving, as the most recent past president, on the Executive Committee of the North American Vascular Biology Organization, as chair of the Vascular Biology study
section of the national American Heart Association, and as a member of the Association of American Medical Colleges Advisory Panel on Research.
50
John A. Marhofer Jr. , CMA, CFM.
Mr. Marhofer joined us as the Controller and General Manager in February 2005 and was subsequently appointed to be our Chief Financial Officer in August 2005. He was Controller of Litehouse Products, Inc. from June 2001 to February 2005. Mr. Marhofer earned his Bachelor of Science in Accounting and Marketing from Miami University in Ohio in 1984, and his Masters in Business Administration in Finance from Akron University in Ohio in 1997, where he was named to the National Honor Society of the Financial Management Association.
Bernard L. Kasten, M.D.
Dr. Kasten is a nominee to our board of directors and has consented to serve as a director. From 1995 to 2004, Dr. Kasten served at Quest Diagnostics Incorporated where he was Chief Laboratory Officer and most recently Vice President of Medical Affairs of the MedPlus Inc. Subsidiary. Dr. Kasten has served as a director of SIGA Technologies (SIGA) since
May 2003, and as SIGAs Chief Executive Officer from
July 2004 through
April 2006. Dr. Kasten is also a director of several privately held companies. Dr. Kasten is a graduate of the Ohio State University College of Medicine. His residency was served at the University of Miami, Florida and fellowships at the National Institutes of Health Clinical Center and National Cancer Institute, Bethesda, Maryland. He is a diplomat of the American Board of Pathology with certification in anatomic and clinical pathology with sub-specialty certification in medical microbiology.
H. Daniel Perez, M.D.
Dr. Perez is a nominee to our board of directors and has consented to serve as a director. Dr. Perez is currently the President of Berlex Biosciences. He joined Berlex Biosciences in 1993. Berlex Biosciences works to combine biotechnology and pharmaceutical discovery and development technologies to deliver innovative treatments for cardiovascular, cancer and immuno-based disorders. He earned his undergraduate degree at Mariano Moreno School, Argentina and graduated from Buenos Aires University Medical School. After completing an internship and residency in internal medicine at Beth Israel Medical Center in New York, Dr. Perez was a Fellow in Rheumatology at New York University-Bellevue Medical Center. He served on the NYU faculty until he was recruited by the University of California at San Francisco Medical School (UCSF) to start the Rosalind Russell Arthritis Center at San Francisco General Hospital under the direction of Dr. Ira Goldstein. Dr. Perez is currently a Professor of
Medicine at UCSF.
James Antal.
Mr. Antal is a nominee to our board of directors and has consented to serve as a director.
Mr. Antal served as Chief Financial Officer of Experian from 1996 to 2001, and as Chief Investment Officer of Experian from 2001 to 2002. Experian is a leading global provider of consumer and business credit information, direct marketing information services, and integrated customer relationship management processes. He also served on the Board of Directors of First American Real Estate Solutions, an Experian joint venture with First American Financial Corp.
Mr. Antal earned a Bachelor of Science degree in Business Administration with an Accounting major from The Ohio State University in 1973. He became a Certified Public Accountant (Ohio) in 1975. Since 2002,
Mr. Antal has served as an advisor to the board of directors for Plexus Vaccine, Inc., a biotech company, until it was acquired by SIGA Technologies in 2004. In
December 2004, he joined the SIGA board of directors, and also currently serves on the audit and corporate governance committees. From
May 2004 to
August 2005, he was engaged as the Chief Financial Advisor to the Black Mountain Gold Coffee Co. In
July 2005, he joined Pathway Data Inc, a privately held company engaged in consumer credit notification and identity theft assistance services, as its part time Chief Financial Officer.
Audit Committee
The audit committee will consist of not fewer than three directors elected by a majority of the board. The members of our audit committee will comply with the independence requirements of the Nasdaq Capital Market and the rules of the SEC under the Securities and Exchange Act of 1934, as amended, and will include at least one audit committee financial expert.
The audit committee will be responsible for the following:
·
reviewing the results of the audit engagement with the independent registered public accounting firm;
·
identifying irregularities in the management of our business in consultation with our independent accountants, and suggesting an appropriate course of action;
·
reviewing the adequacy, scope, and results of the internal accounting controls and procedures;
51
·
reviewing the degree of independence of the auditors, as well as the nature and scope of our relationship with our independent registered public accounting firm; and
·
reviewing the auditors fees.
Code of Ethics
We are in the process of adopting a code of ethics that applies to our officers, employees and directors, including our principal executive officers, principal financial officers and principal accounting officers. The code of ethics sets forth written standards that are designated to deter wrongdoing and to promote:
·
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·
full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us;
·
compliance with applicable governmental laws, rules and regulations;
·
the prompt internal reporting of violations of the code to an appropriate person or persons identified in our code of ethics; and
·
accountability for adherence to our code of ethics.
Compensation of Directors
We do not currently compensate our directors for their service as members of our board of directors. Upon completion of this offering, we expect to pay each of our independent directors $______ per year and $______ per meeting of the board or any board committee. We also plan to pay a fee for acting as a committee chair and to grant options and/or restricted stock to independent directors.
Executive Compensation
The following table sets forth the amount of compensation during the years ended December 31, 2003, 2004 and 2005 by our chief executive officer and our three other executive officers:
52
Summary Compensation Table
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Long Term
Compensation
Awards
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Name and Principal Position
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|
Year
|
|
Annual
Salary
|
|
Bonus
|
|
Restricted
Stock
Awards
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Fonstein,
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|
2005
|
|
$
|
180,000
|
(1)
|
$
|
|
|
$
|
N/A
|
|
|
|
Director, Chairman of the Board, CEO & President
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|
2004
|
|
|
120,000
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(2)
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|
|
|
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N/A
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|
|
|
|
|
2003
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|
|
36,000
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(3)
|
|
|
|
|
8,209
|
(4)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yakov Kogan,
|
|
2005
|
|
$
|
160,000
|
(5)
|
$
|
|
|
$
|
N/A
|
|
|
|
Director, Executive Vice President of Business Development
|
|
2004
|
|
|
114,000
|
(2)
|
|
|
|
|
N/A
|
|
|
|
|
|
2003
|
|
|
36,000
|
(3)
|
|
|
|
|
4,478
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(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrei Gudkov
|
|
2005
|
|
$
|
70,000
|
(7)
|
$
|
|
|
$
|
N/A
|
|
|
|
Director, Chief Scientific Officer
|
|
2004
|
|
|
48,000
|
(8)
|
|
|
|
|
N/A
|
|
|
|
|
|
2003
|
|
|
12,000
|
(9)
|
|
|
|
|
9,888
|
(10)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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John A. Marhofer, Jr.
|
|
2005
|
|
$
|
80,000
|
(11)
|
$
|
|
|
$
|
N/A
|
|
23,184
|
(12)
|
Chief Financial Officer
|
|
2004
|
|
|
N/A
|
|
|
|
|
|
N/A
|
|
|
|
|
|
2003
|
|
|
N/A
|
|
|
|
|
|
N/A
|
|
|
|
(1)
On June 1, 2005, Dr. Fonsteins salary was increased from $120,000 to $180,000.
(2)
The total compensation paid to Dr. Fonstein and Dr. Kogan in 2004 was $120,000 and $114,000, respectively. Of that, $42,000 was deferred by both executives until 2005 and paid on March 21, 2005.
(3)
The total compensation paid to Dr. Fonstein and Dr. Kogan in 2003 was $36,000 each. Of that, $24,000 was deferred by both executives until 2005 and paid on March 21, 2005.
(4)
As of December 31, 2005, 437,067 shares of Dr. Fonsteins 1,311,200 shares of restricted stock were subject to repurchase by
the Company at a price of $2.98 per share
.
(5)
On June 1, 2005, Dr. Kogans salary was increased from $114,000 to $160,000.
(6)
As of December 31, 2005, 238,400 shares of Dr. Kogans 715,200 shares of restricted stock were subject to repurchase by
the Company at a price of $2.98 per share
.
(7)
On June 1, 2005, Dr. Gudkovs salary was increased from $48,000 to $70,000.
(8)
On August 1, 2004, we entered into a three year consulting agreement with Dr. Gudkov under which Dr. Gudkov serves as our Chief Scientific Officer. On January 23, 2006, the term of his consulting agreement was extended until December 31, 2008.
(9)
The total compensation paid to Dr. Gudkov in 2003 was $12,000, all of which was deferred until 2005 and paid on March 21, 2005.
(10)
As of December 31, 2005, 394,850 shares of Dr. Gudkovs 1,549,600 shares of restricted stock were subject to repurchase by
the Company at a price of $2.98 per share
.
(11)
Mr. Marhofer commenced employment with us on February 14, 2005. On June 1, 2005, Mr. Marhofers salary was increased from $60,000 to $80,000.
(12)
On
June 30, 2005,
Mr. Marhofer was granted options to purchase 23,184 shares of common stock, of which 5,796 are currently exercisable.
53
Option Grants in 2005
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|
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|
|
|
|
|
|
Name
|
|
Number of Shares
Underlying
Options
|
|
% of Total
Options
Granted
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
Michael Fonstein
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Yakov Kogan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrei Gudkov
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John A. Marhofer, Jr.
|
|
23,184(1)
|
|
7.2%
|
|
0.67
|
|
6/30/15
|
(1)
5,796 of the options are currently exercisable.
Employment and Consulting Agreements
We have entered into employment agreements dated as of August 1, 2004 with each of Michael Fonstein, our Chief Executive Officer, and Yakov Kogan, our Executive Vice President. For the year ended December 31, 2005, Dr. Fonsteins annual base salary was $180,000 and Dr. Kogans annual base salary was $160,000. These agreements have three-year initial terms and are renewed pursuant to their terms for successive one-year periods, unless earlier terminated in accordance with their terms. If either executive is terminated by us without cause as described in the agreements, he would be entitled to severance pay equal to nine months of his annual salary. The agreements also contain standard confidentiality, assignment of inventions, non-competition and non-solicitation provisions to help protect the value of our intellectual property.
In addition, on August 1, 2004 we entered into a three year consulting agreement with Andrei Gudkov, one of our founders and Chief Scientific Officer, with a base salary for the year ended December 31, 2005 of $70,000 per year. Dr. Gudkov is not employed full-time by us but rather splits time between us (as an independent contractor) and the Cleveland Clinic. Dr. Gudkovs consulting agreement contains standard confidentiality and assignment of inventions provisions. On January 23, 2006, the term of his consulting agreement was extended until December 31, 2008.
Scientific Advisory Board
We have established a Scientific Advisory Board to advise us on our scientific and research path, with each member representing his respective areas of expertise. None of the members of our Scientific Advisory Board is involved in the management of CBL and, other than 208,600 restricted shares of common stock granted to Dr. George R. Stark on April 26, 2004, none of the members of our Scientific Advisory Board receives any compensation from us.
|
|
|
·
|
George R. Stark, Ph.D.
|
Cancer biology, chemistry, technology development
|
·
|
Inder Verma, Ph.D.
|
Cancer biology, technology development
|
·
|
Bruce Blazar, MD
|
Pre-clinical aspects of drug development
|
·
|
Ernest Borden, MD
|
Drug trials
|
Dr. George R. Stark, Ph
.D. Dr. Stark, a member of the National Academy of Sciences, Distinguished Scientist of the Lerner Research Institute and Professor of Genetics at the Case Western Reserve University, is an expert in various fields of biochemistry, signal transduction and cancer biology and has pioneered many key technologies in the fields of molecular biology and genetics. He became a professor at Stanford in 1971. In 1983, he moved to the Imperial Cancer Research Fund in London. In 1992, he became the Chair of the Lerner Research Institute of the Cleveland Clinic, which he chaired until 2001.
Dr. Inder Verma, Ph.D.
Dr. Verma is a member of the National Academy of Sciences, Professor of Salk Institute for Biology Research, and Founder and Scientific Advisor to several pharmaceutical and biotech companies including Cell Genesys, Signal Pharmaceuticals, Somatix Therapy Corporation, UroGenesys, Ventana
54
Pharmaceuticals and Quark Biotech. Dr. Verma is an internationally recognized leader in cancer biology and inflammation.
Dr. Bruce R. Blazar.
Dr. Blazar has served in various academic positions at the University of Minnesota since 1978. Presently, he is a Professor in the Division of Pediatric Bone Marrow Transplantation, Director of the Cytokine Reference Laboratory, Associate Director of the Division of Pediatric Bone Marrow Transplantation and Andersen Chair in Transplantation Immunology. Dr. Blazar has received numerous professional honors and awards, including the American Cancer Society Clinical Fellowship Award, the NIH-NCI National Research Service Award and the MERIT Award. In addition to his past and present work on numerous editorial boards, he is a member of the FDA Advisory Committee on Biological Response Modifiers and the Leukemia and Lymphoma Society Translational Research Grant Committee. He has multiple active grants supporting a substantial research effort and has published over 230 manuscripts.
Dr. Ernest C. Borden.
Dr. Borden is a director of the Center for Drug Discovery and Development of Taussig Cancer Center at the Cleveland Clinic. Dr. Borden uses his expertise to bring new cancer-fighting drugs from laboratory to clinical evaluation. His special interests involve the treatment of melanoma and new cancer therapies including interferons, vaccines and antibodies.
55
PRINCIPAL STOCKHOLDERS
The following table sets forth as of
April 20,
2006, certain information regarding the beneficial ownership of our common stock and of our Series A Preferred Stock by:
·
each person, or group of affiliated persons, who is known by us to be the owner of record or beneficial owner of more than 5% of the applicable class of stock;
·
each of our directors and each of our executive officers; and
·
all of our directors and executive officers as a group.
As used in the tables below and elsewhere in this prospectus, the term
beneficial ownership
with respect to a security consists of sole or shared voting power, including the power to vote or direct the vote and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the next 60 days following the date of this prospectus. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.
Shares of common stock issuable under stock options that are exercisable within 60 days after
April 20,
2006 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. For the purpose of calculating the amounts set forth in the following table, all outstanding shares of preferred stock have been deemed to have been converted into shares of common stock, which conversion will occur upon the consummation of this offering.
The percentage of beneficial ownership is based on 6,542,637 shares of common stock outstanding as of
April 20,
2006 and 3,291,219 shares of Series A Preferred Stock outstanding as of
April 20,
2006, which automatically convert into shares of common stock upon the consummation of this offering.
Except as otherwise noted below, the address of each of the persons in the tables is 11000 Cedar Ave., Suite 290, Cleveland, Ohio 44106.
|
|
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|
|
|
|
|
|
|
Name and Address
|
|
|
Number of
Shares of
Registrant
Common
Stock
Beneficially
Owned(1)
|
|
|
Percentage of
Class Beneficially
Owned Before
the
Offering(1)
|
|
|
Percentage of
Class Beneficially
Owned After
the
Offering(1)
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Michael Fonstein,
|
|
|
1,311,200
|
(2)
|
|
13.33
|
%
|
|
|
Director, Chairman of the Board, CEO & President
|
|
|
|
|
|
|
|
|
|
Andrei Gudkov,
|
|
|
1,549,600
|
(3)
|
|
15.76
|
%
|
|
|
Director, Chief Scientific Officer
|
|
|
|
|
|
|
|
|
|
Yakov Kogan,
|
|
|
715,200
|
(4)
|
|
7.27
|
%
|
|
|
Director, Executive Vice President of Business Development
|
|
|
|
|
|
|
|
|
|
John A. Marhofer Jr.,
|
|
|
10,796
|
(5)
|
|
*
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Paul DiCorleto,
|
|
|
0
|
|
|
0
|
%
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group (five people)
|
|
|
3,581,796
|
|
|
36.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
The Cleveland Clinic Foundation(6)
|
|
|
1,341,000
|
|
|
13.64
|
%
|
|
|
ChemBridge Corporation
(7)
|
|
|
622,224
|
(8)
|
|
6.16
|
%
|
|
|
Sunrise Equity Partners, LP
(9)
|
|
|
1,362,572
|
(10)
|
|
13.71
|
%
|
|
|
Sunrise Securities Corporation
(11)
|
|
|
1,362,572
|
(12)
|
|
13.71
|
%
|
|
|
56
*
Less than 1%.
(1)
Preferred stock is reflected on an as-converted basis.
(2)
Includes 1,311,200 shares of restricted stock, 437,067 shares of which are subject to repurchase by us until July 5, 2006.
(3)
Includes 1,549,600 shares of restricted stock, 394,850 shares of which are subject to repurchase by us until July 5, 2006.
On
November 30, 2004, Dr. Gudkov entered into a voting agreement with the Cleveland Clinic whereby he irrevocably granted the Cleveland Clinic the right to vote all of his shares. On
April 18, 2006, the Cleveland Clinic and Dr. Gudkov agreed to rescind that voting agreement effective as of
November 30, 2004, such that Dr. Gudkov retains his rights to vote all of his shares.
(4)
Includes 715,200 shares of restricted stock, 238,400 shares of which are subject to repurchase by us until July 5, 2006.
(5)
Includes options to purchase
10,796
shares of common stock which are currently exercisable.
(6)
9500 Euclid Avenue, Cleveland, Ohio 44195.
(7)
16981 Via Tazon, Suite G, San Diego, California 92127.
(8)
Includes 357,600 shares of common stock and 264,624 shares of common stock underlying a warrant which are currently exercisable.
(9)
641 Lexington Ave., 25th Floor, New York, New York 10022.
(10)
Includes (i) 1,080,000 shares of common stock underlying Series A Preferred Stock owned by Sunrise Equity Partners, LP, (ii) 54,580 shares of common stock owned by Sunrise Equity Partners, LP, (iii) 126,800 shares of common stock owned by its affiliate Sunrise Securities Corp. and (iv)
101,192
shares of common stock underlying warrants owned by Sunrise Securities Corp. Level Counter LLC is the general partner of Sunrise Equity Partners, LP. The three managing members of Level Counter LLC are Nathan Low, the sole stockholder of Sunrise Securities Corp. and its president,
Amnon Mandelbaum, one of
the Managing
Directors
of Investment Banking at Sunrise Securities Corp., and Marilyn Adler, who is otherwise unaffiliated with Sunrise Securities Corp., and a unanimous vote of all three persons is required to dispose of the securities of Sunrise Equity Partners, LP. Accordingly, each of such persons may be deemed to have shared beneficial ownership of the securities owned by
Sunrise Equity Partners, LP.
Such persons disclaim such beneficial ownership. As a result of the relationship of Mr. Low and Mr. Mandelbaum to Sunrise Securities Corp., Sunrise Equity Partners, LP may be deemed to beneficially own the securities owned by Sunrise Securities Corp. Sunrise Equity Partners, LP disclaims any beneficial ownership of the securities owned by Sunrise
Securities Corp.
Does not include an aggregate of
243,894
shares of common stock, an aggregate of
441,720
shares of common stock underlying Series A Preferred Stock and an aggregate of
181,655
shares of common stock underlying warrants beneficially owned by the sole stockholder or the employees of Sunrise Securities Corp., including an aggregate of 123,327 shares of common stock, 135,000 shares of common stock underlying Series A Preferred Stock and an aggregate of
83,635
shares of common stock underlying warrants beneficially owned by Mr. Low and an aggregate of 96,089 shares of common stock, an aggregate of 142,020 shares of common stock underlying Series A Preferred Stock and an aggregate of
82,662
shares of common stock underlying warrants beneficially owned by Mr. Mandelbaum.
(11)
641 Lexington Ave., 25th Floor, New York, New York 10022.
(12)
Includes (i) 126,800 shares of common stock owned by Sunrise Securities Corp., (ii)
101,192
shares of common stock underlying warrants owned by Sunrise Securities Corp., (iii) 1,080,000 shares of common stock underlying Series A Preferred Stock owned by its affiliate Sunrise Equity Partners, LP and (iv) 54,580 shares of common stock owned by Sunrise Equity Partners, LP. Level Counter LLC is the general partner of Sunrise Equity Partners, LP. The three managing members of Level Counter LLC are Nathan Low, the sole stockholder of Sunrise Securities Corp. and its president,
Amnon Mandelbaum, one of
the Managing
Directors
of Investment Banking at Sunrise Securities Corp., and Marilyn Adler, who is otherwise unaffiliated with Sunrise Securities Corp., and a unanimous vote of all three persons is required to dispose of the securities of Sunrise Equity Partners, LP. Accordingly, each of such persons may be deemed to have shared beneficial ownership of the securities owned by Sunrise Equity Partners, LP. Such persons disclaim such beneficial ownership. As a result of the relationship of Mr. Low and Mr. Mandelbaum to Sunrise Equity Partners, LP, Sunrise Securities Corp. may be deemed to beneficially own the securities owned by Sunrise Equity Partners, LP. Sunrise Securities Corp. disclaims any beneficial ownership of the securities owned by
57
Sunrise Equity Partners, LP. Does not include an aggregate of
243,894
shares of common stock, an aggregate of
441,720
shares of common stock underlying Series A Preferred Stock and an aggregate of
181,655
shares of common stock underlying warrants beneficially owned by the sole stockholder or the employees of Sunrise Securities Corp., including an aggregate of 123,327 shares of common stock, 135,000 shares of common stock underlying Series A Preferred Stock and an aggregate of
83,635
shares of common stock underlying warrants beneficially owned by Mr. Low and an aggregate of 96,089 shares of common stock, an aggregate of 142,020 shares of common stock underlying Series A Preferred Stock and an aggregate of
82,662
shares of common stock underlying warrants beneficially owned by Mr. Mandelbaum.
SELLING STOCKHOLDERS
This prospectus covers ________ shares to be sold by us and ________ shares to be sold by the selling stockholders acquired in connection with our private placement of our Series A Preferred Stock and common stock in March 2005 plus up to an additional ________ shares to be sold by such selling stockholders if the over-allotment option is exercised (or by us to the extent the selling stockholders do not fully participate in the over-allotment option).
The following table provides information on the selling stockholders, their current beneficial ownership of our securities, the number of shares offered for each stockholders account, and the amount and percentage of their respective beneficial ownership after this offering, assuming they sell all of the offered shares. The information in the table was provided by the selling stockholders and derived from our stock ownership records, as of the date of this prospectus. Other than our relationship with Sunrise Securities Corp., when such acted as our private placement agent in the Series A Preferred Stock private placement, no selling stockholder has had, within the past three years, any position, office or other material relationship with us or any of our predecessors or affiliates. The calculation of the percentage of shares beneficially owned after the offering is based on 9,833,856 shares outstanding as of
April 1, 2006.
|
|
|
|
|
|
|
|
|
Name of Selling Stockholder
|
|
Shares Beneficially Owned Before the Offering
|
|
Shares Offered
|
|
Shares Beneficially Owned
After the Offering
|
|
% of Common Stock
Beneficially Owned
After the Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than 1%.
(1)
58
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our policy is to enter into transactions with related parties on terms that, on the whole, are no more favorable, or no less favorable, than those available from unaffiliated third parties. Based on our experience in the business sectors in which we operate and the terms of our transactions with unaffiliated third parties, we believe that all of the transactions described below met this policy standard despite the fact that our board of directors did not have a majority of disinterested independent directors to approve or ratify any of the following transactions
at the time they occurred.
The Cleveland Clinic Foundation
We have a unique opportunity to accelerate our development by utilizing intellectual property, drug leads, new research technologies, technical know-how and original scientific concepts derived from 25 years of research achievements relevant to cancer by Dr. Gudkov and his team, currently at the Cleveland Clinic. Pursuant to an Exclusive License Agreement we entered into with the Cleveland Clinic effective as of July 1, 2004, the Cleveland Clinic granted to us an exclusive license to the Cleveland Clinics research base underlying our therapeutic platform (the CBLC100, CBLB100 and CBLB500 series). In consideration for obtaining this exclusive license, we agreed to: (1) issue to the Cleveland Clinic 1,341,000 shares of
common stock of CBL; (2) make certain milestone payments (ranging from $50,000 to $4,000,000, depending on the type of
drug
and the stage of such
drugs
development) to the Cleveland Clinic; (3) make royalty payments (calculated as a percentage of the net sales of the
drugs ranging from 1-2%)
to the Cleveland Clinic; and (4) make sublicense royalty payments (calculated as a percentage of the royalties received from the sublicenses ranging from 5-35%
) to the Cleveland Clinic. The milestone payments for products limited to biodefense uses are as follows: (i) for any IND application, $50,000; (ii) for the successful completion of Phase I studies, $100,000; (iii) for any NDA application or product license application, $350,000; and (iv) for regulatory approval permitting commercial sales, $1,000,000. The milestone payments for other product applications are: (i) for any IND application, $50,000; (ii) for Phase II clinical trials, $250,000; (iii) for Phase III clinical trials, $700,000; (iv) for any NDA application or product license application, $150,000; and (v) for regulatory approval permitting commercial sales, $4,000,000; in each case, such amounts are credited against any future royalty and sublicense royalty payments.
Under this license agreement, we may exclusively license additional technologies discovered by Dr. Gudkov in this field by providing the Cleveland Clinic with notice within 60 days after receiving an invention disclosure report from the Cleveland Clinic relating to any such additional technologies.
We believe that this relationship will prove valuable, not only for the purposes of developing the discoveries of Dr. Gudkov and his colleagues, but also as a source of additional new technologies. We also expect that the Cleveland Clinic will play a critical role in validating therapeutic concepts and in conducting trials. The Cleveland Clinic may terminate the license upon a material breach by us as specified in the agreement, however, we may avoid such termination if within 90 days of receipt of such termination notice we cure the breach.
On
October 1, 2003, we also entered into a service agreement with the Cleveland Clinic pursuant to which we were engaged to perform high-throughput screening of drugs.
We recognized $0, $105,000 and $75,000 in service revenues for the year and period ended December 31, 2005, 2004 and 2003, respectively, from the Cleveland Clinic related to
this agreement. This agreement has now been terminated pursuant to its terms because we received $180,000 in fees from the Cleveland Clinic.
We also incurred approximately $475,394, $51,129 and $0 in subcontract expense to the Cleveland Clinic related to a technology grant for the year and period ended December 31, 2005, 2004 and 2003, respectively. We also rented office and laboratory space from an entity related to the Cleveland Clinic on a month-to-month basis through May 2005. Rent paid to this entity was $11,121, $32,400 and $0 in 2005, 2004 and 2003, respectively.
In August 2004, we entered into a cooperative research and development agreement, or CRADA, with (i) the Uniformed Services University of the Health Sciences which includes the Armed Forces Radiobiology Research Institute, (ii) the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and (iii) the Cleveland Clinic to evaluate one of our radioprotective drug
candidates and its effects on intracellular and extracellular signaling pathways. As a collaborator under this agreement, we are able to use the laboratories of the Armed Forces Radiobiology Research Institute to evaluate Protectan CBLB502 and its effects on intracellular and extracellular signaling pathways in order to improve countermeasures to lethal doses of radiation. Under the terms of the agreement, all parties are financially responsible for their own expenses related to the agreement. The agreement
59
has a five year term, but may be unilaterally terminated by any party upon 30 days prior written notice with or without cause.
Pursuant to an agreement between Dr. Gudkov and the Cleveland Clinic, dated as of
November 30, 2004,
Dr. Gudkov irrevocably granted to the Cleveland Clinic the absolute right to exercise all rights and powers of all of Dr. Gudkovs common stock of the company, including the sole and exclusive right to vote such shares and to take part in or consent to any corporate or stockholders action of any kind whatsoever.
On
April 18, 2006, Dr. Gudkov and the Cleveland Clinic agreed to rescind that agreement effective as of
November 30, 2004, and as a result Dr. Gudkov retains the right to vote all of his shares.
Additionally, pursuant to a common stockholders agreement entered into with the Cleveland Clinic and other founders of the company, we agreed that, until we achieved total investment or commercial financing totaling in the aggregate $15,000,000 (which, together with the proceeds from previous financings, will occur upon completion of this offering), we will not take certain corporate actions for so long as the Cleveland Clinic owned at least 10% of the outstanding common stock without the approval of holders of at least 60% of the outstanding common stock. Under the common stockholders agreement, the common stockholders also agreed to elect to our board of directors two representatives of the Cleveland Clinic (currently only Paul DiCorleto). This provision will terminate upon the completion of this offering or any subsequent equity financing in which the aggregate gross proceeds to us from these transactions exceed $15,000,000 after
deducting underwriters discounts and commissions and related offering expenses; provided, however, for as long as the Cleveland Clinic owns at least 3% of the company on a fully diluted basis, the Cleveland Clinic will be entitled to have one representative elected to our board of directors , as agreed to among the stockholders who were a party to the common stockholders agreement.
ChemBridge Corporation
Another vital component of our drug development capabilities is our strategic partnership with ChemBridge, an established leader in combinatorial chemistry and in manufacturing diverse chemical libraries.
On
April 27, 2004, we entered
into
a library access
agreement with ChemBridge which, in exchange for 357,600 shares of our common stock and warrants to purchase 264,624 shares of our common stock pursuant to a separate restricted stock agreement,
provides us with continual access to a chemical library of 180,000 compounds (100,000 historical and 80,000 combinatorial).
Under the library access agreement, we
have also agreed to collaborate with ChemBridge in the future
on two optimization projects, wherein ChemBridge will have the responsibility of providing the chemistry compounds for the project and we will have the responsibility of providing the pharmacological/biological compounds. Upon providing ChemBridge with our data after at least two positive repeat screening assays, which have been confirmed in at least one additional functional assay, ChemBridge will have the option to select such compound as one of the two optimization projects.
ChemBridge will retain a fifty percent ownership interest in two
lead compounds selected by ChemBridge and all derivative compounds thereof.
The parties will jointly manage the development and commercialization of any compounds arising from an optimization project. The parties are discussing the possibility of entering into an additional project arising from the optimization project. There can be no assurance the parties will agree to proceed with such project on favorable terms or at all. The library access agreement does not have a specified term or any termination provisions.
Dr. Gudkovs group has a strong working relationship with ChemBridge. This relationship has already resulted in the isolation of bioactive small molecules with clinical potential that helped to establish either new therapeutic concepts (p53 inhibitors) or identify molecules for important indications acting through previously unknown mechanisms (novel class of PGP modulators). Both lines of study have resulted in high visibility publications and are slated for further exploration by us.
University of New South Wales
In June 2003, we entered into a three-year collaborative research agreement with the University of New South Wales, or UNSW, to utilize functional genomic technologies in an attempt to identify genes in childhood neuroblastoma as potential candidates for the future development of molecular-targeted gene therapy. Under this agreement, we will make monetary and in-kind contributions with the collaborative partner in connection with the project under terms of the agreement. In return, we co-own the resulting intellectual property and have a right to use this intellectual property royalty free for internal purposes. The collaborative parties agree to negotiate a license
60
arrangement for commercial purposes resulting from co-owned intellectual property. No collaborative intellectual property has been developed during the term of the agreement.
In 2004, Childrens Cancer Institute Australia for Medical Research, Haber Norris Pty Ltd ATF Haber Norris Superannuation Fund and Paul Haber & Michelle Haber ATF Haber Family Trust (all affiliates of UNSW) advanced funds of $109,000 and $174,500 to us in exchange for convertible promissory notes that mature on October 18, 2007 and November 23, 2007, respectively. The aggregate principal amount of debt is $283,500, which automatically converts into shares of common stock at a fixed conversion rate of approximately $2.517 per share upon the consummation of this offering.
Sunrise Securities Corp.
We previously engaged Sunrise Securities Corp., one of the co-managing underwriters in this offering, as a placement agent in our private placement of 3,000,000 shares of our Series A Preferred Stock in March 2005. In connection with such private placement, we entered into an Investment Banking Agreement with Sunrise Securities Corp. pursuant to which we issued 308,000 shares of common stock and warrants to purchase 329,800 shares of common stock with an exercise price of $2.00 per share to Sunrise Securities Corp. and/or its designees as partial consideration for their services rendered. In addition, of the 3,000,000 shares of Series Preferred Stock issued, Sunrise Equity Partners, LP, a small business investment company affiliated with Sunrise Securities Corp., and individuals affiliated with Sunrise Equity Partners, LP
acquired
1,269,000
shares.
Founders
On June 5, 2003, in connection with our formation, we issued an aggregate of 3,993,200 shares of common stock to our five founders in consideration of their knowledge , experience,
expertise and services rendered in lieu of a salary in the formation and initial operations of the Company. The founders did not make any cash investments in the Company upon our formation. The stock issuances were
as follows:
|
|
|
|
|
Name
|
|
Position
|
|
Number of Shares
|
|
|
|
|
|
Dr. Andrei Gudkov
|
|
Chief Scientific Officer
|
|
1,579,400
|
Dr. Michael Fonstein
|
|
Chief Executive Officer, President, Chairman of the Board
|
|
1,311,200
|
Dr. Yakov Kogan
|
|
Executive Vice President, Business Development
|
|
715,200
|
Dr. Elena Feinst
|
|
Executive Vice President, Research and Development
|
|
268,200
|
Dr. Veronika Vonstein
|
|
General Manager
|
|
119,200
|
In August 2004, Dr. Veronika Vonstein sold all 119,200 of her shares back to us effectively terminating her relationship with us to pursue outside opportunities. In August 2004, Dr. Andrei Gudkov sold 29,800 shares back to us to maintain the proper percentage ownership as decided by the founders as a group.
A summary of the material terms of any employment and consulting agreements among the founders may be found in the section of this prospectus titled Management.
61
DESCRIPTION OF THE SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK
After completion of this offering, our certificate of incorporation will provide that we may, by resolution of our board of directors, and without any further vote or action by our stockholders, authorize and issue, subject to the limitations prescribed by law, up to an aggregate of ___________ shares of preferred stock. The preferred stock may be issued in one or more series. With respect to any series, our board of directors may determine the designation and the number of shares, preferences, limitations and special rights, including dividend rights, conversion rights, voting rights, redemption rights and liquidation preferences. Because of the right that may be granted, the issuance of the preferred stock may delay, defer or prevent a change of control.
As of
April 1, 2006, we have issued and outstanding 3,291,219 shares of preferred stock. Upon the completion of this offering, all of our outstanding shares of preferred stock will automatically convert into shares of common stock on a one-for-one basis.
Series A
Rights Agreement
The
Company
and all of the existing stockholders of CBL prior to this offering have entered into a Series A
Rights Agreement, pursuant to which we are obligated to become a publicly traded company. We can choose the means by which we become a public entity through effecting one of the following: (1) receiving a declaration of effectiveness from the SEC with respect to a registration statement covering the common stock issuable upon conversion of the Series A Preferred Stock, (2) completing a merger with a United States fully reporting and trading public company and receiving a declaration of effectiveness from the SEC with respect to a resale registration statement covering the common stock issuable upon conversion of the Series A Preferred Stock, or (3) receiving a declaration of effectiveness from the SEC with respect to a resale registration statement covering the common stock issuable upon conversion of the Series A Preferred Stock. In the event that (1), (2) or (3) above does not occur by the Penalty Date of September 27, 2005, then we will be obligated to issue additional shares to each holder of
Registrable Securities (as defined therein) equal to 2% of such holders amount of shares (both Series A Preferred Stock and common stock) per each 30-day period beyond the Penalty Date, which in the aggregate equals 60,000 shares of Series A Preferred Stock and 13,515 shares of common stock, assuming no further issuance of securities, for each 30-day period.
In
the event that effectiveness of the registration statement is delayed due to SEC comments on the registration statement, the Penalty Date shall be extended (only once) for an additional 45 days, so long as CBL is in good faith responding to such comments in a timely manner and such comments do not preclude CBL from going effective on such registration statement entirely. On January 27, 2006, we issued an aggregate of 240,000 shares of Series A Preferred Stock and 54,060 shares of common stock in connection with this requirement. Pursuant to an Amendment to the Series A Rights Agreement, dated as of
February 17, 2006, the Companys obligation to issue penalty shares has been suspended for a period of 70 days, subject to
a one-time 45 day extension
, while the Companys registration statement is being reviewed by the SEC.
Pursuant to the Series A Rights Agreement, we have also, with respect to the Registrable Securities, agreed to (1) use our reasonable best offers to maintain the effectiveness of any filed registration statement for 18 months or earlier if all of the Registrable Securities have been sold; (2) make all necessary Blue-Sky filings; (3) provide a transfer agent and registrar; and (4) maintain listing on an exchange.
Registration Rights
If not previously registered in connection with an IPO, merger or resale registration as contemplated by the Series A
Rights Agreement above, we are required to file a registration statement with the SEC, which shall include
the Registrable Securities (as defined in the Series A Rights Agreement),
which have not already been registered in connection with the IPO, merger or resale registration by the 30
th
day following the closing of the merger, the consummation of an IPO or the filing of a resale registration, and we will use our best efforts to have the registration declared effective as soon as possible, but in any event prior to the 60
th
day after the filing date of the registration statement (or 90
th
day after the filing date in the event that the registration statement is reviewed and commented upon by the SEC). In the event that the registration statement does not become effective by the effectiveness date contemplated in the Series A
Rights Agreement, we will issue additional shares to each holder equal to 2% of such holders investment amount per each 30-day period beyond the expected date of effectiveness in which the registration statement was not effective.
62
Standstill
Pursuant to the Series A
Rights Agreement, the common stockholders have agreed not to effect any sale, transfer or distribution of their equity securities in CBL, or any securities convertible into or exchangeable or exercisable for such securities, during the period from March 15, 2005 until the date that is 90 days following the date as of which a registration statement covering the resale of all the securities issuable upon conversion of the Series A Preferred Stock has been filed with and declared effective by the SEC unless (1) such sale, transfer or distribution is approved in writing by holders of at least a majority of the securities issuable upon conversion of the Series A Preferred Stock, and (2) the transferee of such sold, transferred or distributed securities agrees in writing to be bound by the terms of the Series A
Rights Agreement to the same extent as if they had originally been a party thereto. Additionally, as more fully described under the Underwriting section, certain of our common stockholders have agreed to not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our capital stock for a period of 24 months after the date of this prospectus, and the remaining common and preferred
stockholders, which include the selling stockholders, have also agreed to not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our capital stock for a period of 180 days after the date of this prospectus. These latter stockholders, however, may sell their shares at any time during the 180-day period, subject to applicable law, if and only if they are able to sell their shares in open market transactions at a price of $11.00 per share or higher.
Series A Preferred Stockholders
CBL currently has 31 Series A preferred stockholders of record.
63
DESCRIPTION OF OUR COMMON STOCK
The following summary describes the material terms of our common stock. It summarizes material provisions of our certificate of incorporation and by-laws. You may obtain copies of these organizational documents by contacting us, as described under Prospectus Summary Our Information.
Common Stock
Our certificate of incorporation currently authorizes us to issue only 12,000,000 shares of common stock, par value $.005 per share, and 4,000,000 shares as preferred stock, with 3,750,000 shares of our preferred stock designated as Series A Preferred Stock. On
February 28, 2005, we completed a 596-for-1 stock split of our common stock in anticipation of the Series A Preferred Stock private placement in order to avoid issuance of fractional shares.
As of
April 1, 2006, 6,542,637 shares of common stock were issued and outstanding with an aggregate of 1,298,783 shares of restricted stock subject to repurchase by us, 594,424 shares of common stock are reserved for issuance upon exercise of warrants,
440,990
shares of common stock are reserved for issuance upon exercise of options, and debt securities in the principal amount of $283,500, which automatically convert into shares of common stock at a fixed conversion rate of approximately $2.517 per share upon the consummation of this offering. In addition, 3,750,000 shares of common stock are reserved for issuance upon conversion of the Series A Preferred Stock.
Voting
Holders of our common stock are entitled to one vote per share. All actions submitted to a vote of stockholders will be voted on by holders of our common stock.
Conversion
The common stock has no conversion rights.
Dividends
Holders of common stock are entitled to receive cash dividends equally on a per share basis, as if and when the dividends are declared by the board of directors from legally available funds.
Liquidation
After satisfaction of the liquidation preferences of all securities ranking senior to the common stock, the holders of common stock will share with each other on an equal basis (assuming conversion of the Series A Preferred Stock) in any net assets available for distribution to holders of shares of capital stock upon liquidation.
Other Terms
The rights, preferences and privileges of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future.
Common Stockholders Agreement
We have entered into a common stockholders agreement with all of our common stockholders who acquired their shares prior to March 1, 2005. Under the common stockholders agreement, we agreed that, until we achieved total investment or commercial financing totaling in the aggregate $15,000,000 (which, together with the proceeds from previous financings, will occur upon completion of this offering), we will not take certain corporate actions for so long as the Cleveland Clinic owned at least 10% of the outstanding common stock without the approval of holders of at least 60% of the outstanding common stock. Under the common stockholders agreement, the common stockholders also agreed to elect to our board of directors Michael Fonstein, Andrei Gudkov, Yakov Kogan and two representatives of the Cleveland Clinic (currently only Paul DiCorleto). This provision will terminate upon the completion of this offering or any subsequent equity
financing in which the aggregate gross proceeds to us from these transactions exceed $15,000,000 after deducting underwriters discounts and commissions and related offering expenses; provided, however, as long as the Cleveland Clinic owns at least 3% of the company on a fully diluted
64
basis, the Cleveland Clinic will be entitled to have one representative elected to our board of directors. Certain other provisions which restrict the transferability of the shares will also terminate upon the transactions described above.
Common Stockholders
CBL currently has 44 common stockholders of record, which includes all 31 holders of record of our Series A Preferred Stock.
Listing of Stock
Currently there is no market for our securities. We have applied for trading on the Nasdaq Capital Market under the trading symbol CBLI.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Continental Stock Transfer & Trust Company.
Directors Limitation of Liability
Our certificate of incorporation and by-laws include provisions to indemnify the directors and officers to the fullest extent permitted by the Delaware General Corporation Law, including circumstances under which indemnification is otherwise discretionary. We believe that these provisions are necessary to attract and retain qualified persons as directors and officers.
We expect to enter into an indemnification agreement with each of our directors, which provides that we will indemnify our directors and advance expenses to our directors to the extent permitted by the laws of the State of Delaware. We also expect to obtain increased directors and officers liability insurance in amounts commensurate with those of similarly situated companies.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons as stated in the foregoing provisions or otherwise, we have been advised that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
65
SHARES OF THE COMPANY ELIGIBLE FOR FUTURE SALE
Prior to the date of this prospectus, there has been no public market for our common stock. Sales of substantial numbers of shares of our common stock in the public market following this offering, or the perception that such sales may occur, could adversely affect prevailing market prices of our shares.
Upon completion of this offering, we will have outstanding an aggregate of ____________ shares of our common stock assuming no exercise of outstanding options or warrants and assuming conversion of all of our Series A Preferred Stock into shares of our common stock on a one-for-one basis. Of these shares, ____________ shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless those shares are purchased by affiliates as that term is defined in Rule 144 under the Securities Act.
The remaining ____________ shares of common stock held by existing stockholders are restricted securities as that term is defined in Rule 144 under the Securities Act and are subject to the contractual restrictions described below. Of these remaining securities:
·
____________ shares which are not subject to the 180-day lock-up period described below may be sold beginning 90 days after completion of this offering;
·
____________ additional shares may be sold upon expiration of the 180-day lock-up period described below
(or in open market transactions at a price of $11.00 per share or higher during such 180-day lock-up period);
and
·
____________ additional shares may be sold upon expiration of the 24-month lock-up period described below.
Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act, which rules are summarized below.
Rule 144
In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of common stock for at least one year is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
·
1.0% of the number of shares of common stock outstanding; or
·
the average weekly trading volume of the shares of common stock during the four calendar weeks preceding the filing of a notice on Form 144 in connection with the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. In addition, under Rule 144(k) as currently in effect, a person:
·
who is not considered to have been one of our affiliates at any time during the 90 days preceding a sale; and
·
who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate,
is entitled to sell his shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants, or advisors (other than affiliates) who purchased shares of common stock from us under a compensatory stock option plan or other written agreement before this offering is entitled to resell these shares. These shares can be resold 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with certain restrictions, including the holding period, contained in Rule 144.
66
The SEC has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of these options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold:
·
by persons other than affiliates subject only to the manner of sale provisions of Rule 144; and
·
by affiliates under Rule 144 without compliance with its one year minimum holding period requirement.
Lock Up of Certain Shares
We, each member of our board, each of our executive officers and holders of our common stock prior to March 1, 2005, or the founding holders, have agreed to sign lock-up agreements under which they agree they will not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our capital stock, which amounts to 5,960,000 shares,
for a period of 24 months after the date of this prospectus. Holders of our common stock since April 15, 2005 other than the founding holders, which include the selling stockholders, have also agreed to sign lock-up agreements under which they agree they will not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our capital stock, other than in connection with this offering, which amounts to ______ shares,
for a period of 180 days after the date of this prospectus. These stockholders, however, may sell their shares at any time during the 180-day period subject to applicable law if and only if they are able to sell their shares in open market transactions at a price of $11.00 per share or higher.
Registration Rights
We have agreed to register
the Registrable Securities (as defined in the Series A Rights Agreement),
which have not already been registered in connection with this offering, by the 30th day following the consummation of this offering, and we have agreed to use our best efforts to have the registration declared effective as soon as possible, but in any event prior to the 60th day after the filing date of the registration statement (or 90th day after the filing date in the event that the registration statement is reviewed and commented upon by the SEC).
We have also agreed to grant certain registration rights to the representative of our underwriters. Pursuant to an underwriting agreement, the holders of the underwriters warrants will be entitled to
certain
demand and
piggyback registration rights to register the resale of the shares of common stock underlying such warrants. The demand registration right shall expire on the fourth anniversary of the date of this offering and the piggy-back registration rights shall expire on the sixth anniversary of the date of this offering.
67
UNDERWRITING
We and the selling stockholders have entered into an underwriting agreement with Sunrise Securities Corp. and
Roth Capital Partners, LLC,
the co-managing underwriters.
The underwriting agreement provides for the purchase of a specific number of shares of common stock by the underwriters on a firm commitment basis. Subject to the terms and conditions of the underwriting agreement, the underwriters have agreed to purchase shares.
The underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased.
The shares should be ready for delivery on or about ______, 2006 against payment in immediately available funds. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $______ per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $______ per share to other dealers. After the shares are released for sale to the public, the underwriters may change the offering price and other selling terms at various times.
Prior to this offering, there has been no market for the shares offered hereby. Accordingly, the initial public offering price for our common stock will be determined by negotiations between the underwriters and us. Among the factors to be considered by the underwriters and us in determining the offering prices are our current financial condition, our future prospects, the state of the market for our
drug candidates,
the experience of our management, the economics of the industry in general, the general conditions of the equity market and the demand for similar securities of companies comparable to us. The offering price should not be regarded as an indication of any future market price of our common stock.
We previously engaged Sunrise Securities Corp., one of the co-managing underwriters in this offering, as a placement agent in our private placement of 3,000,000 shares of our Series A Preferred Stock in March 2005. In connection with such private placement, we entered into an Investment Banking Agreement with Sunrise Securities Corp. pursuant to which we issued 308,000 shares of common stock and warrants to purchase 329,800 shares of common stock with an exercise price of $2.00 per share to Sunrise Securities Corp. and/or its designees as partial consideration for their services rendered. In addition, of the 3,000,000 shares of Series Preferred Stock issued, Sunrise Equity Partners, LP, a small business investment company affiliated with Sunrise Securities Corp., and individuals affiliated with Sunrise Equity Partners, LP
acquired
1,269,000
shares.
Level Counter LLC is the general partner of Sunrise Equity Partners, LP. The three managing members of Level Counter LLC are Nathan Low, the sole stockholder of Sunrise Securities Corp. and its president,
Amnon Mandelbaum, one of
the Managing
Directors
of Investment Banking at Sunrise Securities Corp., and Marilyn Adler, who is otherwise unaffiliated with Sunrise Securities Corp., and a unanimous vote of all three persons is required to dispose of the securities of Sunrise Equity Partners, LP. Accordingly, each of such persons may be deemed to have shared beneficial ownership of the securities owned by Sunrise Equity Partners, LP. Such persons disclaim such beneficial ownership. As a result of the relationship of Mr. Low and Mr. Mandelbaum to Sunrise Equity Partners, LP, Sunrise Securities Corp. may be deemed to beneficially own the securities owned by Sunrise Equity Partners, LP. Sunrise Securities Corp. disclaims any beneficial ownership of the securities owned by Sunrise Equity Partners, LP.
Accordingly, the provisions of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., or the NASD, apply to this offering because Sunrise Securities Corp., one of the co-managing underwriters in this offering, has a conflict of interest (as defined in Rule 2720(b)(7) of the NASD Conduct Rules) due to the ownership by Sunrise Securities Corp. and certain of its affiliates and related parties of our securities. Accordingly, the initial public offering prices can be no higher than that recommended by a qualified independent underwriter (as defined in Rule 2720(b)(15) of the NASD Conduct Rules). In accordance with this requirement, Roth Capital Partners, LLC
has agreed to act in such role and has recommended the initial public offering prices in compliance with the NASD Conduct Rules.
We and the selling stockholders have granted to the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of
68
______ additional shares to cover over-allotments from the selling stockholders or alternatively from us if the selling stockholders do not elect to fully participate in the over-allotment. If the underwriters exercise all or part of this option, it will purchase shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full from the selling stockholders, the total price to public will be $______ , the total proceeds to us will be $______ and the total proceeds to the selling stockholders will be $______ .
The following table provides information regarding the amount of the discount to be paid to the underwriters by us and the selling stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total without Exercise of
Over Allotment Option
|
|
Total with Full Exercise of
Over Allotment Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland BioLabs, Inc
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Pursuant to the underwriting agreement, Sunrise Securities Corp. will receive from us a non-accountable expense allowance of 3% of the gross proceeds of this offering, of which $75,000 has been paid by us to date and the balance will be paid upon the consummation of the offering. We estimate that our total expenses of this offering, excluding the underwriting discount and non-accountable expense allowance, will be approximately $300,000. In the event this offering is terminated, Sunrise Securities Corp. will not be entitled to retain or receive more than an amount equal to its actual accountable out of pocket expenses and shall reimburse us for the remainder, if any.
Upon
the consummation of this offering, we will sell to the underwriters or their respective designees (including officers)
at an aggregate purchase price of $100, warrants to purchase up to an aggregate of 10% of the number of shares of our common stock sold in this offering, excluding the over-allotment option. Each warrant represents the right to purchase one share of common stock for a period of four years commencing on the first anniversary of the effective date of this offering. The exercise price of the warrants is 110% of the price at which our shares of common stock are sold pursuant to this offering. The warrants will contain certain demand and piggyback registration rights with respect to the common stock issuable upon exercise of the warrants. The demand registration right shall expire on the fourth anniversary of the date of this offering and the piggy-back registration rights shall expire on the sixth anniversary of the date of this offering.
The warrants are noncallable and have a cashless exercise option.
No holder of these warrants will possess any rights as a shareholder unless the warrant is exercised. These warrants may not be sold, transferred, assigned or hypothecated for a period of one year from the effective date of this offering, except to officers or partners (but not directors) of the underwriter and members of the selling group and/or their officers or partners in accordance with applicable securities laws.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
Our executive officers, directors and certain of our holders who acquired our securities prior to March 1, 2005 have agreed to a 24-month lock up with respect to the shares of common stock that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, for a period beginning on the date of the preliminary prospectus and ending 24 months following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the underwriters. Holders of our common stock since April 15, 2005 other than the founding holders, which include the selling stockholders, also have agreed to a 180-day lock up with respect to the shares of common stock that they beneficially own,
subject to certain exceptions. These stockholders, for a period beginning on the date of the preliminary prospectus and ending 180 days following the date of this prospectus, may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the underwriters, subject to certain exceptions. These stockholders, however, may sell their shares at any time during the 180-day period subject to applicable law if and only if they are able to sell their shares in open market transactions at a price of $11.00 per share or higher.
The underwriters have informed us that they do not expect discretionary sales to exceed five percent of the shares offered by this prospectus.
69
Rules of the SEC may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:
·
Stabilizing transactions The underwriters may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.
·
Over-allotments and syndicate covering transactions The underwriters may sell more shares of our common stock in connection with this offering than the number of shares that they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either covered short sales or naked short sales. Covered short sales are short sales made in an amount not greater than the underwriters over-allotment option to purchase additional shares in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market, as compared to the price at which they may
purchase shares through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering.
·
Penalty bids If the underwriters purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, it may reclaim a selling concession from the selling group members who sold those shares as part of this offering.
·
Passive market making Market makers in the shares who are underwriters or prospective underwriters may make bids for or purchases of shares, subject to limitations, until the time, if ever, at which a stabilizing bid is made.
Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of the shares of our common stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares.
Neither we, the selling stockholders, nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the Nasdaq Capital Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.
70
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon for us by Katten Muchin Rosenman LLP, Chicago, Illinois and for the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York.
EXPERTS
The financial statements appearing in this prospectus and registration statement have been audited by Meaden & Moore, Ltd., independent registered accountants, to the extent and for the periods indicated in their report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the Securities Act of 1933 for the shares of common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents or any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the
Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov/
.
We will be subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and in accordance with the Securities Exchange Act of 1934, we will file annual, quarterly and special reports, and other information with the SEC. These periodic reports, and other information will be available for inspection and copying at the regional offices, public reference facilities and website of the SEC referred to above.
71
FINANCIAL STATEMENTS
INDEX
|
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Balance Sheet
|
F-2
|
|
|
Statements of Operations
|
F-4
|
|
|
Statement of Cash Flows
|
F-5
|
|
|
Statements of Stockholders Deficit
|
F-7
|
|
|
Notes to Financial Statements
|
F-9
|
72
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Cleveland BioLabs, Inc.
Cleveland, Ohio
We have audited the accompanying balance sheets of CLEVELAND BIOLABS, INC. (a development stage company) as of December 31, 2005 and 2004, and the related statements of operations, stockholders deficit, and cash flows for the years ended December 31, 2005 and 2004 and the period from June 5, 2003, date of inception, to December 31, 2003 and the cumulative development stage period from June 5, 2003 to December 31, 2005. 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 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cleveland BioLabs, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004 and the period from June 5, 2003, to December 31, 2003 and the cumulative development stage period from June 5, 2003 to December 31, 2005, in conformity with U.S. generally accepted accounting principles.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, LTD.
Certified Public Accountants
February 7, 2006
Cleveland, Ohio
F-1
CLEVELAND BIOLABS, INC.
BALANCE SHEET
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
Short-term investments
|
|
|
2,382,190
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
Trade
|
|
|
|
|
|
225,013
|
|
Interest
|
|
|
37,035
|
|
|
|
|
Prepaid expenses - IPO
|
|
|
210,987
|
|
|
|
|
Other prepaid expenses
|
|
|
12,249
|
|
|
|
|
Deferred compensation
|
|
|
5,134
|
|
|
9,140
|
|
Total current assets
|
|
|
3,854,057
|
|
|
328,894
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
91,788
|
|
|
11,541
|
|
Lab equipment
|
|
|
225,997
|
|
|
17,646
|
|
Furniture
|
|
|
40,158
|
|
|
|
|
|
|
|
357,943
|
|
|
29,187
|
|
Less accumulated depreciation
|
|
|
47,080
|
|
|
2,319
|
|
|
|
|
310,863
|
|
|
26,868
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
752
|
|
|
5,887
|
|
Deferred charges
|
|
|
|
|
|
13,000
|
|
Intellectual property
|
|
|
76,357
|
|
|
|
|
Deposits
|
|
|
11,304
|
|
|
7,570
|
|
|
|
|
88,413
|
|
|
26,457
|
|
TOTAL ASSETS
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
Accounts payable:
|
|
|
|
|
|
|
|
Trade
|
|
$
|
264,783
|
|
$
|
251,492
|
|
Stockholders
|
|
|
|
|
|
2,422
|
|
Deferred revenue
|
|
|
100,293
|
|
|
|
|
Accrued expenses
|
|
|
28,579
|
|
|
|
|
Accrued compensation - stockholders
|
|
|
|
|
|
165,000
|
|
Total current liabilities
|
|
|
393,655
|
|
|
418,914
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE NOTES PAYABLE
|
|
|
303,074
|
|
|
337,519
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized - 4,000,000 shares
|
|
|
|
|
|
|
|
Issued and outstanding - 3,051,219 shares at December 31, 2005
|
|
|
15,256
|
|
|
|
|
Additional paid-in capital
|
|
|
4,932,885
|
|
|
|
|
Unissued shares - preferred stock
|
|
|
360,000
|
|
|
|
|
Common stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized - 12,000,000 shares
|
|
|
|
|
|
|
|
F-2
CLEVELAND BIOLABS, INC.
BALANCE SHEET (continued)
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Issued and outstanding 6,396,801, 5,960,000 and 3,993,200 shares at December 31, 2005, 2004 and 2003, respectively
|
|
|
31,984
|
|
|
29,800
|
|
Additional paid-in capital
|
|
|
3,338,020
|
|
|
2,255,954
|
|
Unissued shares - common stock
|
|
|
81,125
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(17,810
|
)
|
|
|
|
Accumulated deficit during the development stage
|
|
|
(5,184,856
|
)
|
|
(2,659,968
|
)
|
Total stockholders equity (deficit)
|
|
|
3,556,604
|
|
|
(374,214
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
F-3
CLEVELAND BIOLABS, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 2005 and 2004,
Period From June 5, 2003 (Date of Inception) to December 31, 2003 and
Period From June 5, 2003 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Cumulative During
Development
Stage
(June 5, 2003
December 31,
2005)
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Grant
|
|
$
|
999,556
|
|
$
|
531,341
|
|
$
|
|
|
$
|
1,530,897
|
|
Service
|
|
|
139,275
|
|
|
105,000
|
|
|
75,000
|
|
|
319,275
|
|
|
|
|
1,138,831
|
|
|
636,341
|
|
|
75,000
|
|
|
1,850,172
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
|
|
|
2,640,240
|
|
|
2,892,967
|
|
|
143,258
|
|
|
5,676,465
|
|
Selling, general and administrative
|
|
|
986,424
|
|
|
262,817
|
|
|
68,636
|
|
|
1,317,877
|
|
Total operating expenses
|
|
|
3,626,664
|
|
|
3,155,784
|
|
|
211,894
|
|
|
6,994,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(2,487,833
|
)
|
|
(2,519,443
|
)
|
|
(136,894
|
)
|
|
(5,144,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
119,371
|
|
|
320
|
|
|
68
|
|
|
119,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
17,993
|
|
|
4,019
|
|
|
|
|
|
22,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
$
|
(5,046,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK
|
|
|
(291,914
|
)
|
|
|
|
|
|
|
|
(291,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(2,678,369
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
$
|
(5,338,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS PER SHARE OF COMMON STOCK
BASIC AND DILUTED
|
|
$
|
(0.43
|
)
|
$
|
(0.55
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES USED IN CALCULATING NET LOSS PER SHARE
BASIC AND DILUTED
|
|
|
6,250,447
|
|
|
4,615,571
|
|
|
4,261,400
|
|
|
|
|
(AFTER RETROACTIVE 596 TO 1 STOCK SPLIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-4
CLEVELAND BIOLABS, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31, 2005 and 2004,
Period From June 5, 2003 (Date of Inception) to December 31, 2003 and
Period From June 5, 2003 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Cumulative During
Development
Stage
(June 5, 2003 -
December 31,
2005)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
$
|
(5,046,423
|
)
|
Adjustments to reconcile net loss to net cash
used by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
44,762
|
|
|
2,299
|
|
|
20
|
|
|
47,081
|
|
Noncash interest expense
|
|
|
17,993
|
|
|
4,019
|
|
|
|
|
|
22,012
|
|
Noncash salaries and consulting expense
|
|
|
437,311
|
|
|
|
|
|
|
|
|
437,311
|
|
Deferred compensation
|
|
|
9,141
|
|
|
10,449
|
|
|
4,161
|
|
|
23,751
|
|
Research and development
|
|
|
|
|
|
2,256,067
|
|
|
|
|
|
2,256,067
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
225,013
|
|
|
(225,013
|
)
|
|
|
|
|
|
|
Accounts receivable - interest
|
|
|
(37,035
|
)
|
|
|
|
|
|
|
|
(37,035
|
)
|
Other prepaid expenses
|
|
|
(12,249
|
)
|
|
|
|
|
|
|
|
(12,249
|
)
|
Deposits
|
|
|
(3,734
|
)
|
|
(7,570
|
)
|
|
|
|
|
(11,304
|
)
|
Accounts payable
|
|
|
10,869
|
|
|
169,980
|
|
|
83,934
|
|
|
264,783
|
|
Deferred revenue
|
|
|
100,293
|
|
|
|
|
|
|
|
|
100,293
|
|
Accrued expenses
|
|
|
(136,421
|
)
|
|
105,000
|
|
|
60,000
|
|
|
28,579
|
|
Total adjustments
|
|
|
655,943
|
|
|
2,315,231
|
|
|
148,115
|
|
|
3,119,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(1,730,512
|
)
|
|
(207,911
|
)
|
|
11,289
|
|
|
(1,927,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(2,400,000
|
)
|
|
|
|
|
|
|
|
(2,400,000
|
)
|
Purchase of equipment
|
|
|
(328,756
|
)
|
|
(27,991
|
)
|
|
(1,196
|
)
|
|
(357,943
|
)
|
Costs of patents pending
|
|
|
(76,357
|
)
|
|
|
|
|
|
|
|
(76,357
|
)
|
Net cash (used) provided by investing activities
|
|
|
(2,805,113
|
)
|
|
(27,991
|
)
|
|
(1,196
|
)
|
|
(2,834,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
6,000,000
|
|
Financing costs
|
|
|
(402,622
|
)
|
|
(13,000
|
)
|
|
|
|
|
(415,622
|
)
|
Dividends
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
(31
|
)
|
Issuance of common stock
|
|
|
|
|
|
17
|
|
|
33
|
|
|
50
|
|
Proceeds from convertible notes payable
|
|
|
50,000
|
|
|
333,500
|
|
|
|
|
|
383,500
|
|
Net cash (used) provided by financing activities
|
|
|
5,647,347
|
|
|
320,517
|
|
|
33
|
|
|
5,967,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-5
CLEVELAND BIOLABS, INC.
STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31, 2005 and 2004,
Period From June 5, 2003 (Date of Inception) to December 31, 2003 and
Period From June 5, 2003 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Cumulative
During
Development
Stage
(June 5, 2003 -
December 31,
2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND EQUIVALENTS
|
|
$
|
1,111,721
|
|
$
|
84,615
|
|
$
|
10,126
|
|
|
1,206,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
94,741
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND EQUIVALENTS AT END OF YEAR
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
$
|
10,126
|
|
$
|
1,206,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued (308,000 shares) as financing fees on issuance of preferred shares
|
$
|
589,662
|
|
Conversion of notes payable and accrued interest to preferred stock
|
|
|
|
$
|
102,438
|
|
Issuance of stock options to employees and two consultants
|
|
|
|
|
|
|
$
|
318,511
|
|
Exercise of stock options into 59,600 common shares by consultant
|
|
|
|
$
|
119,200
|
|
Issuance of common stock dividend to preferred shareholders (69,201 shares issued)
|
|
$
|
138,402
|
|
Unissued shares to preferred shareholders for penalty per agreement
|
|
|
|
$
|
441,125
|
|
F-6
CLEVELAND BIOLABS, INC.
STATEMENTS OF STOCKHOLDERS DEFICIT
Period From June 5, 2003 (Date of Inception) to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Penalty
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 5, 2003
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Issuance of Shares
|
|
|
3,993,200
|
|
|
19,966
|
|
|
5,034
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
3,993,200
|
|
|
19,966
|
|
|
5,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Shares
|
|
|
1,966,800
|
|
|
9,834
|
|
|
2,250,920
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
5,960,000
|
|
|
29,800
|
|
|
2,255,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Shares - Series A Financing
|
|
|
308,000
|
|
|
1,540
|
|
|
588,122
|
|
|
|
Issuance of Shares - Stock Dividend
|
|
|
69,201
|
|
|
346
|
|
|
138,056
|
|
|
|
Issuance of Options (383,840 options issued, 324,240 outstanding)
|
|
|
|
|
|
|
|
|
318,111
|
|
|
|
Exercise of Options (59,600 options exercised)
|
|
|
59,600
|
|
|
298
|
|
|
118,902
|
|
|
|
Unrealized Loss on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Unissued Shares
|
|
|
|
|
|
|
|
|
(81,125
|
)
|
|
81,125
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
6,396,801
|
|
$
|
31,984
|
|
$
|
3,338,020
|
|
$
|
81,125
|
F-7
CLEVELAND BIOLABS, INC.
STATEMENTS OF STOCKHOLDERS DEFICIT (continued)
Period From June 5, 2003 (Date of Inception) to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Penalty Shares
|
|
Other Comprehensive Loss
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 5, 2003
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Issuance of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136,826
|
)
|
|
(136,826
|
)
|
Balance at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136,826
|
)
|
|
(111,826
|
)
|
Issuance of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,260,754
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,523,142
|
)
|
|
(2,523,142
|
)
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,659,968
|
)
|
|
(374,214
|
)
|
Issuance of Shares - Series A Financing
|
|
|
3,051,219
|
|
|
15,256
|
|
|
5,292,885
|
|
|
|
|
|
|
|
|
|
|
|
5,897,803
|
|
Issuance of Shares - Stock Dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138,433
|
)
|
|
(31
|
)
|
Issuance of Options (383,840 options issued, 324,240 outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,111
|
|
Exercise of Options (59,600 options exercised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,200
|
|
Unrealized Loss on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,810
|
)
|
|
|
|
|
(17,810
|
)
|
Accrued Unissued Shares
|
|
|
|
|
|
|
|
|
(360,000
|
)
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,386,455
|
)
|
|
(2,386,455
|
)
|
Balance at December 31, 2005
|
|
|
3,051,219
|
|
$
|
15,256
|
|
$
|
4,932,885
|
|
$
|
360,000
|
|
$
|
(17,810
|
)
|
$
|
(5,184,856
|
)
|
$
|
3,556,064
|
|
F-8
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Organization and Nature of Business Cleveland BioLabs, Inc. (CBL or the Company), a development stage biopharmaceutical company, is engaged in the discovery, development and commercialization of products for cancer treatment and protection of normal tissues from radiation and toxins. The Company was incorporated under the laws of the State of Delaware on June 5, 2003 and is headquartered in Cleveland, Ohio. The Companys initial technological development efforts are intended to be used as powerful antidotes with a broad spectrum of applications including protection from cancer treatment side effects, radiation and hypoxia. To date, the Company has not developed any commercial products, but in 2005 the Company developed and produced biological compounds under a single commercial development contract.
Note 2. Summary of Significant Accounting Policies
A.
Cash and Equivalents The Company considers highly liquid debt instruments with original maturities of three months or less to be cash equivalents. In addition, the Company maintains cash and equivalents at financial institutions, which may exceed federally insured amounts at times and which may, at times, significantly exceed balance sheet amounts due to outstanding checks.
B.
Marketable Securities and Short Term Investments The Company considers investments with a maturity date of more than three months to maturity to be short-term investments and has classified these securities as available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included as accumulated other comprehensive income (loss) in stockholders equity. The cost of available-for-sale securities sold is determined based on the specific identification method.
C.
Accounts Receivable The Company extends unsecured credit to customers under normal trade agreements, which generally require payment within 30 days. Management estimates an allowance for doubtful accounts which is based upon managements review of delinquent accounts and an assessment of the Companys historical evidence of collections. There is no allowance for doubtful accounts as of December 31, 2005 and 2004.
D.
Equipment Equipment is stated at cost and depreciated over the estimated useful lives of the assets (generally five years) using the straight-line method. Leasehold improvements are depreciated on the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to expense as incurred. Major expenditures for renewals and betterments are capitalized and depreciated. Depreciation expense was $44,762, $2,299 and $20 for the years ended December 31, 2005, 2004, and 2003, respectively.
E.
Impairment of Long-Lived Assets In accordance with Statements of Financial Accounting Standards, or SFAS, No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be held and used, including equipment and intangible assets subject to depreciation and amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets or related asset group may not be recoverable. Determination of recoverability is based on an estimate of discounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset or asset group, the carrying amount of the asset is written down to its estimated net realizable value.
F.
Intellectual Property The Company capitalizes the costs associated with the preparation, filing, and maintenance of certain intellectual property rights. Capitalized intellectual property is reviewed annually for impairment.
This intellectual property is owned by the Cleveland Clinic Foundation (CCF) and granted to the Company through an exclusive licensing agreement as further discussed in Note 3. As part of the licensing agreement, CBL agrees to incur the costs associated with the preparation, filing and maintenance of patent applications relating to this intellectual property. If the patent application is approved, the costs paid by the Company are amortized on a straight-line basis over the shorter of
F-9
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
seventeen years or the anticipated useful life of the patent. If the patent application is not approved, the costs associated with the preparation and filing of the patent application by the Company on behalf of CCF will be expensed as part of selling, general and administrative expenses. Gross capitalized patents pending costs are $67,991 on behalf of CCF for 10 patent applications as of December 31, 2005. All of the 10 CCF patent applications are still pending approval.
The Company also has submitted two patent applications as a result of intellectual property exclusively developed and owned by the Company. If the patent applications are approved, costs paid by the Company associated with the preparation, filing, and maintenance of the patents will be amortized on a straight-line basis over the shorter of seventeen years or the anticipated useful life of the patent. If the patent applications are not approved, the costs associated with the preparation and filing of the patent application will be expensed as part of selling, general and administrative expenses at that time. Gross capitalized patents pending costs were $8,366 for two patent applications as of December 31, 2005. The patent applications are still pending approval.
G.
Fair Value of Financial Instruments Financial instruments, including cash and equivalents, accounts receivable, accounts payable and accrued liabilities, are carried at net realizable value. The carrying amounts of the convertible notes payable approximate their respective fair values as they bear terms that are comparable to those available under current market conditions.
H.
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. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under these circumstances. Actual results could differ from those estimates.
I.
Revenue Recognition The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). Revenue sources consist of government grants, government contracts and commercial development contracts. Revenues from federal government grants and contracts are for research and development purposes and are recognized in accordance with the terms of the award and the government agency. Grant revenue is recognized in one of two different ways depending on the grant. Cost reimbursement grants require us to submit proof of costs incurred that are invoiced by us to the government agency, which then pays the invoice. In this case, grant revenue is recognized at the time of submitting the invoice to the government agency. Fixed cost grants require no proof of costs and are paid as collected for expenses are incurred and accordingly, the grant revenue is recognized when received by us. Government
contract revenue is recognized periodically upon delivery of an invoice for allowable research and development expenses according to the terms of the contract. The Company has recognized grant revenue from the following agencies: the U.S. Army (DARPA), National Aeronautics and Space Administration (NASA), the National Institutes of Health (NIH) and the Department of Health of Human Services (HHS). Commercial development revenues are recognized when the service or development is delivered.
Assumptions and estimates are used to recognize revenue. These assumptions and estimates are developed in coordination with the principal investigator performing the work under the government grant or contract arrangement to determine key milestones, expenses incurred, and deliverables to perform a percentage-of-completion analysis to ensure that revenue is appropriately recognized. Critical estimates involved in this process include total costs anticipated to be incurred under the terms of the agreement.
J.
Deferred Revenue Policy Deferred Revenue results when payment is received in advance of revenue being earned. When cash is received, the Company makes a determination as to whether the revenue has been earned by applying a percentage-of-completion analysis to compute the need to recognize deferred revenue. The percentage of completion method is based upon (1) the total income projected for the project at the time of completion and (2) the expenses incurred to date. The percentage-of-completion can be measured using the proportion of costs incurred versus the total estimated cost to complete the contract.
F-10
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
K.
Research and Development Research and development expenses consist primarily of costs associated with the clinical trials of
drug
candidates, compensation and other expenses for research and development, personnel, supplies and development materials, costs for consultants and related contract research and facility costs. Expenditures relating to research and development are expensed as incurred.
L.
Employee Benefit Plan The Company maintains a 401(k) retirement savings plan that is available to all full-time employees who have reached age 21. The plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan provides that each participant may contribute up to a statutory limit of their pre-tax compensation which was $14,000 for employees under age 50 and $18,000 for employees 50 and older in calendar year 2005. Employee contributions are held in the employees name and invested by the plan trustee. The plan also permits the Company to make matching contributions, subject to established limits. To date, the Company has not made any matching contributions to the plan on behalf of participating employees.
M.
Stock-Based Compensation The FASB issued SFAS No. 123 (revised December 2004), Share Based Payment, which is a revision of SFAS No. 123 Accounting for Stock-Based Compensation. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. The Company values employee stock-based compensation under the provisions of SFAS 123(R) and related interpretations. Accordingly, effective January 1, 2005, all share-based payments to employees, including grants of employee stock options, are recognized in the statement of operations based on their fair values. The Company accounted for all stock options issued through the use of the Black-Scholes model. The market price of the Companys stock was deemed to be
$2.00 per share based on the Series A preferred stock transactions in
March 2005.
The options are for a ten-year period and are valued at grant date but are assumed to have a five-year life. The risk-free rate used for the computation was the five-year Treasury Security rate at the grant date as published by the Research Division of the Federal Reserve Bank of St. Louis. The assumed volatility is 325% based on an industry analysis of comparable biotech companies. The Company assumes no common stock dividends to be paid during the life of the options. The exercise price for outstanding options is $0.66 to $3.00. All stock options have a vesting schedule from 13 to 36 months and the compensation expense is amortized over the service period. For 2005, the Company recognized $429,450 in stock based compensation: $310,250 for options issued and outstanding and $119,200 for options issued and exercised. $143,157 of this compensation cost recognized was related to stock options that were not fully vested as of the balance sheet date. No cash was received for the options that were
exercised in 2005. All shares issued upon exercise of stock options have come from authorized and unissued shares.
N.
Income Taxes The Company utilizes Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed for those temporary differences that have future tax consequences using the current enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will, more likely than not, be realized. Income tax expense is the current tax payable or refundable for the year plus or minus the net change in the deferred tax assets and liabilities.
O.
Net Loss per Share Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.
F-11
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The following table presents the calculation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(2,670,507
|
)
|
$
|
(2,523,142
|
)
|
$
|
(136,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.43
|
)
|
$
|
(0.55
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per share, basic
and diluted
|
|
|
6,250,447
|
|
|
4,615,571
|
|
|
4,261,400
|
|
In 2005, the Company has included $291,914 in the numerator to account for cumulative dividends for Series A preferred stock that were either paid or accrued throughout 2005. This dividend was comprised of $138,433 that had been paid in 2005, and the balance of $153,481 that will be paid as part of the biannual February 1, 2006 dividend.
The Company has excluded all outstanding warrants and options from the calculation of diluted net loss per share because all such securities are antidilutive for all applicable periods presented.
The total number of shares excluded from the calculations of diluted net loss per share, prior to application of the treasury stock method for
warrants
, was 594,424 and 294,424 for the years ended December 31, 2005 and 2004, respectively. Such securities, had they been dilutive, would have been included in the computation of diluted earnings per share.
The total number of shares excluded from the calculations of diluted net loss per share, prior to the application of the treasury stock method for
options
, was 324,240 and 0 for the years ended December 31, 2005 and 2004, respectively. Such securities, had they been dilutive, would have been included in the computation of diluted earnings per share.
P.
Concentrations of Risk Grant revenue was comprised wholly from grants issued by the federal government and accounted for 88.9%, 83.5% and 0% of total revenue for the years ended December 31, 2005, 2004 and 2003, respectively. Although the company anticipates ongoing federal grant revenue, there is no guarantee that this revenue stream will continue in the future.
Financial instruments that potentially subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents and securities available-for-sale. The Company maintains deposits in federally insured institutions in excess of federally insured limits. The Company does not believe it is exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding diversification of its investment portfolio and maturities of investments, which are designed to meet safety and liquidity.
Q.
Comprehensive Income The Company applies Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
R.
Segment Reporting As of December 31, 2005 the Company has determined that it operates in only one segment. Accordingly, no segment disclosures have been included in the notes to the consolidated financial statements.
S.
Effect of New Accounting Standards In March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments. EITF Issue No. 03-1 requires certain quantitative and qualitative disclosures with respect to securities in an unrealized loss position accounted for under SFAS No. 115 and SFAS No. 124 and for cost method investments. The Company has provided the disclosure information required by EITF Issue No. 03-1 in Note 7. EITF Issue No. 03-1 also describes a three-step model to measure and recognize other-than-temporary impairments of
F-12
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
investments in marketable securities, however, the effectiveness of the measurement and recognition guidance of EITF Issue No. 03-1 has been indefinitely delayed. The Company does not expect that the adoption of the measurement and recognition guidance of EITF Issue No. 03-1, as currently contemplated, will have a material impact on operating results and financial position.
Note 3. Significant Alliances and Related Parties
The Cleveland Clinic Foundation
Effective July 2004, the Company entered into a strategic alliance with The Cleveland Clinic Foundation (CCF). Under the agreement, the Company received an exclusive license to use CCF licensed patents and CCF technology for the benefit of the Company for research and
drug
development. The Company has primary responsibility to fund all newly developed patents; however, CCF retains patent ownership on those contained in the agreement. The Company also has the responsibility to secure applicable regulatory approvals. In partial consideration of this agreement, in December 2004, the Company issued 1,341,000 shares of its common stock to CCF and recognized $2,250,000 as non-cash research and development expense in exchange for the stock.
The calculation of this expense was premised in part, on an estimate of the Companys value based on discussions in 2004 with potential investors, in which the Company was estimated to have a value of approximately $12,500,000. This valuation was reflected in an agreement between the Company and an investment bank dated
September 30, 2004, which agreement set forth the terms on which the investment bank was to raise equity capital for the Company. In light of the preliminary nature of that estimate, the Company discounted that estimate to arrive at a valuation of $10,000,000.
CCF will receive milestone payments for each product developed with CCF technology as development passes through major developmental stages. In addition, the Company will pay CCF royalties and sublicense royalties as a percentage of net sales of all commercial products developed with CCF technology. No milestone payments, royalties or sublicense royalties have been paid through the year ended December 31, 2005.
The Company recognized $0, $105,000 and $75,000 in service revenues for the years ended December 31, 2005, 2004 and 2003, respectively, from CCF related to a high-throughput screening engagement. The Company also incurred $475,934, $51,129 and $0 in subcontract expense to CCF related to technology grants for the years ended December 31, 2005, 2004 and 2003, respectively. The balance remaining is $47,681 in accounts payable at December 31, 2005.
The Company also rented office and laboratory space from an entity related to CCF on a month to month basis through May of 2005. Rent to this entity related to CCF was $11,121, $32,400 and $0 in 2005, 2004 and 2003, respectively.
ChemBridge Corporation
In April 2004, ChemBridge Corporation acquired 357,600 shares of the Companys common stock valued at $6,081 (subject to antidilution provisions for future equity issues) and holds warrants to purchase an additional 264,624 shares of the Companys common stock for $1.13 per share. The warrants expire in April 2010. Under the agreement, ChemBridge has agreed to provide chemical technology and expertise for the benefit of the Company for research and
drug
development.
In April 2004, the Company entered into a chemical libraries license agreement with ChemBridge. Under the terms of the agreement, the Company has a non-exclusive worldwide license to use certain chemical compound libraries for drug research conducted on its own or in collaboration with others. In return, ChemBridge will receive royalty payments on any revenue received by the Company for all contracts, excluding CCF, in which the libraries are used. No revenues or royalties have been paid through the year ended December 31, 2005.
The Company also agrees to collaborate with ChemBridge on two optimization projects, wherein ChemBridge will have the responsibility of providing the chemistry compounds of the project and the Company will have the responsibility of providing the biological expertise. ChemBridge will retain a fifty percent ownership interest in two selected confirmed hits that make up the optimization projects.
F-13
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The parties will jointly manage the development and commercialization of any compounds arising from an optimization project. No confirmed hits have been selected during the year ended December 31, 2005.
In addition, in 2005, the Company paid Chembridge $3,913 for the purchase of chemical compounds in the normal course of business.
University of New South Wales
In June 2003, the Company entered into a three year collaborative research agreement with the University of New South Wales (UNSW) to utilize functional genomic technologies in an attempt to identify genes in childhood neuroblastoma as potential candidates for the future development of molecular-targeted gene therapy. Under this agreement, the Company will make monetary and in-kind contributions with the collaborative partner in connection with the project under terms of the agreement. In return, the Company co-owns resulting intellectual property and has a right to use this intellectual property royalty free for internal purposes. The collaborative parties agree to negotiate a license arrangement for commercial projects resulting from co-owned intellectual property. No collaborative intellectual property has been developed during the term of this agreement.
UNWS and two related parties to UNSW have advanced funds of $109,000 and $174,500 during the year ended December 31, 2004 to the Company in exchange for convertible promissory notes, which mature on October 18, 2007 and November 23, 2007, respectively. These balances remain on the balance sheet as of December 31, 2005 as long-term notes payable. During the year ended December 31, 2005 a party related to UNSW advanced $50,000 in exchange for a convertible promissory note which was subsequently converted into Series A Preferred Stock. In addition, the Company paid UNSW $25,011 and $30,303 for subcontracted research during the year ended December 31, 2005 and 2004, respectively.
Cooperative Research and Development Agreement
In August 2004, the Company entered into a five-year cooperative research and development agreement (CRADA) with the Uniformed Service University of the Health Sciences which includes the Armed Forces Radiobiology Research Institute (AFRRI); the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc.; and CCF to evaluate the companies radioprotective drug
candidates and their effects on intracellular and extracellular signaling pathways. Under the terms of the agreement, all parties are financially responsible for their own expenses related to the agreement. The agreement may be unilaterally terminated by any party upon 30 days prior written notice.
Sunrise Securities Corp.
The Company engaged Sunrise Securities Corp. to act as the investment banker for the Private Placement Offering that took place in March 2005 and as a lead underwriter for an intended initial public offering in 2006. Sunrise Securities Corp. and parties related to Sunrise Securities Corp. are owners of both common and preferred shares of the Company as a result of the Private Placement Offering which took place in March of 2005. The Company also paid Sunrise Securities Corp. $75,000 as an initial retainer for underwriting work associated with the intended initial public offering
Subcontractors
Three company stockholders received payments for subcontract/consulting services performed on certain grant awards and internal research and development. Two of these stockholders were subsequently hired by the Company during 2005 and the other continues to receive payments. Total subcontract expense made to these related parties amounted to $100,250, $77,250 and $17,500 for the years ended December 31, 2005, 2004 and 2003, respectively.
F-14
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Consultants
One company stockholder is receiving payment for consulting services performed related to business development. Total consultant expense made to this related party amounted to $49,000 for the year ended December 31, 2005.
Note 4. Stock Transactions
In June 2003, the Company was incorporated in the State of Delaware and the founders entered into restricted stock agreements effectively beginning the Company. The founders, their positions and number of shares purchased appear below. The total value assigned to these shares was $25,000 because at the time, without the involvement of ChemBridge or CCF, the probability of becoming a going concern was deemed to be small
.
|
|
|
|
|
Name
|
|
Position
|
|
Number of
Shares
|
Dr. Andrei Gudkov
|
|
Chief Scientific Officer
|
|
1,579,400
|
Dr. Michael Fonstein
|
|
Chief Executive Officer, President, Chairman of the Board
|
|
1,311,200
|
Dr. Yakov Kogan
|
|
Executive Vice President, Business Development
|
|
715,200
|
Dr. Elena Feinstein
|
|
Executive Vice President, Research and Development
|
|
268,200
|
Dr. Veronika Vonstein
|
|
General Manager
|
|
119,200
|
In April 2004, Dr. George Stark entered into a restricted stock agreement for 208,600 shares of common stock, which fully vested at the time of issuance. As the transaction pre-dated ChemBridges investment, the Company was still valued at $25,000, and the
value assigned to these shares was $1,287. He serves the Company as the Chairman of the Scientific Advisory Board.
In August 2004, after ChemBridge acquired its shares,
the Company entered into restricted stock agreements with Dr. Vadim Krivokrysenko, Dr. Katerina Gurova and Dr. Michael Chernov for 50,660; 107,280; and 50,660 shares of common stock respectively. With ChemBridges investment, the Company deemed the probability of it becoming a going concern to have increased slightly and the Company was valued at a total of $75,000.
The value assigned to these shares was $3,387. These stockholders provide the Company with molecular and cancer biology expertise and management of laboratory operations and drug discovery projects.
In August 2004, Dr. Veronika Vonstein sold all 119,200 of her shares back to the Company effectively terminating her relationship with the Company to pursue outside opportunities. In August 2004, Dr. Andrei Gudkov sold 29,800 shares back to the Company to maintain the proper percentage ownership as decided by the founders as a group.
In order to ensure that these stockholders continue their involvement in the Company, the stock will remain with the Company according to the following vesting schedule, except with respect to Dr. Stark (fully vested) and Dr. Gudkov:
|
|
|
|
Date
|
|
Percentage Vested
To Stockholder
|
|
|
|
|
First Anniversary of Agreement
|
|
33.33
|
%
|
Second Anniversary of Agreement
|
|
66.67
|
%
|
Third Anniversary of Agreement
|
|
100.00
|
%
|
F-15
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The vesting schedule with respect to Dr. Gudkovs restricted stock is as follows:
|
|
|
|
Date
|
|
Percentage Vested
To Stockholder
|
|
|
|
|
Signing of Agreement
|
|
25.00
|
%
|
First Anniversary of Agreement
|
|
50.00
|
%
|
Second Anniversary of Agreement
|
|
75.00
|
%
|
Third Anniversary of Agreement
|
|
100.00
|
%
|
At December 31, 2005, 2,711,800 and 1,549,600 shares are covered by these agreements, respectively.
In September 2004, the Company issued 29,800 warrants to Sunrise Securities Corp. and its designees at an exercise price of $2.00 per share which expire in March 2010. The warrants were issued to retain Sunrise Securities Corp. as an investment banker.
In March 2005, the Company issued 3,000,000 shares of Series A Participating Convertible Preferred Stock (Series A) for $6 million in gross proceeds. These shares are convertible into common stock on a one for one basis and earn a dividend of 6% payable biannually on February 1 and August 1 in cash or common stock. In conjunction with the issuance of the Series A shares, $50,000 of convertible notes held at December 31, 2004 and a $50,000 note issued February 3, 2005, including accrued interest, were converted into 51,219 shares of Series A preferred stock. The Company also issued 308,000 shares of common stock and 300,000 warrants to purchase 300,000 shares of common stock with an exercise price of $2.00 per share to Sunrise Securities Corp., the private placement agent, and its designees as partial consideration for their services rendered.
In March, 2005, the Company issued 10,000 stock options under a non-qualified stock option agreement to a consultant who works for the company on an ongoing basis. These options allow for the purchase of common stock at a price of $3.00 per share. These options have a thirteen month vesting schedule and expire on March 1, 2015. The value of the options is being recognized as consulting expense over the vesting period based on the Black-Scholes Option Pricing Model. $15,709 was recognized as consulting expense for 2005 under this option agreement.
In June 2005, the Company issued 294,240 stock options to various
employees of the Company under a non-qualified stock option agreement. These options allow for the purchase of 190,000 shares of common stock at a price of $.66 and 104,240 shares of common stock at a price of $0.67 per share, respectively. These options have a three-year vesting schedule and expire on June 30, 2015. The value of the options is being recognized as compensation expense over the vesting period based on the Black-Scholes Option Pricing Model. $281,939 was recognized as compensation expense for 2005 under these option agreements.
In June 2005, the company issued fully vested options to purchase 59,600 shares of common stock under a non-qualified stock option agreement to an outside consultant who works for the company on an ongoing basis. These stock options were exercised at a price of $2.00 per share and the company recorded $119,200 in consulting fees as a result of the issuance of these stock options.
On August 1, 2005, the Company paid a stock dividend of 69,201 shares of common stock to holders of record of the outstanding Series A preferred stock.
In December 2005, the Company issued 20,000 stock options under a non-qualified stock option agreement to a consultant who works for the company on an ongoing basis. These options allow for the purchase of common stock at a price of $2.00 per share with a two-year vesting schedule and expire on November 30, 2015. The value of the options is being recognized as consulting expense over the vesting period based on the Black-Scholes Option Pricing Model. $12,601 was recognized as consulting expense for 2005 under this option agreement.
F-16
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
As a condition of the issuance of the Series A preferred stock in March 2005, a provision exists that all holders of Series A preferred stock will receive an additional 2% of all preferred, common and warrants that each Series A preferred stockholder owns for each 30 day period that a delay occurs in a required transaction. These penalty shares are not subject to compounding and prorating based on the number of days of delay. They are earned at the end of each 30-day penalty period. For 2005, three separate penalty periods occurred in which 180,000 shares of Series A preferred stock were earned at $360,000. In addition, 40,545 shares of common stock were earned totaling $81,125. The penalty shares were issued in January 2006. When penalty shares are earned, but not yet issued, Additional Paid in Capital is debited and a corresponding credit is made to Unissued Penalty Shares. When the penalty shares are issued,
Unissued Penalty Shares is debited and both Additional Paid in Capital and Common or Preferred Stock (par value) is credited, as applicable. The entries are the same for common and preferred stock.
See Note 8 for further details on stock option agreements.
Note 5. Convertible Notes Payable
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Unsecured note to a research collaborator of the Company, bearing interest at 6% per annum, principal and interest due October 2007. Mandatory conversion into common stock upon an initial public offering of the Company at the fixed conversion price of $2.52 per share. Optional conversion into common stock or a new debt agreement depending on whether the Company raises additional capital through additional equity or debt. Upon the option conversion, the conversion amount will be converted into common stock at the new issue price per share or into a new debt instrument with a principal amount equal to the conversion amount.
|
|
$
|
109,000
|
|
$
|
109,000
|
|
|
|
|
|
|
|
Unsecured note to stockholder, bearing interest at 5% per annum, principal and interest due May 2007. This note was converted into preferred stock in March 2005.
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
Two unsecured notes to a research collaborator of the Company, bearing interest at 6% per annum, principal and interest due November 2007. Mandatory conversion into common stock upon an initial public offering of the Company at the fixed conversion price of $2.52 per share. Optional conversion into common stock or a new debt agreement depending on whether the Company raises additional capital through additional equity or debt. Upon the optional conversion, the conversion amount will be converted into common stock at the new issue price per share or into a new debt instrument with a principal amount equal to the conversion amount.
|
|
|
174,500
|
|
|
174,500
|
|
|
$
|
283,500
|
|
$
|
333,500
|
Current portion
|
|
|
|
|
|
|
|
|
|
283,500
|
|
|
333,500
|
|
|
|
|
|
|
|
Long-term accrued interest
|
|
|
19,574
|
|
|
4,019
|
|
|
|
|
|
|
|
|
|
$
|
303,074
|
|
$
|
337,519
|
All the aforementioned convertible notes may be converted into common stock on their respective maturity dates at the option of the Company at the fixed conversion price.
Note 6. Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. Significant components of the Companys net deferred tax assets are shown below. A valuation allowance of $2,022,000 and $1,063,000 has been recognized at December 31, 2005 and 2004, respectively, to offset the deferred tax assets, as realization of such asset is uncertain. The increase in the valuation allowance of $959,000 between 2004 and 2005 results from additional losses.
F-17
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,897,000
|
|
$
|
1,003,000
|
|
Deferred compensation
|
|
|
135,000
|
|
|
66,000
|
|
Loss on short term investments
|
|
|
7,000
|
|
|
|
|
Depreciation
|
|
|
(17,000
|
)
|
|
(6,000
|
)
|
|
|
|
2,022,000
|
|
|
1,063,000
|
|
Valuation allowance
|
|
|
(2,022,000
|
)
|
|
(1,063,000
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
$
|
|
|
At December 31, 2005, the Company has Federal net operating loss carryforwards of approximately $4,742,432. The Federal net operating loss carryforwards will begin to expire in 2023 unless utilized. Net operating loss carryforwards and available credits are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders.
Note 7. Other Balance Sheet Details
Available-For-Sale Cash Equivalents and Marketable Securities
Available-for-sale Marketable Securities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accrued
Interest
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 - Current Marketable Securities
|
|
|
2,400,000
|
|
|
19,897
|
|
|
|
|
|
17,810
|
|
|
2,402,087
|
|
Available-for sale marketable securities consist of certificates of deposits with various commercial banks throughout the country. The unrealized gains and losses on these securities were primarily caused by recent changes in market interest rates. Because the Company has the ability and intent to hold these securities until a recovery of fair value, which may be at maturity, the Company does not consider these securities to be other than temporarily impaired as of December 31, 2005.
The Company considers investments with a maturity date of more than three months from the date of purchase to be short-term investments and has classified these securities as available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included as accumulated other comprehensive income (loss) in stockholders equity. The cost of available-for-sale securities sold is determined based on the specific identification method.
As a result of changes in market interest rates on investment, the Company recognized unrealized losses of $17,810, $0, and $0 for the years ending
December 31, 2005, 2004, and 2003 respectively. These losses were charged directly against Stockholders Equity as Other Comprehensive Income in the period incurred. The Company intends on holding these securities to maturity and views these unrealized losses as temporary in nature.
F-18
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Equipment
Equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Laboratory Equipment
|
|
$
|
225,997
|
|
$
|
17,646
|
|
Computer Equipment
|
|
|
91,788
|
|
|
11,541
|
|
Furniture
|
|
|
40,158
|
|
|
|
|
|
|
|
357,943
|
|
|
29,187
|
|
Less accumulated depreciation
|
|
|
(47,080
|
)
|
|
(2,319
|
)
|
|
|
$
|
310,863
|
|
$
|
26,868
|
|
Note 8.
Commitments
The Company currently has operating lease commitments in place for facilities in Cleveland, Ohio and Chicago, Illinois as well as office equipment. The Company recognizes rent expense on a straight-line basis over the term of the related operating leases. The operating lease expenses recognized were $112,967 and $18,900 in 2005 and 2004, respectively.
Annual future minimum lease payments under present lease commitments are as follows as of December 31, 2005. These future minimum payments have not been adjusted to reflect an inflation adjustment included into the lease for the Cleveland facilities based on the Gross Domestic Product Price Deflator.
|
|
|
|
|
|
|
Operating
Leases
|
|
|
|
|
|
2006
|
|
$
|
131,353
|
|
2007
|
|
|
115,901
|
|
2008
|
|
|
39,982
|
|
2009 and Beyond
|
|
|
|
|
|
|
$
|
287,236
|
|
The Company has entered into nine stock option agreements with key employees and consultants with exercise prices ranging from $0.00 to $3.00. These awards were approved by the Board of Directors. Option grants beginning in 2005 vest ratably over periods ranging from zero to three years. The options expire ten years from the date of grant, subject to the terms applicable in the agreement. A list of the total stock options awarded and exercised appears below:
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
Outstanding at
December 31, 2003
|
|
|
|
|
N/A
|
Granted
|
|
|
|
|
N/A
|
Exercised
|
|
|
|
|
N/A
|
Forfeited
|
|
|
|
|
N/A
|
Outstanding at
December 31, 2004
|
|
|
|
|
N/A
|
Granted
|
|
383,840
|
|
$
|
0.69
|
Exercised
|
|
59,600
|
|
|
N/A
|
Forfeited
|
|
|
|
|
N/A
|
Outstanding at
December 31, 2005
|
|
324,240
|
|
$
|
0.82
|
F-19
CLEVELAND BIOLABS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The number of options and weighted average exercise price of options fully vested and exercisable for the years ending
December 31, 2005, 2004, and 2003 were 83,560, 0 and 0 options at $0.88, $0 and $0 respectively. A table showing the number of options outstanding and exercisable (fully vested) appears below:
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of
Options
|
|
Weighted Average
Years to
Expiration
|
|
Number of
Options
|
|
|
|
|
|
|
|
$0.66
|
|
190,000
|
|
9.50
|
|
47,500
|
0.67
|
|
104,240
|
|
9.50
|
|
26,060
|
2.00
|
|
20,000
|
|
9.92
|
|
5,000
|
3.00
|
|
10,000
|
|
9.17
|
|
5,000
|
Total
|
|
324,240
|
|
|
|
83,560
|
Note 9. Subsequent Events
On January 26, 2006 the Company issued the penalty shares in Note 4 along with one more thirty day 2% penalty. The total number of Series A preferred stock issued as a result of this penalty clause was 240,000 or $480,000. In addition, the penalty shares issued relative to common shares or common share equivalents were 54,060 common shares.
Commencing March 1, 2006, the Company has committed to a two year operating lease agreement for additional office and laboratory space adjacent to their current facilities in Cleveland, Ohio to accommodate the continued growth. The lease on this additional space is $27,366 per year.
Note 10. Commitments and Contingencies
The Company has entered into employment agreements with four key executives who if terminated by the Company without cause as described in these agreements, would be entitled to severance pay.
While no legal actions are currently pending, the Company may be party to certain claims brought against it arising from certain contractual matters. It is not possible to state the ultimate liability, if any, in these matters. In managements opinion, the ultimate resolution of any such claim will not have a material adverse effect on the financial position of the Company.
F-20
____________ Shares
CLEVELAND BIOLABS, INC.
Common Stock, $0.005 Par Value
|
|
|
|
|
|
|
|
|
PROSPECTUS
|
SUNRISE SECURITIES CORP.
|
ROTH CAPITAL PARTNERS
|
________, 2006
Until ______, 2006, all dealers that buy, sell, or trade the common stock, may be required to deliver a prospectus, regardless of whether they are participating in this offering. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, if any, payable by the Registrant relating to the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the Nasdaq Capital Market Listing Fee and the NASD Filing Fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
1,477
|
|
Nasdaq Capital Market Listing Fee
|
|
$
|
5,000
|
|
NASD Filing Fee
|
|
$
|
1,880
|
|
Blue Sky Expenses
|
|
$
|
|
|
Printing and engraving expenses
|
|
$
|
|
|
Legal fees and expenses
|
|
$
|
|
|
Accounting fees and expenses
|
|
$
|
|
|
Transfer agent and registrars fees and expenses
|
|
$
|
|
|
Miscellaneous expense
|
|
$
|
|
|
Total
|
|
$
|
|
|
INDEMNIFICATION
Section 102 of the General Corporation Law of the State of Delaware (the DGCL) allows a corporation to eliminate the personal liability of directors to a corporation or its stockholders for monetary damages for a breach of a fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit. As permitted by Section 102(b)(7) of the DGCL, CBLs Certificate of Incorporation contains a provision eliminating the personal liability of a director to CBL or its stockholders to the fullest extent permitted by the DGCL .
Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of a corporation under the same conditions against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense and settlement of such action or suit, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a present or former director or officer of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys fees) which he or she
actually and reasonably incurred in connection therewith. CBLs Certificate of Incorporation contains provisions that provide for indemnification of officers and directors and each person who is or was serving at the request of CBL as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise to the full extent permitted by the DGCL.
Section 174 of the DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered into the books containing the minutes of the
II-1
meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
CBL maintains, at its expense, a policy of insurance which insures its directors and officers, subject to exclusions and deductions as are usual in these kinds of insurance policies, against specified liabilities which may be incurred in those capacities.
The Underwriting Agreement, contained in Exhibit 1.1 hereto, contains provisions indemnifying our officers and directors against some types of liabilities.
RECENT SALES OF UNREGISTERED SECURITIES
Since our inception in June 2003, we have issued unregistered securities to the persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. All recipients had adequate access, though their relationships with us or through a disclosure document, to information about us.
In connection with our formation, we issued 4,410,400 shares of restricted common stock to
nine
of our officers, directors and stockholders. Of this amount, 149,000 shares of restricted common stock have been sold back to us. We also issued to the Cleveland Clinic 1,341,000 shares of common stock, and to ChemBridge Corporation 357,600 shares of restricted common stock along with warrants to purchase 264,624 shares of common stock.
On September 30, 2004, we issued warrants to purchase 29,800 shares of common stock to Sunrise Securities Corp. and its designees pursuant to an investment banking agreement.
We issued on March 15, 2005 and March 28, 2005, pursuant to the closing of the Series A Preferred Stock financing
, 3,000,000 shares of our Series A Preferred Stock to 29 different purchasers at a price of $2.00 per share, raising a total of $6
million, on
March 15, 2005 and
March 28, 2005, we also issued
308,000 shares of common stock to nine individuals and entities related to Sunrise Securities Corp.
and warrants to purchase 300,000 shares of common stock to 10 individuals and entities related to Sunrise Securities Corp. both for consideration for services rendered by Sunrise Securities Corp. as placement agent in the Series A Preferred Stock financing.
From
March 2005 to
December 2005,
we issued to 25
employees and third party consultants outstanding options to purchase
440,990
shares of common stock with a weighted average exercise price of
$1.33
per share.
We also issued in March 2005, pursuant to the conversion of $102,438 principal amount of outstanding promissory notes, 51,219 shares of Series A Preferred Stock to George Stark and Jonathan Andrew Stuart Harris
.
On August 1, 2005, payment of the first part of the accrued dividends on the Series A Preferred Stock
were made in the form of 69,201 shares of common stock to 31 holders of the Series A Preferred Stock
. On February 1, 2006, we issued 91,776 shares of common stock as accrued dividends on the Series A Preferred Stock to the same preferred stockholders
and will issue _______ shares of common stock as accrued dividends on the Series A Preferred Stock upon consummation of the offering to these stockholders
.
On
September 30, 2005, we issued 59,600 shares of common stock to David Filer upon the exercise of a fully invested stock opton.
On January 27, 2006, we issued 240,000 shares of Series A Preferred Stock to 29 holders of the Series A Preferred Stock
and 54,060 shares of common stock to 33 holders of our common and preferred stock
in connection with certain provisions of the Series A Rights Agreement dated as of March 15, 2005.
II-2
EXHIBITS
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
1.1*
|
|
Underwriting Agreement
|
3.1*
|
|
Certificate of Incorporation
|
3.2
|
|
By-laws
|
4.1
|
|
Form of Specimen Common Stock Certificate
|
4.2
|
|
Form of Warrants issued to designees of Sunrise Securities Corp., dated
March 2005
|
4.3*
|
|
Form of Warrants issued to underwriters
|
4.4
|
|
Warrant to Purchase Common Stock issued to ChemBridge Corporation, dated
April 27, 2004
|
5.1*
|
|
Opinion of Katten Muchin Rosenman LLP
|
10.1
|
|
Collaborative Research Agreement by and between The University of New South Wales and Cleveland BioLabs, Inc., dated as of
June 23, 2003
|
10.2
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein, dated as of July 5, 2003
|
10.3
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan, dated as of July 5, 2003
|
10.4
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov, dated as of July 5, 2003
|
10.5
|
|
Library Access Agreement by and between ChemBridge Corporation and Cleveland BioLabs, Inc., effective as of April 27, 2004
|
10.6
|
|
Restricted Stock and Investor Rights Agreement between Cleveland BioLabs, Inc. and ChemBridge Corporation, dated as of April 27, 2004
|
10.7
|
|
Common Stockholders Agreement by and among Cleveland BioLabs, Inc. and the stockholders named therein, dated as of July 1, 2004
|
10.8
|
|
Exclusive License Agreement by and between The Cleveland Clinic Foundation and Cleveland BioLabs, Inc., effective as of July 1, 2004
|
10.9
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael Fonstein, dated August 1, 2004
|
10.10
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan, dated
August 1, 2004
|
10.11
|
|
Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov, dated August 1, 2004
|
10.12*
|
|
Cooperative Research and Development Agreement by and between the Uniformed Services University of the Health Sciences, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation, and Cleveland BioLabs, Inc., dated as of
August 1, 2004
|
10.13
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Childrens Cancer Institute Australia for Medical Research, dated October 18, 2004
|
10.14
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Paul Haber & Michelle Haber ATF Haber Family Trust, dated November 23, 2004
|
10.15
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Haber Norris Pty Ltd ATF Haber Norris Superannuation Fund, dated November 23, 2004
|
10.16
|
|
Form of
Stock Purchase Agreement between Cleveland BioLabs, Inc. and the Purchasers party thereto, dated as of March 15, 2005
|
10.17
|
|
Form of
Series A Rights Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of March 15, 2005
|
10.18
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Elena Feinstein, dated June 1, 2005
|
10.19
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort, dated June 1, 2005
|
10.20
|
|
Amendment to Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort, dated September 30, 2005
|
10.21
|
|
Amendment to Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov, dated as of
January 23, 2006
|
10.22
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein, dated as of January 23, 2006
|
II-3
EXHIBITS
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
10.23
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan, dated as of January 23, 2006
|
10.24
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov, dated as of January 23, 2006
|
10.25
|
|
Amendment to Common Stockholders Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of January 26, 2006
|
10.26
|
|
Form of Amendment to Series A Rights Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of
February 17, 2006
|
10.27*
|
|
2006 Equity Incentive Plan
|
16.1
|
|
Letter on change in certifying accountant
|
23.1
|
|
Consent of Meaden & Moore, Ltd.
|
23.2*
|
|
Consent of Katten Muchin Rosenman LLP (included in Exhibit 5.1)
|
24.1 **
|
|
Power of Attorney
|
99.1
|
|
Consent of Director Nominee (Bernard L. Kasten)
|
99.2
|
|
Consent of Director Nominee (H. Daniel Perez)
|
99.3
|
|
Consent of Director Nominee (James Antal)
|
*
To be filed by amendment.
**
Previously filed.
II-4
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act of 1933, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h) under the Securities Act of 1933 as shall be deemed to be part of this registration statement as of the time the SEC declared it effective.
(2) For determining any liability under the Securities Act of 1933, treat each post-effective amendment that contains a form of prospectus as a new registration statement to the securities offered in the U.S., and the offering of the securities at that time as the initial bona fide offering of those securities.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the undersigned small business issuer for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Cleveland, Cuyahoga County, State of Ohio, on the
25th
day of
April,
2006.
|
|
|
|
CLEVELAND BIOLABS, INC.
|
|
|
|
By:
|
/s/ Michael Fonstein
|
|
|
Michael Fonstein
Chief Executive Officer and President
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities indicated below on
April 25, 2006.
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ Michael Fonstein
|
|
Chief Executive Officer,
President and Director
(Principal Executive Officer)
|
Michael Fonstein
|
|
|
|
|
/s/ John A. Marhofer Jr.
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
John A. Marhofer Jr.
|
|
|
|
|
*
|
|
Executive Vice President and Director
|
Yakov Kogan
|
|
|
|
|
*
|
|
Chief Scientific Officer and Director
|
Andrei Gudkov
|
|
|
|
|
*
|
|
Director
|
Paul DiCorleto
|
|
|
|
|
*By: /s/ Michael Fonstein
|
|
|
Michael Fonstein
Attorney-in-Fact and Agent
|
|
|
II-6
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
1.1*
|
|
Underwriting Agreement
|
3.1*
|
|
Certificate of Incorporation
|
3.2
|
|
By-laws
|
4.1
|
|
Form of Specimen Common Stock Certificate
|
4.2
|
|
Form of Warrants issued to designees of Sunrise Securities Corp., dated
March 2005
|
4.3*
|
|
Form of Warrants issued to underwriters
|
4.4
|
|
Warrant to Purchase Common Stock issued to ChemBridge Corporation, dated
April 27, 2004
|
5.1*
|
|
Opinion of Katten Muchin Rosenman LLP
|
10.1
|
|
Collaborative Research Agreement by and between The University of New South Wales and Cleveland BioLabs, Inc., dated as of
June 23, 2003
|
10.2
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein, dated as of
July 5, 2003
|
10.3
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan, dated as of
July 5, 2003
|
10.4
|
|
Restricted Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov, dated as of
July 5, 2003
|
10.5
|
|
Library Access Agreement by and between ChemBridge Corporation and Cleveland BioLabs, Inc., effective as of
April 27, 2004
|
10.6
|
|
Restricted Stock and Investor Rights Agreement between Cleveland BioLabs, Inc. and ChemBridge Corporation, dated as of
April 27, 2004
|
10.7
|
|
Common Stockholders Agreement by and among Cleveland BioLabs, Inc. and the stockholders named therein, dated as of
July 1, 2004
|
10.8
|
|
Exclusive License Agreement by and between The Cleveland Clinic Foundation and Cleveland BioLabs, Inc., effective as of
July 1, 2004
|
10.9
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael Fonstein, dated
August 1, 2004
|
10.10
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan, dated
August 1, 2004
|
10.11
|
|
Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov, dated
August 1, 2004
|
10.12*
|
|
Cooperative Research and Development Agreement by and between the Uniformed Services University of the Health Sciences, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation, and Cleveland BioLabs, Inc., dated as of
August 1, 2004
|
10.13
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Childrens Cancer Institute Australia for Medical Research, dated
October 18, 2004
|
10.14
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Paul Haber & Michelle Haber ATF Haber Family Trust, dated
November 23, 2004
|
10.15
|
|
Convertible Promissory Note of Cleveland BioLabs, Inc. to Haber Norris Pty Ltd ATF Haber Norris Superannuation Fund, dated
November 23, 2004
|
10.16
|
|
Form of Stock Purchase Agreement between Cleveland BioLabs, Inc. and the Purchasers party thereto, dated as of
March 15, 2005
|
10.17
|
|
Form of Series A Rights Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of
March 15, 2005
|
10.18
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Elena Feinstein, dated
June 1, 2005
|
10.19
|
|
Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort, dated
June 1, 2005
|
10.20
|
|
Amendment to Employment Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort, dated
September 30, 2005
|
10.21
|
|
Amendment to Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov, dated as of
January 23, 2006
|
10.22
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein, dated as of
January 23, 2006
|
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
10.23
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan, dated as of
January 23, 2006
|
10.24
|
|
Amendment to Restricted Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov, dated as of
January 23, 2006
|
10.25
|
|
Amendment to Common Stockholders Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of
January 26, 2006
|
10.26
|
|
Form of Amendment to Series A Rights Agreement by and among Cleveland BioLabs, Inc. and the parties thereto, dated as of
February 17, 2006
|
10.27*
|
|
2006 Equity Incentive Plan
|
16.1
|
|
Letter on change in certifying accountant
|
23.1
|
|
Consent of Meaden & Moore, Ltd.
|
23.2*
|
|
Consent of Katten Muchin Rosenman LLP (included in Exhibit 5.1)
|
24.1**
|
|
Power of Attorney
|
99.1
|
|
Consent of Director Nominee (Bernard L. Kasten)
|
99.2
|
|
Consent of Director Nominee (H. Daniel Perez)
|
99.3
|
|
Consent of Director Nominee (James Antal)
|
*
To be filed by amendment.
**
Previously filed.
NEITHER
THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933. AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY SUCH SECURITIES.
CLEVELAND
BIOLABS, INC.
WARRANT
|
Warrant
No. FW___
|
Date
of Original Issuance: ___________
|
|
|
Cleveland
BioLabs, Inc., a Delaware corporation (the “
Company
”),
hereby certifies that, for value received, _____________ or his, her, or its
registered assigns (the “
Holder
”),
is
entitled to purchase from the Company up to a total of __________ shares of
common stock, par value $0.005 per share (the “
Common
Stock
”),
of
the Company (each such share, a “
Warrant
Share
”
and
all
such shares, the “
Warrant
Shares
”)
at an
exercise price equal to $______ per share (as adjusted from time to time as
provided in Section 9, the “
Exercise
Price
”),
at
any time _____________ (the “
Expiration
Date
”),
and
subject to the following terms and conditions:
1.
Definitions
.
This
warrant (the “
Warrant
”)
is one
of a series of similar warrants issued pursuant to the Investment Banking
Agreement, between the Company and Sunrise Securities Corp., dated September
30,
2004, as the same may be amended, supplemented or restated (the “
Investment
Banking Agreement
”).
All
such warrants are collectively referred to herein as the “
Warrants
”.
Capitalized terms used and not otherwise defined herein have the meanings as
defined in the Investment Banking Agreement.
2.
Registration
of Warrant; Transfers
.
The
Company shall register this Warrant. upon records to be maintained by the
Company for that purpose (the “
Warrant
Register
”),
in
the name of the record Holder hereof from time to time. The Company may deem
and
treat the Holder of this Warrant as the absolute owner hereof for the purpose
of
any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary. To the extent provided for
therein, the Holder is entitled to the benefit of the Rights Agreement, dated
as
of ______________, by and among the Company and the other parties signatory
thereto (the “
Rights’
Agreement
”),
which
agreement provides, among other things, for registration rights relating to
the
Warrant Shares.
3.
Registration
of Transfers
.
The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the Company at its address
specified herein. Upon any such registration or transfer, a new Warrant to
purchase Common Stock, in substantially the form of this Warrant (any such
new
Warrant, a “
New
Warrant
”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.
4.
Exercise
and Duration of Warrants
.
(a)
This
Warrant shall be exercisable by the Holder at any time and from time to time
on
or after the date hereof to and including the Expiration Date.
(b)
A
Holder
may exercise this Warrant by delivering to the Company (i) an exercise notice,
in the form attached hereto (the “
Exercise
Notice
”),
and
(ii) payment of the Exercise Price for the number of Warrant Shares as to which
this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice), and the date such items are
delivered to the Company (as determined in accordance with the notice provisions
hereof) is the “
Date
of Exercise
.”
The
Company may not call or redeem all or any portion of this Warrant without the
prior written consent of the Holder.
5.
Delivery
of Warrant Shares
.
(a)
Upon
exercise of this Warrant, the Company shall promptly (but in no event later
than
three Trading Days after the Date of Exercise) issue and deliver to the Holder,
a certificate for the Warrant Shares issuable upon such exercise. As used
herein, “
Trading
Day
”
means
(i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if
the Common Stock is not listed on a Trading Market, a day on which the Common
Stock is traded in the over-the-counter market or is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is
not
listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall
mean
a Business Day; “
Trading
Market
”
means
whichever of the New York Stock Exchange. the American Stock Exchange, the
NASDAQ National Market, the NASDAQ SmallCap Market, the Over-The-Counter
Bulletin Board or the “Pink Sheets” published by the National Quotation Bureau
Incorporated Sheets on which the Common Stock is listed or quoted for trading
on
the date in question; and “
Business
Day
”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to close. The Company
shall, upon request of the Holder and subsequent to the date on which a
registration statement covering the resale of the Warrant Shares has been
declared effective by the Securities and Exchange Commission, use its
commercially reasonable efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided,
that,
the Company may. but will not be required to change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through
the
Depository Trust Corporation.
(b)
To
effect
exercises hereunder, the Holder shall be required to physically surrender this
Warrant or, in the event that this Warrant has been lost, mutilated or stolen,
an affidavit of loss in respect thereof in form and substance reasonably
satisfactory to the Company. Execution and delivery of the Exercise Notice
shall
have the same effect as cancellation of the original Warrant and issuance of
a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares. This Warrant is exercisable, either in its entirety or, from time to
time, for a portion of the number of Warrant Shares. Upon surrender of this
Warrant (or if applicable, an affidavit of loss) following one or more partial
exercises, the Company shall issue or cause to be issued, at its expense, a
New
Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
(c)
Intentionally
omitted.
6.
Charges,
Taxes and Expenses
.
Issuance and delivery of certificates for shares of Common Stock upon exercise
of this Warrant shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificates, all of which taxes
and
expenses shall be paid by the Company; provided, however, that the Company
shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder. The Holder shall be responsible for
all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.
7.
Replacement
of Warrant
.
If this
Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity (which shall not
include a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company
as
a condition precedent to the Company’s obligation to issue the New
Warrant.
8.
Reservation
of Warrant Shares
.
The
Company covenants that it will at all times reserve and keep available out
of
the aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which
are then issuable and deliverable upon the exercise of this entire Warrant,
free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (taking into account the adjustments and restrictions of Section
9). The Company covenants that all Warrant Shares so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, shall be duly and validly authorized, issued
and fully paid and nonassessable.
9.
Certain
Adjustments
.
The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section
9.
(a)
Stock
Dividends and Splits
.
If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class
of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clause
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an
adjustment under this Section 9(a) occurs during the period that an Exercise
Price is calculated hereunder, then the calculation of such Exercise Price
shall
be adjusted appropriately to reflect such event.
(b)
Fundamental
Transactions
.
If, at
any time while this Warrant is outstanding, (1) the Company effects any merger
or consolidation of the Company with or into another Person, (2) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (3) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (4) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “
Fundamental
Transaction
”),
then
the Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “
Alternate
Consideration
”).
For
purposes of any such exercise, the determination of the Exercise Price shall
be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new
warrant substantially in the form of this Warrant and consistent with the
foregoing provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 9(b) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
(c)
In
case
the Company shall issue shares of Common Stock or rights, options, warrants
or
other securities to subscribe for or purchase Common Stock, or securities
convertible or exercisable into or exchangeable for Common Stock (“
Common
Stock Equivalents
”)
(excluding shares, rights, options, warrants, or convertible or exchangeable
securities, issued or issuable (i) in any of the transactions with respect
to
which an adjustment of the Exercise Price is provided pursuant to Section 9(a)
or 9(b) above, (ii) upon exercise of the Warrants, or (iii) pursuant to stock
option plans, stock bonus plans. stock incentive plans, programs or agreements
providing for the grant of shares, options for shares or stock appreciation
rights to employees (including officers) (and directors), at a price per share
lower than the Base Price (as hereinafter defined) per share of Common Stock
in
effect immediately prior to such issuance, then the Exercise Price shall be
reduced on the date of such issuance to a price (calculated to the nearest
cent)
determined by multiplying the Exercise Price in effect immediately prior to
such
issuance by a fraction, (1) the numerator of which shall be an amount equal
to
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issuance plus (B) the quotient obtained by dividing the
consideration received by the Company upon such issuance by the Base Price,
and
(2) the denominator of which shall be the total number of shares of Common
Stock
outstanding immediately after such issuance. For the purposes of such
adjustments, the maximum number of shares which the holders of any such Common
Stock Equivalents, shall be entitled to subscribe for or purchase or convert
or
exchange such securities into shall be deemed to be issued and outstanding
as of
the date of such issuance (whether or not such Common Stock Equivalent is then
exercisable, convertible or exchangeable), and the consideration received by
the
Company therefor shall be deemed to be the consideration received by the Company
for such Common Stock Equivalents, plus the minimum aggregate consideration
or
premiums stated in such Common Stock Equivalents, to be paid for the shares
covered thereby. No further adjustment of the Exercise Price shall be made
as a
result of the actual issuance of shares of Common Stock on exercise of such
Common Stock Equivalents. In case the Company shall issue shares of Common
Stock
or any such Common Stock Equivalents, for a consideration consisting, in whole
or in part, of property other than cash or its equivalents, then the “price per
share” and the “consideration receive by the Company” for purposes of the first
sentence of this Section 9(c) shall be determined in good faith by the Board
of
Directors of the Company. Shares of Common Stock owned by or held for the
account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation. For the purposes of this
Agreement “
Base
Price
”
shall
mean $2.00 (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like).
(d)
Pro
Rata Distributions
.
If the
Company, at any time while this Warrant is outstanding, distributes to holders
of Common Stock (i) evidences of its indebtedness, (ii) any security (other
than
a distribution of Common Stock covered by Section 9(a)), (iii) rights or
warrants to subscribe for or purchase any security (other than Common Stock
Equivalents which are covered by Section 9(c)), or (iv) any other asset (in
each
case, “
Distributed
Property
”),
then
in each such case the Exercise Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution shall be adjusted (effective on such record date) to equal the
product of such Exercise Price times a fraction of which the denominator shall
be the average of the Closing Prices (as defined below) for the five Trading
Days immediately prior to (but not including) such record date and of which
the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company’s independent certified public accountants
that regularly examine the financial statements of the Company (an “
Appraiser
’).
In
such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment
to
the Exercise Price, at the request of the Holder delivered before the 90th
day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If a Holder
has
elected to receive Distributed Property and such Distributed Property is not
delivered to a Holder pursuant to the preceding sentence, then upon expiration
of or any exercise of the Warrant that occurs after such record date, such
Holder shall remain entitled to receive, in addition to the Warrant Shares
otherwise issuable upon such exercise (if applicable), such Distributed
Property. This Section 9(d) is only applicable if the Holder exercises the
Warrant concurrently with the distribution to the Holder of the Distributed
Property.
(e)
Number
of Warrant Shares
.
Simultaneously with any adjustment to the Exercise Price pursuant to Sections
9(a), 9(c) or 9(d), the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so
that after such adjustment the aggregate Exercise Price payable hereunder for
the adjusted number of Warrant Shares shall be the same as the aggregate
Exercise Price in effect immediately prior to such adjustment.
(f)
Calculations
.
All
calculations under this Section 9 shall be made to the nearest cent or the
nearest 1/100th of a share, as applicable. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g)
Notice
of Adjustments
.
Upon
the occurrence of each adjustment pursuant to this Section 9, the Company at
its
expense will promptly compute such adjustment in accordance with the terms
of
this Warrant and prepare a certificate setting forth such adjustment, including
a statement of the adjusted Exercise Price and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate
to
the Holder and to the Company’s Transfer Agent.
(h)
Notices
of Corporate Events
.
If the
Company (i) declares a dividend or any other distribution of cash, securities
or
other property in respect of its Common Stock, including without limitation
any
granting of rights or warrants to subscribe for or purchase any capital stock
of
the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes a repurchase of Common Stock or the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then
the
Company shall deliver to the Holder a notice describing the material terms
and
conditions of such transaction, at least 10 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction,
and
the Company will take all steps reasonably necessary in order to ensure that
the
Holder is given the practical opportunity to exercise this Warrant prior to
such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall
not
affect the validity of the corporate action required to be described in such
notice.
(i)
Successive
Adjustments and Changes
.
The
provisions of Section 9 shall similarly apply to successive dividends,
subdivisions, combinations, and distributions, to successive consolidations,
mergers, sales, leases, or conveyances, and to successive reclassifications,
changes of shares of Common Stock and issuances of Common Stock, warrants,
options or other rights to subscribe for or purchase Common Stock, or securities
convertible into Common Stock. If applicable, appropriate adjustment, as
determined in good faith by the Company’s Board of Directors, shall be made in
the application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions of Section 9 shall thereafter
be applicable, as nearly as possible, in relation to any shares or other
property thereafter deliverable upon exercise of this Warrant.
10.
Payment
of Exercise Price
.
The
Holder may pay the Exercise Price by delivery of immediately available funds
or,
if the Holder so elects, the Holder may satisfy its obligation to pay the
Exercise Price through a “cashless exercise,” in which event the Company shall
issue to the Holder the number of Warrant Shares determined as
follows:
|
X
=
Y*((A-B)/A)
|
where:
|
|
|
X
=
the number of Warrant Shares to be issued to the
Holder.
|
|
Y
=
the number of Warrant Shares with respect to which this Warrant is
being
exercised.
|
|
A
=
the Common Stock Market Price.
|
|
B
=
the Exercise Price.
|
|
|
The
Holder may satisfy its obligation to pay the Exercise Price through a “cashless
exercise” of the Warrant Shares (such portion of the Warrant Shares, the
“
Cashless
Exercise Warrant Shares
”).
If,
at any time there shall be an adjustment to the number of Warrant Shares
pursuant to Section 9 hereof, the number of Cashless Exercise Warrant Shares
shall be deemed automatically and proportionately adjusted to reflect such
change in the number of Warrant Shares.
As
used
herein, the term “
Common
Stock Market Price
”
means
the greater of: (i) the Closing Price of the Trading Day immediately preceding
(but not including) the Date of Exercise, (ii) the average of the Closing Prices
for the 10 Trading Days immediately preceding (but not including) the Date
of
Exercise, and (iii) if applicable, the average of the Closing Prices for the
90
Trading Days immediately following the date on which a Registration Statement
covering the resale of the Warrant Shares is declared effective (or, if the
Date
of Exercise is less than 90 Trading Days following such effective date, then
such shorter period). For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares issued
in a cashless exercise transaction shall be deemed to have been acquired by
the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Investment Banking Agreement. As used herein, the term “
Closing
Price
”
means,
for any date, the price determined by the first of the following clauses that
applies: (A) if the Common Stock is then listed or quoted on New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ
Small Cap Market or the OTC Bulletin Board or any successor to any of the
foregoing, the closing price per share of the Common Stock for such date (or
the
nearest preceding date) on the primary market or exchange on which the Common
Stock is then listed or quoted; (B) if prices for the Common Stock are then
reported in the “Pink Sheets” published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions
of
reporting prices), the most recent closing bid price per share of the Common
Stock so reported; or (C) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in good
faith
by the Investors and the Company.
11.
Limitations
on Exercise
.
(a)
Notwithstanding
anything to the contrary contained herein, at any time that any of the Company’s
equity securities are registered under Section 12 of the Securities Exchange
Act
of 1934, as amended (the “
Exchange
Act
”)
the
number of shares of Common Stock that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited
to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned
by
such Holder and its Affiliates and any other Persons whose beneficial ownership
of Common Stock would be aggregated with the Holder’s for purposes of Section
13(d) of the Exchange Act, does not exceed 4.999% (the “
5%
Maximum Percentage
”)
of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
The Company shall, instead of issuing shares of Common Stock in excess of the
limitation referred to in this Section 11(a), suspend its obligation to issue
shares in excess of the foregoing limitation until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation.
Additionally, by written notice to the Company, the Holder may waive the
provisions of this Section 11(a) or increase or decrease the 5% Maximum
Percentage to any other percentage specified in such notice; provided, that
(i)
any such waiver or increase or decrease will not be effective until the
61
st
day
after such notice is delivered to the Company, and (ii) any such waiver or
increase or decrease will apply only to the Holder and not to any other holder
of Warrants. As used herein, the term “
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144; and “
Person
”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
(b)
Notwithstanding
anything to the contrary contained herein and regardless of whether the
restrictions contained in Section 11(a) are waived as provided therein, the
number of shares of Common Stock that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited
to
the extent necessary to ensure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned
by
such Holder and its Affiliates and any other Persons whose beneficial ownership
of Common Stock would be aggregated with the Holder’s for purposes of Section
13(d) of the Exchange Act, does not exceed 9.999% (the “
10%
Maximum Percentage
”)
of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
The Company shall, instead of issuing shares of Common Stock in excess of the
limitation referred to in this Section 11(b), suspend its obligation to issue
shares in excess of the foregoing limitation until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation. The
provisions of this Section 11(b) may not be waived.
(c)
This
Section l1 shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event
of a
Fundamental Transaction as contemplated in Section 9(b) this Warrant or the
amount of Distributed Property to which the Holder may become entitled pursuant
to Section 9(d) of this Warrant. In addition, this provision shall not in any
way limit any other adjustment to be made pursuant to Section 9
hereof.
12.
No
Fractional Shares
.
If any
fraction of a Warrant Share would, except for the provisions of this Section,
be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.
13.
Notices
.
Any and
all notices or other communications or deliveries hereunder (including, without
limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice
or
communication is delivered via confirmed facsimile at the facsimile number
specified in this Section prior to 4:00 p.m. (New York City time) on a Trading
Day, (ii) the next Trading Day after the date of transmission, if such notice
or
communication is delivered via confirmed facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
4:00
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to
be
given. The addresses for such communications shall be: (i) if to the Company,
to
Cleveland BioLabs, Inc., 10265 Carnegie Avenue, Cleveland, Ohio, 44106,
Attention: Chief Executive Officer, or (ii) if to the Holder, to the address
or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.
14.
Warrant
Agent
.
The
Company shall serve as warrant agent under this Warrant. Upon 10 days’ notice to
the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent
shall be a party or any corporation to which the Company or any new warrant
agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor warrant agent under this Warrant without
any further act. Any such successor warrant agent shall promptly cause notice
of
its succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the holder’s last address as shown on the Warrant
Register.
15.
Miscellaneous
.
(a)
Subject
to the restrictions on transfer set forth on the first page hereof, this Warrant
may be assigned by the Holder upon delivery to the Company of a properly
completed notice of assignment substantially in the form attached hereto. This
Warrant may not be assigned by the Company except to a successor in the event
of
a Fundamental Transaction. This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Warrant shall be construed
to
give to any Person other than the Company and the Holder any legal or equitable
right, remedy or cause of action under this Warrant. This Warrant may be amended
only in writing signed by the Company and the Holder and their successors and
assigns.
(b)
All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated (“
Proceedings
”)
(whether brought against a party hereto or its respective Affiliates, employees
or agents) may be commenced non-exclusively in the state and federal courts
sitting in the City of New York. Borough of Manhattan (the “
New
York Courts
”).
Each
party hereto hereby irrevocably submits to the non-exclusive jurisdiction of
the
New York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any
claim
that it is not personally subject to the jurisdiction of any New York Court,
or
that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence
of
delivery) to such party at the address in effect for notices to it under this
Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. IF EITHER PARTY SHALL COMMENCE A PROCEEDING TO ENFORCE ANY PROVISIONS
OF
THIS WARRANT, THEN THE PREVAILING PARTY IN SUCH PROCEEDING SHALL BE REIMBURSED
BY THE OTHER PARTY FOR ITS ATTORNEY’S FEES AND OTHER COSTS AND EXPENSES INCURRED
WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH
PROCEEDING.
(c)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(d)
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e)
The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at
all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality
of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of
this
Warrant.
(f)
For
the
avoidance of doubt, the Warrant Shares issued or issuable upon exercise of
this
Warrant are the subject of registration and other rights pursuant to the terms
of the Rights Agreement.
{Remainder
of this page left intentionally blank. Signature page to
follow}
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its
authorized officer as of the date first indicated above.
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By:
|
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Michael
Fonstein, Chief Executive Officer
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CLEVELAND
BIOLABS, INC. -- EXERCISE NOTICE
Exercise
Notice for Warrant No: __________
The
undersigned hereby irrevocably elects to purchase ___________________ shares
of
Common Stock of Cleveland Biolabs, Inc. (the “
Company
”),
pursuant to the above captioned Warrant. Capitalized terms used herein and
not
otherwise defined herein shall have the meanings ascribed to such terms in
the
above captioned Warrant. The Holder intends that payment of the Exercise Price
shall be made as (check one):
_____
|
“Cash
Exercise” with respect to _____
of
shares
|
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_____
|
“Cashless
Exercise” with respect to _____
of
shares
|
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If
the
holder has elected a Cash Exercise, the holder shall pay the sum of $__________
to the Company in accordance with the terms of the Warrant.
Pursuant
to this exercise, the Company shall deliver to the holder ______________ Warrant
Shares in accordance with the terms of the Warrant. Following this exercise,
the
Warrant will reflect the right to purchase a total of __________________ Warrant
Shares, of which will be Cashless Exercise Warrant Shares.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
________________________________________________________
|
________________________________________________________
|
________________________________________________________
|
(Print
Name, Address and Social Security or Tax Identification
Number)
|
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and,
if
such number of Warrant Shares shall not be all the Warrant Shares covered by
the
within Warrant, that a new Warrant for the balance of the Warrant Shares covered
by within Warrant be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated:
_____________________
|
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By:
|
__________________________________________
|
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Print
Name
|
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_________________________________________________
|
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Signature
Address:
|
Address:
|
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________________________________________
|
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________________________________________
|
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________________________________________
|
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CLEVELAND
BIOLABS, INC.
FORM
OF ASSIGNMENT
[To
be
completed and signed only upon transfer of Warrant]
Warrant
No: ________
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
______________________________ the right represented by the above captioned
Warrant to purchase ______________ shares of Common Stock of Cleveland Biolabs,
Inc. to which such Warrant relates, including __________________ Cashless
Exercise Warrant Shares, and appoints ___________________ attorney to transfer
said right on the books of the Company with full power of substitution in the
premises.
Following
the above described transfer and assignment, the undersigned shall retain
pursuant to the above captioned Warrant the right to purchase _______________
shares of Common Stock of Cleveland Biolabs, Inc., including
_____________________ Cashless Exercise Warrant Shares.
Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to such terms in the above captioned Warrant.
Dated:
____________
,
______
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(Signature
must conform in all respects to name of holder as specified on the
face of
the Warrant)
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Address
of Transferee
|
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In
the presence of:
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THE
SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN EXEMPTION FROM SUCH
REGISTRATION UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
CLEVELAND
BIOLABS, INC.
Warrant
To Purchase Common Stock
Warrant
No.:
Number
of Shares: 444
Date
of
Issuance: April 27,2004 (“
Issuance
Date
”)
Cleveland
BioLabs, Inc., a Delaware corporation (the “
Company
”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ChemBridge Corp., the registered
holder hereof or its permitted assigns, is entitled, subject to the terms set
forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including all Warrants to Purchase Common Stock issued in exchange, transfer
or
replacement hereof, the “
Warrant
”),
at
any time or times on or after the date hereof, but not after 11:59 P.M. Central
Time on the Expiration Date (as defined below), four hundred forty-four (444)
fully paid nonassessable shares of Common Stock (as defined below) (the
“
Warrant
Shares
”).
Except as otherwise defined herein, capitalized terms in this Warrant shall
have
the meanings set forth in Section 10.
1.
EXERCISE
OF WARRANT
.
(a)
Mechanics
of Exercise
.
Subject
to the terms and conditions hereof, this Warrant may be exercised by the holder
hereof on any day, in whole or in part, by (i) delivery of a written notice,
in
the form attached hereto as
Exhibit
A
(the
“
Exercise
Notice
”),
of
such holder’s election to exercise this Warrant, (ii) payment to the Company of
an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “
Aggregate
Exercise Price
”)
in
cash or wire transfer of immediately available funds and (iii) the surrender
to
the Company, as soon as practicable following the date the holder of this
Warrant delivers the Exercise Notice to the Company, of this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction). As soon as reasonably practicable following the
date on which the Company has received each of the Exercise Notice, the
Aggregate Exercise Price and this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction)
(the
“
Exercise
Delivery Documents
”),
the
Company shall issue and deliver to the address as specified in the Exercise
Notice, a certificate, registered in the name of the holder of this Warrant
or
its designee, for the number of shares of Common Stock to which the holder
of
this Warrant is entitled pursuant to such exercise. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above,
the holder of this Warrant shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of this Warrant
as required by clause (iii) above or the certificates evidencing such Warrant
Shares. If the number of Warrant Shares represented by this Warrant submitted
for exercise pursuant to this Section l(a) is greater than the number of Warrant
Shares being acquired upon an exercise, then the Company shall as soon as
reasonably practicable after any exercise, issue a new Warrant representing
the
right to purchase the number of Warrant Shares purchasable immediately prior
to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional shares of Common Stock are
to
be issued upon the exercise of this Warrant, but rather the number of shares
of
Common Stock to be issued shall be rounded up or down to the nearest whole
number.
(b)
Exercise
Price
.
For
purposes of this Warrant, “
Exercise
Price
”
means
$675.67, subject to adjustment as provided herein.
(c)
Disputes
.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 8.
2.
ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
.
(a)
If
the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision
will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of issuance
of this Warrant combines (by combination, reverse stock split or otherwise)
one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination
will be proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 2 shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(b)
If
the
total number of issued shares in the Company shall exceed 10,000 at any time
prior to the Company’s receiving from ChemBridge all the Library compounds
contemplated in Section 2 of the attached Library Access Agreement, then the
number of Warrant Shares in the Warrant awarded under this Agreement shall
be
increased accordingly and the Exercise Price decreased accordingly. (For
instance, if the Company has issued a total of 20,000 shares any time prior
to
the Company’s receiving from ChemBridge all the Library compounds contemplated
in Section 2 of the attached Library Access Agreement, then the Warrant awarded
to ChemBridge hereunder would be for 888 Warrant Shares, rather than 444 Warrant
Shares, and the Exercise Price would be $337.84, rather than
$675.67.)
(c)
If
the
Company, at any time prior to the Company’s receiving from ChemBridge all the
Library compounds contemplated in Section 2 of the attached Library Access
Agreement, shall raise equity capital at a pre-money valuation of the Company
of
less than $10,000,000, then the number of Warrant Shares in the Warrant awarded
under this Agreement shall be increased by 1.0% for each 2.0% of decreased
pre-money valuation and the Exercise Price decreased accordingly. [For instance,
if the equity capital is raised at a pre-money valuation of $7,500,000 (a
decrease of 25.0%), then the Warrant awarded to ChemBridge hereunder would
be
for 499.5 Warrant Shares, rather than 444 Warrant Shares (an increase of 12.5%),
and the Exercise Price would be $591.21, rather than $675.67 (a decrease of
12.5%).]
3.
WARRANT
HOLDER NOT DEEMED A STOCKHOLDER
.
Except
as otherwise specifically provided herein, no holder, solely in such Person’s
capacity as a holder, of this Warrant shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose,
nor
shall anything contained in this Warrant be construed to confer upon the holder
hereof, solely in such Person’s capacity as a holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which such Person is then entitled to receive upon the due exercise
of
this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 3, the Company will provide the holder
of
this Warrant with copies of the same notices and other information given to
the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
4.
NOTICES
.
Any
notice provided for in this Warrant must be in writing and must be either
personally delivered, mailed by first class mail (postage prepaid and return
receipt requested), sent by reputable overnight courier service (charges
prepaid), or sent via facsimile to the recipient at the address or facsimile
number below indicated:
If
to
the Company
:
Cleveland
BioLabs, Inc.
7800
Blackberry Lane
Gates
Mills, Ohio 44040
Fax:
216-636-3425
Attn:
Michael Fonstein
With
a
copy to
:
Katten
Muchin Zavis Rosenman
525
West
Monroe Street
Suite
1600
Chicago,
Illinois 60661
Fax:
(312) 902-1061
Tel:
(3
12) 902-6200
Attn:
Kurt W. Florian, Esq.
If
to
the Holder
:
ChemBridge
Corporation
16981
Via
Tazon
San
Diego, CA 92127
Attn:
Mr.
Sergey Altshteyn
or
such
other address, facsimile number or to the attention of such other person as
the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this warrant will be deemed to have been given when
so
delivered, sent or transmitted or, if mailed, five days after deposit in the
U.S. mail.
5.
AMENDMENT
AND WAIVER
.
Except
as otherwise provided herein, the provisions of this Warrant may be amended
and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
written consent of the holder.
6.
GOVERNING
LAW; JURISDICTION; VENUE
.
This
Warrant shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Warrant shall be governed by, the internal laws of the state of Delaware,
without giving effect to any choice of law or conflict of law provision or
rule
(whether of the state of Delaware or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the state of
Delaware.
7.
CONSTRUCTION; HEADINGS
.
This
Warrant shall be deemed to be jointly drafted by the Company and the holder
and
shall not be construed against any person as the drafter hereof. The headings
of
this Warrant are for convenience of reference and shall not form part of, or
affect the interpretation of, this Warrant.
8.
DISPUTE
RESOLUTION
.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within five
business days of receipt of the Exercise Notice giving rise to such dispute,
as
the case may be, to the holder of this Warrant. If the holder of this Warrant
and the Company are unable to agree upon such determination or calculation
of
the Exercise Price or the Warrant Shares within one business day of such
disputed determination or arithmetic calculation being submitted to the holder,
then the Company shall, within five business days submit via facsimile (a)
the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the holder of this
Warrant or (b) the disputed arithmetic calculation of the Warrant Shares to
the
Company’s independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than five business days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
9.
TRANSFER
.
This
Warrant may not be offered for sale, sold, transferred or assigned without
the
prior written consent of the Company, which consent shall not be unreasonably
withheld; provided that, any transferee must agree to be bound by the terms
of
the Cleveland BioLabs Common Stockholder’s Agreement as a “Stockholder” and
holder of “Shares” thereunder, by executing an Instrument of Accession attached
as Exhibit B thereto. Any transfer will be made in accordance with applicable
securities laws.
10.
CERTAIN
DEFINITIONS
.
For
purposes of this Warrant, the following terms shall have the following meanings:
(a)
“
Common
Stock
”
means
(i)the Company’s common stock, par value $0.005 per share, and (ii) any capital
stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.
(b)
“
Expiration
Date
”
means
the date six years after the Issuance Date or, if such date falls on a day
other
than a business day, the next date business day.
(c)
“
Person
”
means
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated association, limited liability company, corporation, entity
or
government (whether Federal, state, county, city or otherwise, including,
without limitation, any instrumentality, division, agency or department
thereof).
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
Company has caused this Warrant to purchase common stock to be duly executed
as
of the Issuance Date set out above.
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
Name:
Michael Fonstein
|
|
Title:
CEO
|
AGREED
AND ACCEPTED:
[HOLDER]
By:
/s/
Eugene Vaisberg
|
|
|
Name:
Eugene Vaisberg
|
|
|
Title:
CEO
|
|
|
EXHIBIT
A
EXERCISE
NOTICE
TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT
TO PURCHASE COMMON STOCK
Cleveland
BioLabs, Inc.
The
undersigned holder hereby exercises the right to purchase of the shares of
Common Stock (“
Warrant
Shares
”)
of
Cleveland BioLabs, Inc., a Delaware corporation (the “
Company
”),
evidenced by the attached warrant to purchase common stock (the “
Warrant
”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1.
Payment
of Exercise Price. The holder shall pay the Aggregate Exercise Price in the
sum
of $
to the
Company in accordance with the terms of the Warrant.
2.
Delivery
of Warrant Shares. The Company shall deliver to the holder Warrant Shares in
accordance with the terms of the Warrant.
Date:
Name of Registered Holder
|
|
|
|
|
|
By:_____________
|
|
|
Name:
|
|
|
Title:
|
|
|
EXHIBIT
B
INSTRUMENT
OF ACCESSION
The
undersigned,
,
in
connection with its acquisition of shares of capital stock of Cleveland BioLabs,
Inc. (the “
Company
”),
hereby agrees to become a party to and a Stockholder under that certain
Stockholders Agreement, dated as of April __, 2004 (the “
Stockholders
Agreement
”),
and,
effective as of the date hereof, shall be entitled to all of the rights and
benefits, and subject to all of the obligations, of a Stockholder under the
Stockholders Agreement. All of the securities of the Company owned, from time
to
time, by the undersigned, shall be subject to the restrictions on transfer
set
forth in the Stockholders Agreement.
This
Instrument of Accession shall take effect and shall become a part of said
Stockholders Agreement upon its execution and its delivery to the Company by
the
undersigned.
Executed
as of the date set forth below under the laws of the State of
Delaware.
|
|
Signature:
____________________________
|
|
|
|
Date:
____________________________
|
|
Address:
____________________________
|
|
|
____________________________
|
Received and accepted:
|
|
____________________________
|
Cleveland BioLabs, Inc.
|
|
|
|
|
|
By:
____________________________
|
|
|
Date:
____________________________
|
|
|
:
AUSTRALIAN
RESEARCH COUNCIL
LINKAGE
GRANT
COLLABORATIVE
RESEARCH AGREEMENT
THIS
AGREEMENT
is made
on 23 June 2003
PARTIES
THE
UNIVERSITY OF NEW SOUTH WALES
,
a body
corporate established pursuant to the
University
of New South Wales Act 1989
(NSW) of
SYDNEY NSW 2052 (
UNSW
)
CLEVELAND
BIOLABS
,
7800
Blackberry Lane, Gates Mills, OH 44040, USA
(Collaborator)
RECITALS
A.
|
Following
the submission of the Application, the Australian Research Council
(ARC)
has awarded a grant
(ARC
Grant)
to
UNSW to conduct the Project.
|
B.
|
The
Collaborator has also agreed to make certain contributions to UNSW
in
connection with the Project. UNSW and the Collaborator have agreed
to
enter into this agreement to provide for the terms relating to those
contributions.
|
AGREEMENTS
1.
|
Definitions
and interpretation
|
Application
means
the application LP0347836 submitted by UNSW to the ARC to conduct the Project
approved on or about 2 October 2002, a copy of which is attached as
Annexure
1
to this
agreement;
ARC
Grant
means
the ARC contribution of the ARC Grant funds as described in the
schedule;
Commercialize
,
in
relation to Project Intellectual Property Rights, means to manufacture, sell,
hire or otherwise exploit a product or process, or to provide a service,
incorporating the Project Material, or to license Project Intellectual Property
Rights to any third party to do any of those things;
Confidential
Information
means
any information belonging to a party whether arising from the Project or
acquired in confidence by one party from the other and includes all technical,
proprietary and operational information, drawings, techniques, processes,
know-how, methods of working, data and specifications, trade secrets and other
commercially valuable information of any kind but does not include information
which:
|
(a)
|
at
the time of disclosure is already in the public
domain;
|
|
(b)
|
becomes
available to the public by any means other than breach of this agreement
by the receiving party;
|
|
(c)
|
is
received by a party from an independent third party who is lawfully
in
possession and has the power and authority to disclose the information;
or
|
|
(d)
|
is
required to be disclosed by law;
|
Intellectual
Property Rights
means
all intellectual and industrial property rights throughout the world including
rights in respect of:
|
(e)
|
copyright
(including future copyright) and rights in the nature of, or analogous
to,
copyright (for example, neighboring
rights);
|
|
(a)
|
trade
marks and service marks;
|
|
(c)
|
inventions
(including patents);
|
|
(e)
|
any
confidential information (including trade secrets and know-how);
and
|
whether
or not now existing, registered or registrable, and includes:
|
(g)
|
any
right to apply for the registration;
and
|
|
(h)
|
all
renewals, extensions and revivals,
|
of
such
rights;
Project
means
the project described in the schedule;
Project
Intellectual Property Rights
means
the Intellectual Property Rights in the Project Material;
Project
Material
means
all material including but not limited to:
(a)
documents,
computer software, equipment and data stored by any means; and
|
(b)
|
all
material and subject matter in which the rights referred to in paragraphs
(a) to (g) of the definition of “Intellectual Property Rights” in this
clause subsist,
|
which
is
created or developed for the sole purpose of undertaking the
Project;
Terms
of Grant
means
the Funding Contract between the Commonwealth as represented by the ARC and
the
University of New South Nales regarding funding for Linkage — Projects to
commence in 2003 which is attached as
Annexure
2
to this
agreement.
1.2
|
Unless
that context otherwise requires:
|
|
(a)
|
a
word which denotes the singular denotes the plural and vice
versa;
|
|
(b)
|
where
a word or phrase is given a particular meaning, other parts of speech
and
grammatical forms of that word or phrase have corresponding
meanings;
|
|
(c)
|
a
reference to any legislation includes that legislation as amended,
re-enacted, consolidated or
substituted;
|
|
(d)
|
a
reference to a person includes a partnership and a body whether corporate
or otherwise;
|
|
(e)
|
payments
under this agreement are to be made in Australian dollars
and
|
|
(f)
|
a
reference to a thing or amount is a reference to the whole and each
part
of it.
|
2.1
|
The
parties acknowledge and agree that this agreement is governed by
and is
subject to the conditions of the Terms of
Grant.
|
2.2
|
In
the event of any inconsistency between this agreement and the conditions
of the Terms of Grant, the conditions of the Terms of Grant
prevail.
|
2.3
|
The
commencement of this agreement is subject to the approval of the
ARC to
the change of Collaborator.
|
3.
|
Contribution
from the Collaborator
|
3.1
|
During
the term of this agreement, the Collaborator agrees to make the cash
and
in-kind contributions set out in the
schedule.
|
3.2
|
The
cash contribution for each calendar year referred to in the schedule
must
be paid by the Collaborator to UNSW within 30 days following receipt
of an
invoice from UNSW.
|
4.
|
Role
of the Collaborator and
UNSW
|
Each
party will perform the obligations as those obligations are described in the
Application.
5.
|
Goods
and services tax
|
GST
,
GST
law
and
other terms defined in GST law have the meaning given to those terms in
A
New
Tax System (Goods and Services Tax) Act 1999
;
GST
Amount
in the
case of any taxable supply means an amount equal to 10% of the Value of that
supply or such other amount of GST payable on that supply under GST law from
time to time; and
Value
means
the GST exclusive amount payable under this agreement.
5.2
|
Notwithstanding
any other provision of this agreement, the amount to be paid for
any
taxable supply under this agreement, whether expressed as an amount
of
money or otherwise, is exclusive of
GST.
|
5.3
|
To
the extent any supply:
|
|
(a)
|
made,
or to be made, under; or
|
this
agreement by UNSW constitutes a taxable supply, the Collaborator must pay the
GST Amount to UNSW no later than 30 days following notice from UNSW requesting
that payment.
5.4
|
Any
amount paid or payable under this agreement on account of GST must
be
calculated and paid without any deduction or set-off of any other
amount
payable under this agreement.
|
6.
|
Confidential
Information
|
6.1
|
Each
party acknowledges that all Confidential Information disclosed by
one
party to the other, whether existing before the commencement of this
agreement, or created during the term of this agreement, is confidential
and, subject to clause 8, will be kept confidential and will not
be
disclosed to any third party without the prior written consent of
the
disclosing party, such consent not to be unreasonably
withheld.
|
6.2
|
On
the expiration or termination of this agreement each party must return
to
the other party all copies of the Confidential Information submitted
by
the disclosing party to the other
party.
|
6.3
|
Each
party assumes responsibility for the actions of its employees, agents
and
consultants who have access to the Confidential Information from
time to
time and will ensure that they are aware of and strictly bound by
the
obligations created under this
agreement.
|
7.1
|
The
ownership of Intellectual Property Rights which exist before the
commencement of the Project (“Pre-existing Intellectual Property Rights”)
is not altered, transferred or assigned merely by virtue of its use
by a
party in the Project.
|
7.2
|
The
title to, and Intellectual Property Rights in, the Project Material
are,
on its creation, equally co-owned by UNSW and the Collaborator as
tenants
in common.
|
7.3
|
Each
party grants to the other party a royalty-free, non-transferable,
non-exclusive license to use Pre-existing Intellectual Property Rights
owned by the first mentioned party, and which are directly relevant
to the
conduct of the Project, for the sole purpose of carrying out the
Project.
The license commences on the commencement of this agreement and terminates
on:
|
|
(a)
|
the
completion of the Project; or
|
|
(b)
|
the
termination or expiration of this agreement as determined in accordance
with clause 12,
|
whichever
first occurs.
7.4
|
Each
party grants to the other a royalty-free, free of cost, perpetual,
non-exclusive license to use Project Intellectual Property Rights
for the
purpose of undertaking the Project and for its own internal,
non-commercial purposes.
|
7.5
|
Should
a party wish to Commercialise Project Intellectual Property Rights
the
parties agree to negotiate a licensing arrangement on reasonable
commercial terms which acknowledge each party’s contribution to
the:
|
|
(a)
|
creation
of the Project Material, including financial contributions, unreimbursed
in-kind contributions of Pre-existing Intellectual Property Rights,
expertise, materials, equipment, infrastructure and labor to the
Project;
and
|
|
(b)
|
costs
directly incurred in relation to the creation and maintenance of
the
Project Intellectual Property
Rights.
|
Each
party is entitled to publish the results of the Project provided they obtain
the
prior written consent of the other party, such consent not to be unreasonably
withheld. Consent to publish is not required 12 months following completion
of
the Project provided no confidential information owned by the non-publishing
party is disclosed. The publishing party must provide the non-publishing party
with a copy of any proposed publication at least 2 months before publication.
Consent to publish will be deemed to have been given if the non-publishing
party
does not respond by the date of intended publication.
Each
party must ensure that all independent contractors and consultants engaged
in
the Project execute, before commencing work:
|
(a)
|
an
assignment to the parties of all Project Intellectual Property Rights
pursuant to clause 7.2; and
|
|
(b)
|
a
confidentiality agreement with respect to Project under which the
independent contractor or consultant agrees
to:
|
|
(i)
|
keep
all information in relation to the Project confidential and not to
disclose it to any other party; and
|
|
(ii)
|
only
use that information for the sole purpose of carrying out work on
the
Project.
|
10.1
|
Each
party (“Indemnifier”) indemnifies the other party and its officers,
employees, agents and contractors (“those Indemnified”) from and against
all liability, damages, costs, claims and actions howsoever arising
(“Loss”) that those Indemnified may suffer, incur or sustain as a result
of any willful or negligent act or omission by the Indemnifier or
any of
its officers, employees, agents or
contractors.
|
10.2
|
An
Indemnifier’s liability to any of those Indemnified under clause 10.1 will
be reduced proportionally to the extent that any willful or negligent
act
or omission by those Indemnified caused or contributed to the
Loss.
|
11.1
|
Any
dispute between the parties arising out of this agreement must first
be
referred for resolution to the general manager or vice-chancellor
(or
equivalent) of each party.
|
11.2
|
If
the dispute remains unresolved for a period of 60 days after the
referral
referred to in clause 11.1, it may be submitted to some alternative
dispute resolution mechanism as may be agreed in writing between
the
parties.
|
12.
|
Term,
termination and expiration
|
12.1
|
The
Project commences on the date of this agreement and continues for
a period
of three years or until such date as may be determined by the ARC
(the
“Term”).
|
12.2
|
UNSW
may terminate this agreement immediately by notice to the Collaborator
if
the Collaborator:
|
|
(a)
|
commits
a breach of any term of this agreement and, if the breach is capable
of
remedy, fails to remedy the breach within 7 days after being required
to
do so in writing by UNSW; or
|
|
(b)
|
goes
into liquidation, has a receiver or receiver and manager appointed
to it
or any part of its assets, enters into a scheme of arrangement with
creditors or suffers any other form of external
administration.
|
12.3
|
On
termination of this agreement, the Collaborator must pay to UNSW
all costs
incurred by UNSW in relation to the Project at the date of termination
and
any reasonable additional costs in connection with the Project necessarily
incurred by UNSW as a result of the termination provided that the
total
amount payable to UNSW shall not exceed the unpaid balance of the
total
cash contribution payable under this agreement by the
Collaborator.
|
12.4
|
Clauses
6, 7 and 8 survive the expiration or termination of this
agreement.
|
This
agreement may only be varied by the written agreement of the
parties.
14.
|
Governing
law and jurisdiction
|
14.1
|
This
agreement is governed by and must be construed in accordance with
the laws
of New South Wales.
|
|
(a)
|
irrevocably
and unconditionally submits to the non-exclusive jurisdiction of
the
courts of New South Wales and all courts which have jurisdiction
to hear
appeals from them; and
|
|
(b)
|
waives
any right to object to proceedings being brought in those courts
for any
reason.
|
No
waiver
of any breach of this agreement will be:
|
(a)
|
binding
on a party unless it is in writing and executed by that party;
or
|
|
(b)
|
deemed
to be a waiver by that party of any other or subsequent breach of
the same
term.
|
16.1
|
A
notice under this agreement must be in writing and
is:
|
|
(a)
|
given
if delivered personally or sent by fax or prepaid registered mail
to the
recipient at the address of the recipient specified in this agreement
or
at such other address as may from time to time be notified in writing
by
the recipient to the party giving the notice;
and
|
|
(b)
|
deemed
to have been given:
|
|
(i)
|
if
delivered personally, on the date of
delivery:
|
|
(ii)
|
if
sent by pre-paid mail, 3 days after posting;
and
|
|
(iii)
|
if
sent by fax, on production of a transmission report by the machine
from
which the fax was sent which indicates that the fax was sent in its
entirety to the fax number of the
recipient.
|
16.2
|
Notices
under this agreement are to be sent
to:
|
(a)
|
For
UNSW:
|
James
Walsh
Director
Research
Office
The
University of New South Wales
SYDNEY
NSW 2052
Telephone:
+ 61 2 9385 7239
Facsimile:
+ 61 2 9385 7238
Email:
j.walsh@unsw.edu.au
|
|
|
|
(b)
|
For Cleveland
BioLabs,
Inc:
|
Michael
Fonstein, CEO
Cleveland
BioLabs, Inc.
7800
Blackberry Lane, Gates Mills, OH 44040
Telephone:
773-517-0789
Fax:
(440) 423-0389
Email:
fon@cbiolabs.com
|
A
party
must not assign its rights or obligations under this agreement without the
prior
written consent of the other party.
Subject
to clause 2.1, this agreement constitutes the entire agreement between the
parties in relation to its subject matter and supersedes any previous agreement
of the parties, or any other communication or representation made, in relation
to its subject matter.
Any
provision of this agreement which is held to be void, illegal or unenforceable
will be severed without affecting the other provisions of this
agreement.
SCHEDULE
Project
investigators:
|
Associate
Professor MD Norris
Professor
M Haber
Professor
AV Gudkov
|
|
|
Project
title:
|
Specific
gene inhibition through functional genomics and high through-put
small
molecule screening.
|
|
|
Project
summary:
|
This
project will utilize functional genomic technologies in an attempt
to
identify genes in childhood neuroblastoma as potential candidates
for the
future development of molecular-targeted gene therapy. By screening
large
libraries of chemical compounds, we aim to identify compounds with
the
ability to specifically inhibit these gene targets. This project
will
therefore define novel molecular targets and possibly facilitate
the
future development of new therapeutic approaches to treating
neuroblastoma. In addition, the project will develop know-how that
can be
utilized by both the industry partner and the broader research community
and will introduce to Australian science novel techniques and
skills.
|
|
|
ARC
Grant number:
|
LP0347836
|
|
|
ARC
Grant funds:
|
2003
$64,796
2004
$68,432
(indicative)
2005
$69,800
(indicative)
|
|
|
Cash
contribution by the Collaborator
|
2003
$24,000
2004
$38,925
2005
$33,300
|
|
|
In-kind
contribution by the Collaborator
|
2003
$74,300
2004
$46,520
2005
$65,047
|
EXECUTED
as an
agreement.
SIGNED
for and
on behalf of
THE
UNIVERSITY OF NEW SOUTH WALES
by:
/s/
James
Walsh
Signature
of authorized person
Office Held:
|
Director
Research
Office
The
University of New South Wales
UNSW SYDNEY NSW 2052
|
|
James
Walsh
Print
name of authorized person
SIGNED
for
and
on behalf of
CLEVELAND
BIOLABS
by:
/s/
Michael
Fonstein
Signature
of authorized person
CEO
Office
held
Michael
Fonstein
Print
name of authorized person
RESTRICTED
STOCK AGREEMENT
THIS
RESTRICTED STOCK AGREEMENT
(this
“
Agreement
”)
is
made as of July 5, 2003, between Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Michael Fonstein (“
Executive
”).
The
Executive has subscribed for and the Company has accepted a subscription
agreement pursuant to which Executive has committed to purchase, and the Company
has committed to sell, 2,200 shares of the Company’s Common Stock, par value
$0.005 per share (the “
Common
Stock
”).
All
of such shares of Common Stock are referred to herein as “
Executive
Shares
.”
Certain definitions are set forth in
Section
6
of this
Agreement.
As
an
inducement for the Company to issue and sell the Executive Shares to Executive,
the Company is requiring Executive to enter into this Agreement.
The
parties hereto agree as follows:
1.
Executive
Shares
.
(a)
Upon
execution of this Agreement, Executive will purchase, and the Company will
sell,
2,200 shares of Common Stock at a price of $0.005 per share. The Company will
deliver to Executive the certificates representing such Executive Shares, and
Executive will deliver to the Company cash or a check in the aggregate amount
of
$11.00.
(b)
Within
thirty (30) days after the purchase by Executive of Executive Shares pursuant
to
this Agreement, Executive will make an effective election with the Internal
Revenue Service under
Section
83(b)
of the
Internal Revenue Code and the regulations promulgated thereunder in the form
of
Annex
A
attached
hereto.
(c)
In
connection with the purchase and sale of the Executive Shares pursuant hereto,
Executive represents and warrants to the Company that:
(i)
Executive
is an employee, officer or director of the Company, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Executive Shares;
(ii)
This
Agreement and each of the other agreements contemplated hereby to which
Executive is a party constitute legal, valid and binding obligations of
Executive, enforceable in accordance with their terms, and the execution,
delivery and performance of this Agreement and such other agreements by
Executive does not and will not conflict with, violate or cause a breach of
any
agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject; and
(iii)
Executive
is not a party to or bound by any other employment agreement, noncompete
agreement or confidentiality agreement which conflicts with the obligations
set
forth in this Agreement.
(d)
As
an
inducement for the Company to commit to issue the Executive Shares to Executive,
and as a condition thereto, Executive acknowledges and agrees that neither
any
future issuance of capital stock of the Company to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company, or affect the right of the Company to terminate Executive’s employment
at any time for any reason, subject to the terms and conditions of any
employment agreement.
2.
Vesting
of Shares
.
(a)
Except
as
otherwise provided in
Section
2(b)
below,
the Executive Shares purchased hereunder will become vested (determined as
nearly as practicable to the nearest share) in accordance with the following
schedule, if as of each such date Executive is still employed by the
Company:
Date
|
Cumulative
Percentage of
Executive
Shares to be Vested
|
1
st
Anniversary of this Agreement
|
33
1/3%
|
2
nd
Anniversary of this Agreement
|
66
2/3%
|
3
rd
Anniversary of this Agreement
|
100%
|
(b)
If
Executive ceases to be employed by the Company on any date other than any
anniversary date prior to the third anniversary of this Agreement, the
cumulative percentage of Executive Shares to become vested will be determined
on
a pro rata basis according to the number of days elapsed from the prior
anniversary date to the date of termination (but including in such calculation
all unused vacation and personal days as if the Executive had worked such days);
provided
,
however
,
that no
Executive Shares shall become vested until the first anniversary of this
Agreement. Notwithstanding the foregoing or anything herein to the contrary,
upon the occurrence of a Sale of the Company, all Executive Shares which have
not yet become vested shall become vested at the time of such Sale of the
Company (such portion being referred to herein as the “
Accelerated
Shares
”);
provided
,
however
,
that
the Accelerated Shares shall at all times be subject to any restrictions or
limitations with respect to the Transfer thereof contained herein or as
otherwise provided by law. Executive Shares which have become vested hereunder
are referred to herein as “
Vested
Shares
,”
and
all other Executive Shares are referred to herein as “
Unvested
Shares
.”
3.
Repurchase
Option
.
(a)
In
the
event Executive ceases to be employed by the Company for any reason (a
“
Separation
”),
the
Unvested Shares (whether held by Executive or. one or more of Executive’s
transferees, other than the Company) will be subject to repurchase, in each
case
by the Company pursuant to the terms and conditions set forth in this
Section
3
(the
“
Repurchase
Option
”).
(b)
In
the
event of a Separation, the Executive Securities purchased hereunder representing
Unvested Shares shall be subject to repurchase by the Company at a purchase
price per share equal to the Executive’s Original Cost for such
share.
(c)
In
the
event of a Separation, the Company may elect to purchase all or any portion
of
the Unvested Shares by delivering written notice (the “
Repurchase
Notice
”)
to the
holder or holders of the Executive Securities within 60 days after the
Separation. The Repurchase Notice will set forth the number of Unvested Shares
to be acquired from each holder, the aggregate consideration to be paid for
such
securities and the time and place for the closing of the transaction. The number
of securities to be repurchased by the Company shall first be satisfied to
the
extent possible from the Unvested Shares held by Executive at the time of
delivery of the Repurchase Notice. If the number of Unvested Shares then held
by
Executive is less than the total number of such securities which the Company
has
elected to purchase, the Company shall purchase the remaining securities elected
to be purchased from the other holder(s) of Executive Securities under this
Agreement, pro rata according to the number of Executive Securities held by
such
other holder(s) at the time of delivery of such Repurchase Notice (determined
as
nearly as practicable to the nearest share).
(d)
The
closing of the purchase of the Unvested Shares pursuant to the Repurchase Option
shall take place on the date designated by the Company in the Repurchase Notice,
which date shall not be more than 2 months nor less than 5 days after the
delivery of such notice. The Company will pay for the Executive Securities
to be
purchased by it pursuant to the Repurchase Option by first offsetting amounts
outstanding under any bona fide debts owed by Executive to the Company and
will
pay the remainder of the purchase price to the extent reasonably permissible
under the Company’s equity financing agreements and agreements evidencing
indebtedness for borrowed money, by a check or wire transfer of funds. The
Company will be entitled to receive customary representations and warranties
from the sellers of Executive Securities (including representations and
warranties regarding good title to the Executive Securities, the absence of
any
liens on such title or other encumbrances with respect to the Transfer of the
Executive Securities and the ability of such sellers to consummate the
sale).
(e)
Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of
Executive Securities by the Company shall be subject to applicable restrictions
contained in the Delaware General Corporation Law and as may be required by
other parties in the Company’s equity financing agreements or agreements
evidencing indebtedness for borrowed money, if any. If any such restrictions
prohibit the repurchase of Executive Securities hereunder which the Company
is
otherwise entitled to make, the Company may make such repurchases as soon as
it
is permitted to do so under such restrictions.
4.
Restrictions
on Transfer of Executive Securities
.
(a)
Transfer
of Executive Securities
.
Executive shall not Transfer any interest in any Executive Securities, except
at
such time as the restrictions herein terminate as provided in
Section
4(b)
below.
Notwithstanding the foregoing, the restrictions contained in this
Section
4
will not
apply with respect to (i) Transfers of shares of Executive Securities pursuant
to applicable laws of descent and distribution or (ii) Transfer of shares of
Executive Securities among Executive’s Family Group;
provided
that in
each case such restrictions will continue to be applicable to the Executive
Securities irrespective of any such Transfer. Any transferee of Executive
Securities pursuant to a Transfer in accordance with the provisions of this
Section
4(a)
is
herein referred to as a “
Permitted
Transferee
.”
(b)
Termination
of Restrictions
.
The
restrictions on the Transfer of Executive Securities set forth in this
Section
4
will
continue with respect to each Executive Security until the earlier of (i) a
Qualified Public Offering; or (ii) a Sale of the Company.
5.
Additional
Restrictions on Transfer of Executive Securities
.
(a)
Legend
.
The
certificates representing the Executive Securities will bear a legend in
substantially the following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF JULY
5,
2003, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE
“ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY
AND AN EXECUTIVE OF THE COMPANY DATED AS OF JULY 5, 2003. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE.”
(b)
Opinion
of Counsel
.
No
holder of Executive Securities may transfer any Executive Securities (except
pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration
nor
qualification under the Securities Act and applicable state securities laws
is
required in connection with such Transfer.
6.
Definitions
.
“
Executive’s
Family Group
”
means
Executive’s spouse and descendants (whether natural or adopted), any trust
solely for the benefit of Executive and/or Executive’s spouse and/or descendants
and any retirement plan for the Executive.
“
Executive
Securities
”
means
the Executive Shares and any other securities of the Company held by Executive
or any of Executive’s transferees permitted hereunder. All Executive Securities
will continue to be Executive Securities in the hands of any holder other than
Executive (except for the Company and except for transferees in a Public Sale).
Except as otherwise provided herein, each such other holder of Executive
Securities will succeed to all rights and obligations attributable to Executive
as a holder of Executive Securities hereunder. Executive Securities will also
include shares of the Company’s capital stock or other securities of the Company
issued with respect to Executive Securities by way of a stock split, dividend
or
other recapitalization or reclassification.
“
Original
Cost
”
means
with respect to each share of Common Stock purchased hereunder, $0.005 (as
proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
“
Person
”
means
an individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
“
Public
Sale
”
means
any sale pursuant to a registered public offering under the Securities Act
or
any sale to the public pursuant to Rule 144 promulgated under the Securities
Act
effected through a broker, dealer or market maker.
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $20 million.
“
Sale
of the Company
”
means
any transaction or series of transactions pursuant to which (A) any Person(s)
acquires (i) capital stock of the Company possessing the voting power (other
than voting rights accruing only in the event of a default, breach or event
of
noncompliance) to elect a majority of the Company’s board of directors (whether
by merger, consolidation, reorganization, combination, sale or transfer of
the
Company’s capital stock, shareholder or voting agreement, proxy, power of
attorney or otherwise) or (ii) all or substantially all of the Company’s assets
determined on a consolidated basis;
provided
that the
term “Sale of the Company” shall not include any sale of equity or debt
securities by the Company in a private offering to other investors; or (B)
more
than 50% of the assets of the Company is spun off, split off or otherwise
distributed.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Transfer
”
means
to sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law).
7.
Notices
.
Any notice provided for in this Agreement must be in writing and must be either
personally delivered, mailed by first class mail (postage prepaid and return
receipt requested), sent by reputable overnight courier service (charges
prepaid), or sent via facsimile to the recipient at the address or facsimile
number below indicated:
If
to
the Company:
Cleveland
BioLabs, Inc.
7800
Blackberry Lane
Gates
Mills, Ohio 44040
Attn:
Michael Fonstein
With
a
copy to
:
Katten
Muchin Zavis Rosenman
525
West
Monroe Street
Suite
1600
Chicago,
Illinois 60661
Fax:
(312) 902-1061
Tel:
(312) 902-6200
Attn:
Kurt W. Florian, Esq.
If
to
the Executive
:
Michael
Fonstein
15W155
81st
Burr
Ridge, IL 60521
or
such
other address, facsimile number or to the attention of such other person as
the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so
delivered, sent or transmitted or, if mailed, five days after deposit in the
U.S. mail.
8.
General
Provisions
.
(a)
Transfers
in Violation of Agreement
.
Any
Transfer or attempted Transfer of any Executive Securities in violation of
any
provision of this Agreement shall be void, and the Company shall not record
such
Transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b)
Severability
.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or enforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(c)
Complete
Agreement
.
This
Agreement, those documents expressly referred to herein and other documents
of
even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d)
Counterparts
.
This
Agreement may be executed in separate counterparts, each of which is deemed
to
be an original and all of which taken together constitute one and the same
agreement.
(e)
Successors
and Assigns
.
Except
as otherwise provided herein, this Agreement shall bind and inure to the benefit
of and be enforceable by Executive and the Company and their respective
successors and assigns (including subsequent holders of Executive Securities);
provided
that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Securities
hereunder.
(f)
Choice
of Law
.
This
Agreement shall be construed in accordance with the laws of the State of
Delaware, without regard to principals of conflicts of law Any and all
litigation arising out of this Agreement shall be conducted only in courts
located in the State of Delaware.
(g)
Remedies
.
Each of
the parties to this Agreement will be entitled to enforce its rights under
this
Agreement specifically, to recover damages and costs (including attorney’s fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this
Agreement.
(h)
Amendment
and Waiver
.
The
provisions of this Agreement may be amended and waived only with the prior
written consent of the Company and Executive. No course of conduct or failure
or
delay in enforcing the provisions of this Agreement shall affect the validity,
binding effect or enforceability of this Agreement.
(i)
Business
Days
.
If any
time period for giving notice or taking action hereunder expires on a day which
is a Saturday, Sunday or holiday in the state in which the Company’s chief
executive office is located, the time period shall be automatically extended
to
the business day immediately following such Saturday, Sunday or
holiday.
(j)
Indemnification
and Reimbursement of Payments on Behalf of Executive
.
The
Company shall be entitled to deduct or withhold from any amounts owing from
the
Company to the Executive any federal, state, local or foreign withholding taxes,
excise taxes, or employment taxes (“
Taxes
”)
imposed with respect to the Executive’s compensation or other payments from the
Company or the Executive’s ownership interest in the Company, including, but not
limited to, wages, bonuses, dividends, the receipt or exercise of stock options
and/or the receipt or vesting of restricted stock. The Executive shall indemnify
the Company for any amounts paid with respect to any such Taxes, together with
any interest, penalties and related expenses thereto.
(k)
Termination
.
This
Agreement shall survive the termination of Executive’s employment with the
Company and shall remain in full force and effect after such
termination.
(l)
Generally
Accepted Accounting Principles; Adjustments of Numbers
.
Where
any accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied. All numbers set forth herein which
refer to share prices or amounts will be appropriately adjusted to reflect
stock
splits, stock dividends, combinations of shares, recapitalizations or other
similar transactions affecting the subject class of stock.
(m)
Waiver
of Jury Trial
.
Each of
the parties hereto hereby irrevocably waives any and all right to trial by
jury
of any claim or cause of action in any legal proceeding arising out of or
related to this Agreement or the transactions or events contemplated hereby
or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of any party hereto. The parties hereto each agree that any and
all
such claims and causes of action shall be tried by a court trial without a
jury.
Each of the parties hereto further waives any right to seek to consolidate
any
such legal proceeding in which a jury trial has been waived with any other
legal
proceeding in which a jury trial cannot or has not been waived.
*
* * *
*
IN
WITNESS WHEREOF
,
the
patties hereto have executed this Restricted Stock Agreement as of the date
first written above.
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
By:
|
/s/
Yakov
Kogan
|
|
|
Name:
Yakov
Kogan
|
|
|
|
|
|
|
|
|
/s/ Michael Fonstein
|
|
|
|
|
RESTRICTED
STOCK AGREEMENT
THIS
RESTRICTED STOCK AGREEMENT
(this
“
Agreement
”)
is
made as of July 5, 2003, between Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Yakov Kogan (“
Executive
”).
The
Executive has subscribed for and the Company has accepted a subscription
agreement pursuant to which Executive has committed to purchase, and the Company
has committed to sell, 1,200 shares of the Company’s Common Stock, par value
$0.005 per share (the “Common Stock”). All of such shares of Common Stock are
referred to herein as “Executive Shares.” Certain definitions are set forth in
Section 6
of this
Agreement.
As
an
inducement for the Company to issue and sell the Executive Shares to Executive,
the Company is requiring Executive to enter into this Agreement.
The
parties hereto agree as follows:
1.
Executive
Shares
.
(a)
Upon
execution of this Agreement, Executive will purchase, and the Company will
sell,
1,200 shares of Common Stock at a price of $0.005 per share. The Company will
deliver to Executive the certificates representing such Executive Shares, and
Executive will deliver to the Company cash or a check in the aggregate amount
of
$6.00.
(b)
Within
thirty (30) days after the purchase by Executive of Executive Shares pursuant
to
this Agreement, Executive will make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder in the form of Annex A attached
hereto.
(c)
In
connection with the purchase and sale of the Executive Shares pursuant hereto,
Executive represents and warrants to the Company that:
(i)
Executive
is an employee, officer or director of the Company, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Executive Shares;
(ii)
This
Agreement and each of the other agreements contemplated hereby to which
Executive is a party constitute legal, valid and binding obligations of
Executive, enforceable in accordance with their terms, and the execution,
delivery and performance of this Agreement and such other agreements by
Executive does not and will not conflict with, violate or cause a breach of
any
agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject; and
(iii)
Executive
is not a party to or bound by any other employment agreement, noncompete
agreement or confidentiality agreement which conflicts with the obligations
set
forth in this Agreement.
(d)
As
an
inducement for the Company to commit to issue the Executive Shares to Executive,
and as a condition thereto, Executive acknowledges and agrees that neither
any
future issuance of capital stock of the Company to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company, or affect the right of the Company to terminate Executive’s employment
at any time for any reason, subject to the terms and conditions of any
employment agreement.
2.
Vesting
of Shares
.
(a)
Except
as
otherwise provided in
Section 2(b)
below,
the Executive Shares purchased hereunder will become vested (determined as
nearly as practicable to the nearest share) in accordance with the following
schedule, if as of each such date Executive is still employed by the
Company:
Date
|
|
Cumulative
Percentage of
Executive
Shares to be Vested
|
|
|
|
1
st
Anniversary of this Agreement
|
|
33
1/3%
|
2
nd
Anniversary of this Agreement
|
|
66
2/3%
|
3
rd
Anniversary of this Agreement
|
|
100%
|
|
|
|
(b)
If
Executive ceases to be employed by the Company on any date other than any
anniversary date prior to the third anniversary of this Agreement, the
cumulative percentage of Executive Shares to become vested will be determined
on
a pro rata basis according to the number of days elapsed from the prior
anniversary date to the date of termination (but including in such calculation
all unused vacation and personal days as if the Executive had worked such days);
provided
,
however
,
that no
Executive Shares shall become vested until the first anniversary of this
Agreement. Notwithstanding the foregoing or anything herein to the contrary,
upon the occurrence of a Sale of the Company, all Executive Shares which have
not yet become vested shall become vested at the time of such Sale of the
Company (such portion being referred to herein as the “
Accelerated
Shares
”);
provided
,
however
,
that
the Accelerated Shares shall at all times be subject to any restrictions or
limitations with respect to the Transfer thereof contained herein or as
otherwise provided by law. Executive Shares which have become vested hereunder
are referred to herein as “
Vested
Shares
,”
and
all other Executive Shares are referred to herein as “
Unvested
Shares
.”
3.
Repurchase
Option
.
(a)
In
the
event Executive ceases to be employed by the Company for any reason (a
“
Separation
”),
the
Unvested Shares (whether held by Executive or one or more of Executive’s
transferees, other than the Company) will be subject to repurchase, in each
case
by the Company pursuant to the terms and conditions set forth in this
Section 3
,
(the
“
Repurchase
Option
”).
(b)
In
the
event of a Separation, the Executive Securities purchased hereunder representing
Unvested Shares shall be subject to repurchase by the Company at a purchase
price per share equal to the Executive’s Original Cost for such
share.
(c)
In
the
event of a Separation, the Company may elect to purchase all or any portion
of
the Unvested Shares by delivering written notice (the “
Repurchase
Notice
”)
to the
holder or holders of the Executive Securities within 60 days after the
Separation. The Repurchase Notice will set forth the number of Unvested Shares
to be acquired from each holder, the aggregate consideration to be paid for
such
securities and the time and place for the closing of the transaction. The number
of securities to be repurchased by the Company shall first be satisfied to
the
extent possible from the Unvested Shares held by Executive at the time of
delivery of the Repurchase Notice. If the number of Unvested Shares then held
by
Executive is less than the total number of such securities which the Company
has
elected to purchase, the Company shall purchase the remaining securities elected
to be purchased from the other holder(s) of Executive Securities under this
Agreement, pro rata according to the number of Executive Securities held by
such
other holder(s) at the time of delivery of such Repurchase Notice (determined
as
nearly as practicable to the nearest share).
(d)
The
closing of the purchase of the Unvested Shares pursuant to the Repurchase Option
shall take place on the date designated by the Company in the Repurchase Notice,
which date shall not be more than 2 months nor less than 5 days after
the delivery of such notice. The Company will pay for the Executive Securities
to be purchased by it pursuant to the Repurchase Option by first offsetting
amounts outstanding under any bona fide debts owed by Executive to the Company
and will pay the remainder of the purchase price to the extent reasonably
permissible under the Company’s equity financing agreements and agreements
evidencing indebtedness for borrowed money, by a check or wire transfer of
funds. The Company will be entitled to receive customary representations and
warranties from the sellers of Executive Securities (including representations
and warranties regarding good title to the Executive Securities, the absence
of
any liens on such title or other encumbrances with respect to the Transfer
of
the Executive Securities and the ability of such sellers to consummate the
sale).
(e)
Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of
Executive Securities by the Company shall be subject to applicable restrictions
contained in the Delaware General Corporation Law and as may be required by
other parties in the Company’s equity financing agreements or agreements
evidencing indebtedness for borrowed money, if any. If any such restrictions
prohibit the repurchase of Executive Securities hereunder which the Company
is
otherwise entitled to make, the Company may make such repurchases as soon as
it
is permitted to do so under such restrictions.
4.
Restrictions
on Transfer of Executive Securities
.
(a)
Transfer
of Executive Securities
.
Executive shall not Transfer any interest in any Executive Securities, except
at
such time as the restrictions herein terminate as provided in
Section 4(b)
below.
Notwithstanding the foregoing, the restrictions contained in this
Section 4
will not
apply with respect to (i) Transfers of shares of Executive Securities
pursuant to applicable laws of descent and distribution or (ii) Transfer of
shares of Executive Securities among Executive’s Family Group;
provided
that in
each case such restrictions will continue to be applicable to the Executive
Securities irrespective of any such Transfer. Any transferee of Executive
Securities pursuant to a Transfer in accordance with the provisions of this
Section 4(a)
is
herein referred to as a “
Permitted
Transferee
.”
(b)
Termination
of Restrictions
.
The
restrictions on the Transfer of Executive Securities set forth in this
Section 4
will
continue with respect to each Executive Security until the earlier of (i) a
Qualified Public Offering; or (ii) a Sale of the Company.
5.
Additional
Restrictions on Transfer of Executive Securities
.
(a)
Legend
.
The
certificates representing the Executive Securities will bear a legend in
substantially the following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF
JULY 5, 2003, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY
AND AN EXECUTIVE OF THE COMPANY DATED AS OF JULY 5, 2003. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE.”
(b)
Opinion
of Counsel
.
No
holder of Executive Securities may transfer any Executive Securities (except
pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration
nor
qualification under the Securities Act and applicable state securities laws
is
required in connection with such Transfer.
6.
Definitions
.
“
Executive’s
Family Group
”
means
Executive’s spouse and descendants (whether natural or adopted), any trust
solely for the benefit of Executive and/or Executive’s spouse and/or descendants
and any retirement plan for the Executive.
“
Executive
Securities
”
means
the Executive Shares and any other securities of the Company held by Executive
or any of Executive’s transferees permitted hereunder. All Executive Securities
will continue to be Executive Securities in the hands of any holder other than
Executive (except for the Company and except for transferees in a Public Sale).
Except as otherwise provided herein, each such other holder of Executive
Securities will succeed to all rights and obligations attributable to Executive
as a holder of Executive Securities hereunder. Executive Securities will also
include shares of the Company’s capital stock or other securities of the Company
issued with respect to Executive Securities by way of a stock split, dividend
or
other recapitalization or reclassification.
“
Original
Cost
”
means
with respect to each share of Common Stock purchased hereunder, $0.005 (as
proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
“
Person
”
means
an individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
“
Public
Sale
”
means
any sale pursuant to a registered public offering under the Securities Act
or
any sale to the public pursuant to Rule 144 promulgated under the
Securities Act effected through a broker, dealer or market maker.
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $20 million.
“
Sale
of the Company
”
means
any transaction or series of transactions pursuant to which (A) any
Person(s) acquire(s) (i) capital stock of the Company possessing the voting
power (other than voting rights accruing only in the event of a default, breach
or event of noncompliance) to elect a majority of the Company’s board of
directors (whether by merger, consolidation, reorganization, combination, sale
or transfer of the Company’s capital stock, shareholder or voting agreement,
proxy, power of attorney or otherwise) or (ii) all or substantially all of
the Company’s assets determined on a consolidated basis;
provided
that the
term “Sale of the Company” shall not include any sale of equity or debt
securities by the Company in a private offering to other investors; or
(B) more than 50% of the assets of the Company is spun off, split off or
otherwise distributed.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Transfer
”
means
to sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law).
7.
Notices
.
Any
notice provided for in this Agreement must be in writing and must be either
personally delivered, mailed by first class mail (postage prepaid and return
receipt requested), sent by reputable overnight courier service (charges
prepaid), or sent via facsimile to the recipient at the address or facsimile
number below indicated:
If
to the Company
:
Cleveland
BioLabs, Inc.
7800
Blackberry Lane
Gates
Mills, Ohio 44040
Attn:
Michael
Fonstein
|
With
a copy to
:
Katten
Muchin Rosenman LLP
525
West Monroe Street
Suite
1900
Chicago,
Illinois 60661
Fax:
(312)
902-1061
Tel:
(312)
902-6200
Attn:
Kurt
W. Florian, Esq.
|
|
If
to the Executive
:
Yakov
Kogan
4930-A
South Cornell Ave.
Chicago,
Illinois 60615
|
|
or
such
other address, facsimile number or to the attention of such other person as
the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so
delivered, sent or transmitted or, if mailed, five days after deposit in the
U.S. mail.
8.
General
Provisions
.
(a)
Transfers
in Violation of Agreement
.
Any
Transfer or attempted Transfer of any Executive Securities in violation of
any
provision of this Agreement shall be void, and the Company shall not record
such
Transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b)
Severability
.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(c)
Complete
Agreement
.
This
Agreement, those documents expressly referred to herein and other documents
of
even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d)
Counterparts
.
This
Agreement may be executed in separate counterparts, each of which is deemed
to
be an original and all of which taken together constitute one and the same
agreement.
(e)
Successors
and Assigns
.
Except
as otherwise provided herein, this Agreement shall bind and inure to the benefit
of and be enforceable by Executive and the Company and their respective
successors and assigns (including subsequent holders of Executive Securities);
provided
that
the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Securities
hereunder.
(f)
Choice
of Law
.
This
Agreement shall be construed in accordance with the laws of the State of
Delaware, without regard to principals of conflicts of law. Any and all
litigation arising out of this Agreement shall be conducted only in courts
located in the State of Delaware.
(g)
Remedies
.
Each of
the parties to this Agreement will be entitled to enforce its rights under
this
Agreement specifically, to recover damages and costs (including attorney’s fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this
Agreement.
(h)
Amendment
and Waiver
.
The
provisions of this Agreement may be amended and waived only with the prior
written consent of the Company and Executive. No course of conduct or failure
or
delay in enforcing the provisions of this Agreement shall affect the validity,
binding effect or enforceability of this Agreement.
(i)
Business
Days
.
If any
time period for giving notice or taking action hereunder expires on a day which
is a Saturday, Sunday or holiday in the state in which the Company’s chief
executive office is located, the time period shall be automatically extended
to
the business day immediately following such Saturday, Sunday or
holiday.
(j)
Indemnification
and Reimbursement of Payments on Behalf of Executive
.
The
Company shall be entitled to deduct or withhold from any amounts owing from
the
Company to the Executive any federal, state, local or foreign withholding taxes,
excise taxes, or employment taxes (“Taxes”) imposed with respect to the
Executive’s compensation or other payments from the Company or the Executive’s
ownership interest in the Company, including, but not limited to, wages,
bonuses, dividends, the receipt or exercise of stock options and/or the receipt
or vesting of restricted stock. The Executive shall indemnify the Company for
any amounts paid with respect to any such Taxes, together with any interest,
penalties and related expenses thereto.
(k)
Termination
.
This
Agreement shall survive the termination of Executive’s employment with the
Company and shall remain in full force and effect after such
termination.
(l)
Generally
Accepted Accounting Principles; Adjustments of Numbers
.
Where
any accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied. All numbers set forth herein which
refer to share prices or amounts will be appropriately adjusted to reflect
stock
splits, stock dividends, combinations of shares, recapitalizations or other
similar transactions affecting the subject class of stock.
(m)
Waiver
of Jury Trial
.
Each of
the parties hereto hereby irrevocably waives any and all right to trial by
jury
of any claim or cause of action in any legal proceeding arising out of or
related to this Agreement or the transactions or events contemplated hereby
or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of any party hereto. The parties hereto each agree that any and
all
such claims and causes of action shall be tried by a court trial without a
jury.
Each of the parties hereto further waives any right to seek to consolidate
any
such legal proceeding in which a jury trial has been waived with any other
legal
proceeding in which a jury trial cannot or has not been waived.
*****
IN
WITNESS WHEREOF
,
the
parties hereto have executed this Restricted Stock Agreement as of the date
first written above.
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
By:
|
/s/
Michael Fonstein
|
|
|
Name: Michael Fonstein
Its:
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
/s/ Yakov Kogan
|
|
|
|
|
RESTRICTED
STOCK AGREEMENT
THIS
RESTRICTED STOCK AGREEMENT
(this
“
Agreemen
t”)
is
made as of July 5, 2003, between Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Andrei Gudkov (“
Executive
”).
The
Executive has subscribed for and the Company has accepted a subscription
agreement pursuant to which Executive has committed to purchase, and the Company
has committed to sell, 2,650 shares of the Company’s Common Stock, par value
$0.005 per share (the “
Common
Stock
”).
All
of such shares of Common Stock are referred to herein as “
Executive
Shares
.”
Certain definitions are set forth in
Section 6
of this
Agreement.
As
an
inducement for the Company to issue and sell the Executive Shares to Executive,
the Company is requiring Executive to enter into this Agreement.
The
parties hereto agree as follows:
1.
Executive
Shares
.
(a)
Upon
execution of this Agreement, Executive will purchase, and the Company will
sell,
2,650 shares of Common Stock at a price of $0.005 per share. The Company will
deliver to Executive the certificates representing such Executive Shares, and
Executive will deliver to the Company cash or a check in the aggregate amount
of
$13.25.
(b)
Within
thirty (30) days after the purchase by Executive of Executive Shares pursuant
to
this Agreement, Executive will make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder in the form of
Annex A
attached
hereto.
(c)
In
connection with the purchase and sale of the Executive Shares pursuant hereto,
Executive represents and warrants to the Company that:
(i)
Executive
is an employee, officer or director of the Company, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Executive Shares;
(ii)
This
Agreement and each of the other agreements contemplated hereby to which
Executive is a party constitute legal, valid and binding obligations of
Executive, enforceable in accordance with their terms, and the execution,
delivery and performance of this Agreement and such other agreements by
Executive does not and will not conflict with, violate or cause a breach of
any
agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject; and
(iii)
Executive
is not a party to or bound by any other employment agreement, noncompete
agreement or confidentiality agreement which conflicts with the obligations
set
forth in this Agreement.
(d)
As
an
inducement for the Company to commit to issue the Executive Shares to Executive,
and as a condition thereto, Executive acknowledges and agrees that neither
any
future issuance of capital stock of the Company to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company, or affect the right of the Company to terminate Executive’s employment
at any time for any reason, subject to the terms and conditions of any
employment agreement.
2.
Vesting
of Shares
.
(a)
Except
as
otherwise provided in.
Section 2(b)
below,
the Executive Shares purchased hereunder will become vested (determined as
nearly as practicable to the nearest share) in accordance with the following
schedule, if as of each such date Executive is still employed by the
Company:
Date
|
|
Cumulative
Percentage of
Executive
Shares to be Vested
|
Date
of This Agreement
|
|
25%
|
1
st
Anniversary of this Agreement
|
|
50%
|
2
nd
Anniversary of this Agreement
|
|
75%
|
3
rd
Anniversary of this Agreement
|
|
100%
|
|
|
|
(b)
If
Executive ceases to be employed by the Company on any date other than any
anniversary date prior to the third anniversary of this Agreement, the
cumulative percentage of Executive Shares to become vested will be determined
on
a pro rata basis according to the number of days elapsed from the prior
anniversary date to the date of termination (but including in such calculation
all unused vacation and personal days as if the Executive had worked such days);
provided
,
however
,
that no
Executive Shares shall become vested until the first anniversary of this
Agreement. Notwithstanding the foregoing or anything herein to the contrary,
upon the occurrence of a Sale of the Company, all Executive Shares which have
not yet become vested shall become vested at the time of such Sale of the
Company (such portion being referred to herein as the “
Accelerated
Shares
”);
provided
,
however
,
that
the Accelerated Shares shall at all times be subject to any restrictions or
limitations with respect to the Transfer thereof contained herein or as
otherwise provided by law, Executive Shares which have become vested hereunder
are referred to herein as “
Vested
Shares
,”
and
all other Executive Shares are referred to herein as “
Unvested
Shares
.”
3.
Repurchase
Option
.
(a)
In
the
event Executive ceases to be employed by the Company for any reason (a
“Separation”), the Unvested Shares (whether held by Executive or one or more of
Executive’s transferees, other than the Company) will be subject to repurchase,
in each case by the Company pursuant to the terms and conditions set forth
in
this
Section 3
(the
“
Repurchase
Option
”).
(b)
In
the
event of a Separation, the Executive Securities purchased hereunder representing
Unvested Shares shall be subject to repurchase by the Company at a purchase
price per share equal to the Executive’s Original Cost for such
share.
(c)
In
the
event of a Separation, the Company may elect to purchase all or any portion
of
the Unvested Shares by delivering written notice (the “
Repurchase
Notice
”)
to the
holder or holders of the Executive Securities within 60 days after the
Separation. The Repurchase Notice will set forth the number of Unvested Shares
to be acquired from each holder, the aggregate consideration to be paid for
such
securities and the time and place for the closing of the transaction. The number
of securities to be repurchased by the Company shall first be satisfied to
the
extent possible from the Unvested Shares held by Executive at the time of
delivery of the Repurchase Notice. If the number of Unvested Shares then held
by
Executive is less than the total number of such securities which the Company
has
elected to purchase, the Company shall purchase the remaining securities elected
to be purchased from the other holder(s) of Executive Securities under this
Agreement, pro rata according to the number of Executive Securities held by
such
other holder(s) at the time of delivery of such Repurchase Notice (determined
as
nearly as practicable to the nearest share).
(d)
The
closing of the purchase of the Unvested Shares pursuant to the Repurchase Option
shall take place on the date designated by the Company in the Repurchase Notice,
which date shall not be more than 2 months nor less than 5 days after
the delivery of such notice. The Company will pay for the Executive Securities
to be purchased by it pursuant to the Repurchase Option by first offsetting
amounts outstanding under any bona fide debts owed by Executive to the Company
and will pay the remainder of the purchase price to the extent reasonably
permissible under the Company’s equity financing agreements and agreements
evidencing indebtedness for borrowed money, by a check or wire transfer of
funds. The Company will be entitled to receive customary representations and
warranties from the sellers of Executive Securities (including representations
and warranties regarding good title to the Executive Securities, the absence
of
any liens on such title or other encumbrances with respect to the Transfer
of
the Executive Securities and the ability of such sellers to consummate the
sale).
(e)
Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of
Executive Securities by the Company shall be subject to applicable restrictions
contained in the Delaware General Corporation Law and as may be required by
other parties in the Company’s equity financing agreements or agreements
evidencing indebtedness for borrowed money, if any. If any such restrictions
prohibit the repurchase of Executive Securities hereunder which the Company
is
otherwise entitled to make, the Company may make such repurchases as soon as
it
is permitted to do so under such restrictions.
4.
Restrictions
on Transfer of Executive Securities
.
(a)
Transfer
of Executive Securities
.
Executive shall not Transfer any interest in any Executive Securities, except
at
such time as the restrictions herein terminate as provided in
Section 4(b)
below.
Notwithstanding the foregoing, the restrictions contained in this
Section 4
will not
apply with respect to (i) Transfers of shares of Executive Securities
pursuant to applicable laws of descent and distribution or (ii) Transfer of
shares of Executive Securities among Executive’s Family Group;
provided
that in
each case such restrictions will continue to be applicable to the Executive
Securities irrespective of any such Transfer. Any transferee of Executive
Securities pursuant to a Transfer in accordance with the provisions of this
Section 4(a)
is
herein referred to as a “
Permitted
Transferee
.”
(b)
Termination
of Restrictions
.
The
restrictions on the Transfer of Executive Securities set forth in this
Section 4
will
continue with respect to each Executive Security until the earlier of (i) a
Qualified Public Offering; or (ii) a Sale of the Company.
5.
Additional
Restrictions on Transfer of Executive Securities
.
(a)
Legend
.
The
certificates representing the Executive Securities will bear a legend in
substantially the following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF
JULY 5, 2003, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY
AND AN EXECUTIVE OF THE COMPANY DATED AS OF JULY 5, 2003. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE.”
(b)
Opinion
of Counsel
.
No
holder of Executive Securities may transfer any Executive Securities (except
pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration
nor
qualification under the Securities Act and applicable state securities laws
is
required in connection with such Transfer.
6.
Definitions
.
“
Executive’s
Family Group
”
means
Executive’s spouse and descendants (whether natural or adopted), any trust
solely for the benefit of Executive and/or Executive’s spouse and/or descendants
and any retirement plan for the Executive.
“
Executive
Securities
”
means
the Executive Shares and any other securities of the Company held by Executive
or any of Executive’s transferees permitted hereunder. All Executive Securities
will continue to be Executive Securities in the hands of any holder other than
Executive (except for the Company and except for transferees in a Public Sale).
Except as otherwise provided herein, each such other holder of Executive
Securities will succeed to all rights and obligations attributable to Executive
as a holder of Executive Securities hereunder. Executive Securities will also
include shares of the Company’s capital stock or other securities of the Company
issued with respect to Executive Securities by way of a stock split, dividend
or
other recapitalization or reclassification.
“
Original
Cost
”
means
with respect to each share of Common Stock purchased hereunder, $0.005 (as
proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
“
Person
”
means
an individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or, any department agency or political
subdivision thereof.
“
Public
Sale
”
means
any sale pursuant to a registered public offering under the Securities Act
or
any sale to the public pursuant to Rule 144 promulgated under the
Securities Act effected through a broker, dealer or market maker.
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $20 million.
“
Sale
of the Company
”
means
any transaction or series of transactions pursuant to which (A) any
Person(s) acquire(s) (i) capital stock of the Company possessing the voting
power (other than voting rights accruing only in the event of a default, breach
or event of noncompliance) to elect a majority of the Company’s board of
directors (whether by merger, consolidation, reorganization, combination, sale
or transfer of the Company’s capital stock, shareholder or voting agreement,
proxy, power of attorney or otherwise) or (ii) all or substantially all of
the Company’s assets determined on a consolidated basis;
provided
that the
term “Sale of the Company” shall not include any sale of equity or debt
securities by the Company in a private offering to other investors; or
(B) more than 50% of the assets of the Company is spun off, split off or
otherwise distributed.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Transfer
”
means
to sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law).
7.
Notices
.
Any
notice provided for in this Agreement must be in writing and must be either
personally delivered, mailed by first class mail (postage prepaid and return
receipt requested), sent by reputable overnight courier service (charges
prepaid), or sent via facsimile to the recipient at the address or facsimile
number below indicated:
If
to the Company
:
Cleveland
BioLabs, Inc.
7800
Blackberry Lane
Gates
Mills, Ohio 44040
Attn:
Michael
Fonstein
|
With
a copy to
:
Katten
Muchin Rosenman LLP
525
West Monroe Street
Suite
1900
Chicago,
Illinois 60661
Fax:
(312)
902-1061
Tel:
(312)
902-6200
Attn:
Kurt
W. Florian, Esq.
|
If
to Executive
:
Andrei
Gudkov
7800
Blackberry Lane
Gates
Mills, Ohio 44040
|
or
such
other address, facsimile number or to the attention of such other person as
the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so
delivered, sent or transmitted or, if mailed, five days after deposit in the
U.S. mail.
8.
General
Provisions
.
(a)
Transfers
in Violation of Agreement
.
Any
Transfer or attempted Transfer of any Executive Securities in violation of
any
provision of this Agreement shall be void, and the Company shall not record
such
Transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b)
Severability
.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(c)
Complete
Agreement
.
This
Agreement, those documents expressly referred to herein and other documents
of
even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d)
Counterparts
.
This
Agreement may be executed in separate counterparts, each of which is deemed
to
be an original and all of which taken together constitute one and the same
agreement.
(e)
Successors
and Assigns
.
Except
as otherwise provided herein, this Agreement shall bind and inure to the benefit
of and be enforceable by Executive and the Company and their respective
successors and assigns (including subsequent holders of Executive Securities);
provided that the rights and obligations of Executive under this Agreement
shall
not be assignable except in connection with a permitted transfer of Executive
Securities hereunder.
(f)
Choice
of Law
.
This
Agreement shall be construed in accordance with the laws of the State of
Delaware, without regard to principals of conflicts of law. Any and all
litigation arising out of this Agreement shall be conducted only in courts
located in the State of Delaware.
(g)
Remedies
.
Each of
the parties to this Agreement will be entitled to enforce its rights under
this
Agreement specifically, to recover damages and costs (including attorney’s fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this
Agreement.
(h)
Amendment
and Waiver
.
The
provisions of this Agreement may be amended and waived only with the prior
written consent of the Company and Executive. No course of conduct or failure
or
delay in enforcing the provisions of this Agreement shall affect the validity,
binding effect or enforceability of this Agreement.
(i)
Business
Days
.
If any
time period for giving notice or taking action hereunder expires on a day which
is a Saturday, Sunday or holiday in the state in which the Company’s chief
executive office is located, the time period shall be automatically extended
to
the business day immediately following such Saturday, Sunday or
holiday.
(j)
Indemnification
and Reimbursement of Payments on Behalf of Executive
.
The
Company shall be entitled to deduct or withhold from any amounts owing from
the
Company to the Executive any federal, state, local or foreign withholding taxes,
excise taxes, or employment taxes (“
Taxes
”)
imposed with respect to the Executive’s compensation or other payments from the
Company or the Executive’s ownership interest in the Company, including, but not
limited to, wages, bonuses, dividends, the receipt or exercise of stock options
and/or the receipt or vesting of restricted stock. The Executive shall indemnify
the Company for any amounts paid with respect to any such Taxes, together with
any interest, penalties and related expenses thereto.
(k)
Termination
.
This
Agreement shall survive the termination of Executive’s employment with the
Company and shall remain in full force and effect after such
termination.
(l)
Generally
Accepted Accounting Principles; Adjustments of Numbers
.
Where
any accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied. All numbers set forth herein which
refer to share prices or amounts will be appropriately adjusted to reflect
stock
splits, stock dividends, combinations of shares, recapitalizations or other
similar transactions affecting the subject class of stock.
(m)
Waiver
of Jury Trial
.
Each of
the parties hereto hereby irrevocably waives any and all right to trial by
jury
of any claim or cause of action in any legal proceeding arising out of or
related to this Agreement or the transactions or events contemplated hereby
or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of any party hereto. The parties hereto each agree that any and
all
such claims and causes of action shall be tried by a court trial without a
jury.
Each of the parties hereto further waives any right to seek to consolidate,
any
such legal proceeding in which a jury trial has been waived with any other
legal
proceeding in which a jury trial cannot or has not been waived.
*****
IN
WITNESS WHEREOF
,
the
parties hereto have executed this Restricted Stock Agreement as of the date
first written above.
|
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|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
Name:
Michael
Fonstein
|
|
Its:
Chief
Financial Officer
|
|
|
|
|
|
/s/ Andrei Gudkov
|
|
Andrei Gudkov
|
LIBRARY
AGREEMENT
THIS
LIBRARY ACCESS AGREEMENT
(“Agreement”) is made effective as of April 27, 2004 (“Effective Date”) by
and between ChemBridge Corporation, an Illinois corporation (“ChemBridge”), and
Cleveland BioLabs, Inc., a Delaware corporation.
WHEREAS
,
ChemBridge has a collection of chemical libraries (the “Libraries”, as defined
below),
WHEREAS
,
CBL
desires a license from ChemBridge to use the Libraries in research and
development,
WHEREAS
,
ChemBridge desires to collaborate with CBL in the optimization of lead
compounds.
NOW,
THEREFORE
,
in
consideration of the mutual covenants and agreements set forth below, the
parties covenant and agree as follows:
Section
1.
Definitions
.
For
purposes of this Agreement, the following definitions shall apply:
A.
“Affiliates”
shall mean any individual or entity directly or indirectly controlling,
controlled by or under common control with, a party to this Agreement. For
purposes of this Agreement, the direct or indirect ownership of fifty percent
(50%) or more of the outstanding voting securities of an entity, or the right
to
receive fifty percent (50%) or more of the profits or earnings of an entity
shall be deemed to constitute control. Such other relationship as in fact
results in actual control over the management, business and affairs of an entity
shall also be deemed to constitute control. The Cleveland Clinic or any related
entity shall not be considered an Affiliate.
B.
“Confidential
Information” shall mean any (i) information disclosed in writing by a party
to this Agreement to any other party to this Agreement, and marked by the
disclosing party as “CONFIDENTIAL” or other similar legend sufficient to
identify such information as confidential proprietary information of the
disclosing party, or (ii) information orally disclosed by a party to this
Agreement to any other party to this Agreement that is identified as
confidential when disclosed and confirmed in writing as confidential within
thirty (30) days after such oral disclosure.
C.
“Liability”
shall mean any liabilities, damages, settlements, claims, penalties, fines,
and
reasonable costs or reasonable expenses (including, without limitation,
reasonable attorneys’ fees and other expenses of litigation).
D.
“Libraries”
shall mean the chemical libraries set forth in Appendix A.
[Note-Please
provide a description of the Libraries in
Appendix A.]
E.
“Library
Information” shall mean all information on the Libraries, including, without
limitation, (i) information regarding the constituents of the;
(ii) information sufficient for CBL to use the Libraries, but only as
prescribed herein; and (iii) information sufficient for CBL to be able to
identify compounds of interest.
F.
“Optimization
Project” shall mean the development of a lead compound from a “Confirmed Hit.” A
“Confirmed Hit” shall be a compound that gave a positive response in at least
two repeat screening assays and that has been confirmed in at least one
additional functional assay.
Section
2.
Access
to Libraries
.
A.
Libraries
.
ChemBridge will supply CBL with the Libraries, as set forth in
Appendix A.
B.
Timing
.
ChemBridge will deliver to CBL 30,000 historical compounds and 30,000
combinatorial Pharmacore compounds from the Libraries set forth in
Appendix A within 45 days of execution of this Agreement; these
compounds shall be referred to as the “Initial Compounds”. ChemBridge will
deliver to CBL another 70,000 historical compounds and another 50,000
combinatorial Pharmacore compounds from the Libraries set forth in
Appendix A within 60 days of CBL’s obtaining at least $1,000,000 of equity
financing at a pre-money valuation of at least $10,000,000; each individual
compound shall be different from the Initial Compounds and shall be collectively
referred to as the “Post-investment Compounds”. If CBL shall raise at least
$1,000,000 of equity financing, but at a pre-money valuation of between
$5,000,000 and $10,000,000, then ChemBridge shall reduce the number of
Post-investment Compounds provided to CBL under this agreement as
follows:
(i)
At
Valuation of $9,000,000: reduce number of compounds by 5%
(ii)
At
Valuation of $8,000,000: reduce number of compounds by 10%
(iii)
At
Valuation of $7,000,000: reduce number of compounds by 15%
(iv)
At
Valuation of $6,000,000: reduce number of compounds by 20%
(v)
At
Valuation of $5,000,000: reduce number of compounds by 25%
If
CBL is
unable to raise at least $1,000,000 at a pre-money valuation of at least
$5,000,000 within one year of the execution of this Agreement, then CBL shall
receive no Post-investment Compounds, and the Initial Compounds shall constitute
Chembridge’s full payment obligation under this Agreement.
C.
Information
.
ChemBridge will deliver to CBL the Library Information relevant to the Libraries
provided according to the schedule defined in Section 2.B
hereof.
Section
3.
Licenses
.
A.
License
to Libraries
.
ChemBridge hereby grants to CBL a non-exclusive, worldwide license, to
(i) use the Libraries for drug discovery research conducted in its own
research laboratories and for drug discovery research conducted in
collaborations, provided that such collaborations meet the criteria,
qualifications and revenue-sharing obligations as defined in Section 3.B
hereof, and (ii) any intellectual property that would be infringed by the
use of the Libraries in accordance with part (i). It is understood and
agreed that CBL may not, under any circumstances, offer for sale, sell,
exchange, trade or barter the Libraries. Except as provided for in
Section 7 below, CBL may not divulge the contents of the Libraries or any
Library Information to any third party, including its collaborators, without
the
express written consent of ChemBridge. CBL has no right to sublicense the
Libraries, any component of the Libraries or any Library
Information.
B.
Use
of
the Libraries in Contracts with Third Parties
.
While
CBL does not intend for such work to be its major activity, CBL would like,
from
time to time, to use the Libraries in screening contracts with academic
third-party scientists. ChemBridge agrees that CBL may use the Libraries for
such contracts with any non-commercial laboratory of the Cleveland Clinic.
ChemBridge also agrees that CBL may use the Libraries in contracts with up
to
seven academic laboratories per year, provided that ChemBridge has given CBL
prior written approval for each such contract. ChemBridge shall receive from
CBL
twenty-five percent (25.0%) of any revenue received by CBL from all contracts,
except those with the Cleveland Clinic, in which the Libraries are used, such
revenue to include all forms of payment, real or in kind, including, but not
limited to, cash, stock, options and warrants. CBL shall provide to ChemBridge
all financial information necessary for ChemBridge to ascertain the proper
sums
due it under this Section 3.B. ChemBridge shall have the right to audit
once yearly those portions of CBL’s books that pertain to revenue-sharing under
this Section 3.B. Such audit will be conducted by an accounting firm
acceptable to CBL, at the reasonable convenience of CBL and at the expense
of
ChemBridge, unless the auditor shall find that CBL has underpaid its obligation
by 5.0% or more, in which case CBL shall bear the cost of the
audit.
C.
Affiliates
.
CBL may
extend the right and license granted to CBL under Sections 3.A to any
Affiliate, provided that such Affiliate consents to be bound by the terms of
this Agreement to the same extent as CBL, and further provided that ChemBridge
gives written consent, which will not be unreasonably withheld.
D.
No
License of CBL Property
.
No
rights or licenses with respect to any intellectual property owned by CBL or
its
Affiliates are granted or will he deemed granted to ChemBridge under this
Agreement, except as provided herein under Section 3.B and
Section 5.A.
Section
4.
Ownership
and Rights in the Libraries
.
A.
Independent
Development
ChemBridge retains the right to continue independent development and
investigation of the Libraries. Except as provided for in Section 2.B
relating to the Libraries to be delivered by ChemBridge and Section 2.C
relating to the Library Information to be delivered by ChemBridge, CBL has
no
rights whatsoever regarding any aspect of Chembridge’s business. Except as
provided for in Section 2.B relating to the Libraries to be delivered to
CBL and Section 2.C relating to the Library Information to be delivered to
CBL, ChemBridge has no obligation whatsoever to provide any information
concerning any aspect of its business to CBL.
B.
Intellectual
Property
.
CBL
shall own all rights to and interest in any idea, invention (whether patentable
or not), discovery or improvement made by or for CBL and/or its Affiliates
obtained through use of the Libraries by or for CBL and/or its Affiliates,
subject to the revenue-sharing obligations defined in Section 3.B and
Section 5 hereof.
Section
5.
Consideration
.
A.
Lead
Optimization
.
in
consideration of the rights and licenses granted by ChemBridge to CBL under
this
Agreement, CBL agrees to collaborate with ChemBridge on two (2)
Optimization Projects, wherein ChemBridge shall have the responsibility for
providing the chemistry components of the project and CBL shall have the
responsibility for providing the pharmacological/biochemical components of
the
project, each party to bear the full costs of its responsibilities. CBL shall
have the responsibility to present for consideration by ChemBridge all its
data
on “Confirmed Hits” that have a reasonable possibility of becoming lead
compounds that arise from its research activities, whether or not such
activities are conducted with a Collaborator. ChemBridge shall then have 90
days
to determine whether it wishes to select the Confirmed Hit as one of its two
Optimization Projects. ChemBridge shall receive a 50% ownership of the Confirmed
Hit and all derivative compounds produced during the course of the selected
Optimization Projects. The parties shall jointly determine which, if any,
compounds emerging from the Optimization Projects should be taken into further
development. For such compounds as the parties agree should be taken into
further development, ChemBridge shall be responsible for the chemistry, and
CBL
shall be responsible for the pharmacology/biochemistry necessary for the
continued development. For later development functions, such as toxicology,
formulation, pharmacoeconomics, pilot scale manufacturing, clinical trials
and
all regulatory and commercial activities, the parties shall share equally in
the
cost. Patent costs and related legal expenses shall be borne equally by the
parties. The parties shall jointly manage the development and commercialization
of any compound arising from an Optimization Project. CBL will have the right
to
define the moment of out-licensing of any compound arising from an Optimization
Project and the terms and conditions of such out-licensing, if the parties,
after reasonable discussion and consultation with each other, are not able
to
agree on these matters. During the course of an Optimization Project, either
party may elect at any time not to proceed with the project. If one party elects
not to proceed with the project, then the other party shall have the right
to
purchase the rights of the other at fair market value, lithe parties are unable
to agree on a fair market value, then such shall be determined by binding
arbitration.
Section
6.
Representations
and Warranties
.
A.
Owner
.
ChemBridge represents and warrants that it is the sole and exclusive owner
of
the chemical libraries set forth in Appendix A and has the right to provide
the Libraries and the Library Information to CBL along with any other rights
described herein, without violating its obligations to third
parties.
B.
Power
and Authority
.
Each
party represents and warrants that it has the legal power, authority and right
to enter into this Agreement and to perform its respective obligations set
forth
herein.
C.
No
Conflict
.
Each
party represents and warrants that as of the Effective Date of this Agreement
it
is not a party to any agreement or arrangement with any third party or under
any
obligation or restriction, including pursuant to its certificate of
incorporation or bylaws, that in any way limits or conflicts with its ability
to
fulfill any of its obligations under this Agreement, and will not enter into
any
such agreement during the term of Agreement.
D.
Power
to Grant Rights
.
Each
party represents and warrants that it has the right to grant the other party
hereto the rights provided under this Agreement.
Section
7.
Confidentiality
.
Both
parties agree not to use Confidential Information of the other party except
as
expressly provided for in this Agreement, and each party will use best efforts
to prevent the disclosure of the other party’s Confidential Information to third
parties. Except as may be authorized in advance in writing by the other party,
each party shall grant access to he Confidential Information only to its own
employees involved in the use of the rights granted under this Agreement, and
each party shall require such employees to be bound by this Agreement as well.
The confidentiality and use obligations set forth above apply to all or any
part
of the Confidential Information disclosed hereunder except to the extent
that:
(i)
the
recipient party can show by written record that it possessed the information
prior to its receipt from the other party;
(ii)
the
information was already available to the public or became so through no fault
of
the recipient party;
(iii)
the
information is received from a third party having no obligation of
confidentiality to the disclosing party;
(iv)
the
information is developed independently by the recipient party without access
to
the disclosing party’s Confidential Information; or
(v)
the
information is required by law or regulation to be disclosed; provided, however,
that the party subject to such disclosure requirement has provided written
notice to the other party promptly to enable such other party to seek a
protective order or otherwise prevent disclosure of such Confidential
Information.
The
parties agree to keep the nature, existence and terms of this Agreement
confidential until first publicly announced by the parties pursuant to a joint
press release mutually approved by the parties. The content and timing of all
press releases and similar public communications regarding this Agreement and
the subject matter hereof will be mutually agreed to in writing by the parties,
and neither party may make or issue any public announcement or press release
that refers to the other party or describes any aspect of this Agreement without
having first received the prior written consent of the other party.
Notwithstanding the foregoing, either party may make any public announcement
or
disclosure that it reasonably believes is required by law, rule or regulation
of
any governmental authority or other regulatory body (including, without
limitation, the SEC or the FDA).
Notwithstanding
the provisions of this Section 7, CBL shall have the right to disclose
Confidential Information to its Affiliates or to collaborators approved under
the terms of Section 3.B (collectively, “Collaborators”) in accordance with
this paragraph. Such disclosure shall be limited only to those Collaborators
involved in the use of the rights granted under this Agreement. Any such
Collaborators must agree in advance and in writing to be bound by
confidentiality and non-use obligations substantially similar to those contained
in this Agreement. In addition, CBL and its Collaborators may disclose such
Confidential Information of ChemBridge as may be necessary in order to obtain
or
maintain any Regulatory Approvals.
Section
8.
Indemnity
.
A.
CBL
Indemnity to ChemBridge
.
CBL
shall indemnify, defend and hold harmless ChemBridge from and against any
claims, actions or suits by a third party resulting in any Liability arising
out
of or resulting from (i) a breach of any representation of CBL in
Section 6 or (ii) the use of any Library or any other product provided
by ChemBridge or any affiliate of ChemBridge by CBL and/or its Affiliates and/or
Collaborators, except to the extent such Liability is proven to have resulted
directly from the willful negligence or felonious wrongdoing of
ChemBridge.
B.
ChemBridge
Indemnity to CBL
.
ChemBridge shall indemnify, defend and hold harmless CBL from and against any
claims, actions or suits by a third party resulting in any Liability arising
out
of or resulting from a breach of any representation of ChemBridge in
Section 6.
Section
9.
Miscellaneous
.
A.
Governing
Law
.
This
Agreement shall be governed, construed, and interpreted in all respects in
accordance with the laws of the State of Delaware without regard to conflicts
of
laws provisions.
B.
Venue
.
The
exclusive venue of any dispute arising out of or in connection with the
performance or breach of this Agreement shall be the Delaware state courts
or
U.S. district court for the County of New Castle, Delaware, and the parties
hereby consent to the personal jurisdiction of such courts.
C.
Assignment;
Successors
.
This
Agreement shall not be assignable by either party to any third party without
the
written consent of the other party; except either party may assign this
Agreement, without such consent, to (i) an Affiliate of such party; or
(ii) an entity that acquires all or substantially all of the business or
assets of such party, whether by merger, reorganization, acquisition, sale,
or
otherwise, which agrees in writing to be bound by the terms and conditions
of
this Agreement. The terms and conditions of this Agreement shall be binding
on
and inure to the benefit of the permitted successors and assigns of the
parties.
D.
Notice
.
Any
notice required to be given pursuant to the provisions of this Agreement shall
be in writing and shall be deemed to have been given at the earlier of the
time
when actually received as a consequence of any effective and verifiable method
of delivery, including, but not limited to, hand delivery, transmission by
telecopier with return acknowledgement of receipt, or delivery by a professional
courier service or the time when actually received by certified or registered
mail addressed to the party for whom intended at the address below or at such
changed address as the party shall have specified by written notice, provided
that any notice of change of address shall be effective only upon actual
receipt.
(i)
If
from
CBL to ChemBridge:
Sergey
Altshtein
ChemBridge
Corporation
16981
Via Tazon, Suite G
San Diego,
CA 92127
(ii)
If
from
ChemBridge to CBL:
Cleveland
BioLabs, Inc.
10265
Carnegie Avenue
Cleveland,
OH 44106
Attn:
CEO
with
Copy
to
Howrey
Simon Arnold White, LLP
321
N. Clark St., Suite 3400
Chicago,
IL 60610
Attn:
Teddy C. Scott, Jr.
E.
Independent
Contractors
.
The
relationship of the parties is that of independent contractors. The parties
are
not deemed to be agents, partners or joint venture partners of the other for
any
purpose as is a result of this Agreement or the transactions contemplated
hereby.
F.
Entire
Agreement; Amendment
.
This
Agreement constitutes the entire agreement, both written and oral, with respect
to the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, with respect to such
subject matter. This Agreement may only be amended in a writing signed by both
parties.
G.
Headings
.
The
captions to the Sections are not a part of this Agreement, but are included
merely for convenience of reference and shall not affect its meaning or
interpretation.
H.
Counterparts
.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original and which together shall constitute one instrument.
[
The
remainder of this page intentionally left blank
]
IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the
dates indicated below.
CHEMBRIDGE
CORPORATION:
|
|
|
|
By:
/s/ Eugene
Vaisberg
|
|
|
|
Name:
Eugene
Vaisberg
Title:
Chairman & CEO
|
|
|
Date: April 27,
2004
|
|
|
|
|
CLEVELAND BIOLABS, INC.:
|
|
|
|
By:
/s/
Michael
Fonstein
Name:
Michael Fonstein
Title:
CEO
|
|
|
Date: April 27,
2004
|
|
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[SIGNATURE
PAGE TO LIBRARY ACCESS AGREEMENT]
RESTRICTED
STOCK AND INVESTOR RIGHTS AGREEMENT
THIS
RESTRICTED
STOCK AND INVESTOR RIGHTS AGREEMENT
(this
“
Agreement
”)
is
made as of April 27, 2004, between Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
ChemBridge Corporation (“
ChemBridge
”).
ChemBridge
has subscribed for and the Company has accepted a subscription agreement
pursuant to which ChemBridge has committed to purchase, and the Company has
committed to sell, 600 shares of the Company’s Common Stock, par value
$0.005 per share (the “
Common
Stock
”),
plus
such additional shares as may be specified in
Section 1(b)
hereof.
All of such shares of Common Stock are referred to herein as “
ChemBridge
Shares
.”
Certain definitions are set forth in
Section 5
of this
Agreement.
The
Company warrants that its total outstanding equity at the time of this Agreement
is 10,000 shares of Common Stock, including all warrants, options and rights
and
including, at their conversion rate to Common Stock, all preferred stock and
convertible notes. (Should the Company have more than 10,000 shares
outstanding at the time of the execution of this Agreement, then the
aforementioned 600 shares will be increased on a
pro
rata
basis.)
It
is the
intention and expectation of the parties hereto that the Company will raise
at
least $1 million at a
pre-money
valuation
of at
least $10 million and that,
at
the
conclusion
of this
fund-raising by the Company and the issuance of all shares associated with
this
fund-raising, ChemBridge will own 6.0% of the Company’s total outstanding
equity, including all warrants, options and rights and including, at their
conversion rate to Common Stock, all preferred stock and convertible notes.
For
instance, should the Company issue an additional 1,000 shares of Common
Stock (or any other obligation convertible to 1,000 shares of Common Stock)
in the course of raising the aforementioned investment capital, then ChemBridge
would receive 660 shares of Common Stock instead of the 600 shares
noted above.
Any
reference to the “
total
outstanding equity of the Company
”
shall
mean the Company’s total outstanding equity, including all Common Stock and all
warrants, options and rights and including, at their conversion rate to Common
Stock, all Preferred Stock and Convertible Notes.
As
an
inducement for the Company to issue and sell the ChemBridge Shares to
ChemBridge, the Company is requiring ChemBridge to enter into this
Agreement.
The
parties hereto agree as follows:
1.
ChemBridge
Shares
.
(a)
Upon
execution of this Agreement, ChemBridge will purchase, and the Company will
sell, 600 shares of Common Stock. If, however, the total outstanding equity
of
the Company shall equate to more than 10,000 total shares of Common Stock,
then the aforementioned 600 shares will be increased on a
pro
rata
basis
such that the total shares purchased by ChemBridge shall be 6.0% of the total
outstanding equity of the Company.
(b)
Under
certain circumstances, the Company will award to ChemBridge additional shares
beyond those defined in
Section 1(a)
.
It is
agreed and expected by the parties that the Company will raise at least
$1 million in equity capital, most likely in the form of Preferred Stock or
Convertible Notes. Should the Company succeed in raising at least
$1 million at a
premoney
valuation of at least $10,000,000
and
without
the issuance of any additional shares beyond the aforementioned total
outstanding equity of the Company of 10,000 shares, then the Company will owe
no
additional shares to ChemBridge. Should the total outstanding equity of the
Company, however, up to and including the time when the Company shall complete
a
fund-raising of $1 million in equity capital, including the issuance of all
equity associated with this fund-raising, be more than 10,000 shares or should
the Company raise equity capital at a pre money valuation of less than
$10,000,000, then ChemBridge shall be granted additional shares as described
in
the following two paragraphs, the effects of these two paragraphs being
additive
:
(i)
Correction
for issuance of additional shares
.
If the
total outstanding equity of the Company shall exceed 10,000 shares at any
time up to and including the conclusion of the Company’s raising of
$1 million in equity capital and the issuance of all equity associated with
this fund-raising, then the number of shares granted to ChemBridge under this
Agreement shall be increased accordingly. (For instance, if the total
outstanding equity of the Company totals 20,000 shares, then ChemBridge would
receive an additional 600 shares of Common Stock);
(ii)
Correction
for reduced pre-money valuation of the Company
.
If the
Company shall raise equity capital at any time prior to the Company’s receiving
from ChemBridge the Library compounds contemplated in
Section 2
of the
attached Library Access Agreement, at a pre-money valuation of the Company
of
less than $10,000,000, then the number of ChemBridge shares awarded under this
Agreement shall be increased by 1.0% for each 2.0% of decreased pre-money
valuation [for instance, if the equity capital is raised at a pre-money
valuation of $7,500,000 (a 25 % reduction in valuation), then ChemBridge would
receive 675 shares (a 12.5% increase), rather than
600 shares.]
(iii)
Paragraphs
1(b)(i) and 1(b)(ii) are additive
.
For
instance, if the Company raises $1 million at a pre-money valuation of
$5,000,000 and, in the course of so doing, issues an additional 5,000 shares
(for a total of 15,000 shares), then ChemBridge would be granted an
additional 450 shares [300 shares for the 50% increase in the total
outstanding equity of the Company
plus
150 shares (a 25% increase) for the 50% decrease in pre-money valuation of
the Company].
(c)
In
connection with the purchase and sale of the ChemBridge Shares pursuant hereto,
ChemBridge represents and warrants to the Company that:
(i)
ChemBridge
is sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the ChemBridge Shares;
(ii)
This
Agreement and each of the other agreements contemplated hereby to which
ChemBridge is a party constitute legal, valid and binding obligations of
ChemBridge, enforceable in accordance with their terms, and the execution,
delivery and performance of this Agreement and such other agreements by
ChemBridge does not and will not conflict with, violate or cause a breach of
any
agreement, contract or instrument to which ChemBridge is a party or any
judgment, order or decree to which ChemBridge is subject; and
(iii)
ChemBridge
is not a party to or bound by any other noncompete agreement or confidentiality
agreement which conflicts with the obligations set forth in this
Agreement.
2.
Vesting
of Shares
.
The
ChemBridge Shares purchased hereunder shall be fully vested at the time of
issuance.
3.
Restrictions
on Transfer of ChemBridge Securities
.
(a)
Transfer
of ChemBridge Securities
.
ChemBridge shall not Transfer any interest in any ChemBridge Securities, except
at such time as the restrictions herein terminate as provided in
Section
3(b)
below.
(b)
Termination
of Restrictions
.
The
restrictions on the Transfer of ChemBridge Securities set forth in this
Section 3
will
continue with respect to each ChemBridge Security until the earlier of
(i) a Qualified Public Offering; or (ii) a Sale of the
Company.
4.
Additional
Restrictions on Transfer of ChemBridge Securities
.
(a)
Legend
.
The
certificates representing the ChemBridge Securities will bear a legend in
substantially the following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF
,
2004,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY
AND CHEMBRIDGE CORPORATION DATED AS OF _____, 2004. A COPY OF SUCH AGREEMENT
MAY
BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE.”
(b)
Opinion
of Counsel
.
No
holder of ChemBridge Securities may transfer any ChemBridge Securities (except
pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration
nor
qualification under the Securities Act and applicable state securities laws
is
required in connection with such Transfer.
5.
Definitions
.
“
ChemBridge
Securities
”
means
the ChemBridge Shares and any other securities of the Company held by ChemBridge
or any of ChemBridge’s transferees permitted hereunder. All ChemBridge
Securities will continue to be ChemBridge Securities in the hands of any holder
other than ChemBridge (except for the Company and except for transferees in
a
Public Sale). Except as otherwise provided herein, each such other holder of
ChemBridge Securities will succeed to all rights and obligations attributable
to
ChemBridge as a holder of ChemBridge Securities hereunder. ChemBridge Securities
will also include shares of the Company’s capital stock or other securities of
the Company issued with respect to ChemBridge Securities by way of a stock
split, dividend or other recapitalization or reclassification.
“
Person
”
means
an individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
“
Public
Sale
”
means
any sale pursuant to a registered public offering under the Securities Act
or
any sale to the public pursuant to Rule 144 promulgated under the
Securities Act effected through a broker, dealer or market maker.
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $7.5 million.
“
Sale
of the Company
”
means
any transaction or series of transactions pursuant to which (A) any
Person(s) acquire(s) (i) capital stock of the Company possessing the voting
power (other than voting rights accruing only in the event of a default, breach
or event of noncompliance) to elect a majority of the Company’s board of
directors (whether by merger, consolidation, reorganization, combination, sale
or transfer of the Company’s capital stock, shareholder or voting agreement,
proxy, power of attorney or otherwise) or (ii) all or substantially all of
the Company’s assets determined on a consolidated basis;
provided
that the
term “Sale of the Company” shall not include any sale of equity or debt
securities by the Company in a private offering to other investors; or
(B) more than 50% of the assets of the Company is spun off, split off or
otherwise distributed.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Transfer
”
means
to sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law).
6.
Seniority
of ChemBridge Shares and Registration Rights
.
All of
the shares issued to ChemBridge hereunder, including those shares resulting
from
the exercise of warrants, shall have liquidation seniority and registration
preferences at least as favorable as those of any of the shares held now or
in
the future by any of the current shareholders of the Company. ChemBridge,
moreover, shall have the right to participate on a
pro
rata
basis
with any current shareholder of the Company in any sale or exchange of any
of
the shares possessed now or in the future by any current shareholder of the
Company.
7.
Anti-dilution
Provision
.
ChemBridge shall have the right to purchase, at the lowest price offered to
any
other entity or individual, a percentage of any new equity issued by the
Company, any successor company or affiliate, such percentage to be up to that
percentage of issued equity of the Company which ChemBridge, at the time
ChemBridge shall make such purchase, shall own under
Sections 1
and
2
of this
Agreement and including, in addition, any exercised warrants or other stock
which ChemBridge shall own in the Company. ChemBridge’s rights under this
Section 7
shall
survive termination of this Agreement and shall continue until ChemBridge has
disposed of its entire equity interest in the Company and its successor
companies
8.
Down-round
Protection of ChemBridge
.
Section 1(b)
provides
for protection of ChemBridge in the event that the first $1 million of
equity capital raised by the Company shall be raised at a pre-money valuation
of
less than $10,000, in which case the number of compounds given to the Company
under a certain Library Access Agreement would be decreased and the number
of
shares of the Company’s Common Stock granted to ChemBridge would be increased.
Should the Company, subsequent to its raising the first $1 million in
equity capital, raise any additional equity capital at a pre-money valuation
of
less than $10,000,000, then the total number of shares owned by ChemBridge
would
be increased on a
pro
rata
basis.
(For instance, if ChemBridge owns 600 shares of the Company’s stock and the
Company raises capital at a pre-money valuation of only $5,000,000, then
ChemBridge will be granted an additional 600 shares.)
9.
Financial
Statements
.
Once
per year, on the anniversary of this Agreement, the Company will provide to
ChemBridge a complete set of the Company’s financial statements. At such time as
the Company shall obtain audited financial statements, the Company will provide
to ChemBridge annually a complete copy of these audited financial statements
with 30 days of their receipt by the Company, these audited financial statements
to be in lieu of those defined in the first sentence of this
paragraph.
10.
ChemBridge
Representation on the Company’s Board of Directors
.
Associated with this Agreement is another agreement between the parties entitled
“Warrant to Purchase Common Stock,” which agreement provides to ChemBridge a
right to purchase additional shares of the Company’s Common Stock. At such time
as ChemBridge shall elect to exercise all the warrants provided in the Warrant
to Purchase Common Stock, ChemBridge shall gain the right to appoint a member
of
the Company’s Board of Directors, and this right shall continue until such time
as ChemBridge has disposed of more than fifty percent of its holdings of the
Company’s equity, or the Company shall make a Qualified Public Offering or there
shall be a Sale of the Company. ChemBridge, at its sole election, in lieu of
appointing a member of the Company’s Board of Directors, shall have the right to
send a representative to each and every meeting of the Company’s Board of
Directors, and the Company shall have the affirmative obligation to provide
to
ChemBridge Notice of any such meeting.
11.
Notice
to ChemBridge of the Company’s Financial Transactions
.
The
Company shall have the affirmative obligation to inform ChemBridge of each
and
every transaction that has a total value in excess of $250,000.00 to which
the
Company is a party. Such notice shall be provided to ChemBridge within thirty
days of the completion of the transaction, and, upon the Company’s request to
ChemBridge, ChemBridge shall hold in confidence its knowledge of the
transaction.
12.
Notices
.
Any
notice provided for in this Agreement must be in writing and must be either
personally delivered, mailed by first class mail (postage prepaid and return
receipt requested), sent by reputable overnight courier service (charges
prepaid), or sent via facsimile to the recipient at the address or facsimile
number below indicated:
If
to the Company
:
Cleveland
BioLabs,
Inc.
7800
Blackberry Lane
Gates
Mills, Ohio
44040
Attn: Michael
Fonstein
|
With
a copy to
:
Katten
Muchin Rosenman
LLP
525
West Monroe
Street
Suite
1900
Chicago,
Illinois
60661
Fax: (312)
902-1061
Tel: (312)
902-6200
Attn: Kurt
W. Florian,
Esq.
|
If
to CamBridge
:
ChemBridge
Corporation
16981
Via Tazon
San
Diego, California
92127
Attn: Mr.
Sergey
Altshteyn
|
or
such
other address, facsimile number or to the attention of such other person as
the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so
delivered, sent or transmitted or, if mailed, five days after deposit in the
U.S. mail.
13.
General
Provisions
.
(a)
Transfers
in Violation of Agreement
.
Any
Transfer or attempted Transfer of any ChemBridge Securities in violation of
any
provision of this Agreement shall be void, and the Company shall not record
such
Transfer on its books or treat any purported transferee of such ChemBridge
Securities as the owner of such securities for any purpose.
(b)
Severability
.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(c)
Complete
Agreement
.
This
Agreement, those documents expressly referred to herein and other documents
of
even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d)
Counterparts
.
This
Agreement may be executed in separate counterparts, each of which is deemed
to
be an original and all of which taken together constitute one and the same
agreement.
(e)
Successors
and Assigns
.
Except
as otherwise provided herein, this Agreement shall bind and inure to the benefit
of and be enforceable by ChemBridge and the Company and their respective
successors and assigns (including subsequent holders of ChemBridge Securities),
provided that the rights and obligations of ChemBridge under this Agreement
shall not be assignable except in connection with a permitted transfer of
ChemBridge Securities hereunder.
(f)
Choice
of Law
.
This
Agreement shall be construed in accordance with the laws of the State of
Delaware, without regard to principals of conflicts of law. Any and all
litigation arising out of this Agreement shall be conducted only in courts
located in the State of Delaware.
(g)
Remedies
.
Each of
the parties to this Agreement will be entitled to enforce its rights under
this
Agreement specifically, to recover damages and costs (including attorney’s fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this
Agreement.
(h)
Amendment
and Waiver
.
The
provisions of this Agreement may be amended and waived only with the prior
written consent of the Company and ChemBridge. No course of conduct or failure
or delay in enforcing the provisions of this Agreement shall affect the
validity, binding effect or enforceability of this Agreement.
(i)
Business
Days
.
If any
time period for giving notice or taking action hereunder expires on a day which
is a Saturday, Sunday or holiday in the state in which the Company’s chief
executive office is located, the time period shall be automatically extended
to
the business day immediately following such Saturday, Sunday or
holiday.
(j)
Indemnification
and Reimbursement of Payments on Behalf of ChemBridge
.
The
Company shall be entitled to deduct or withhold from any amounts owing from
the
Company to ChemBridge any federal, state, local or foreign withholding taxes,
or
excise taxes (“
Taxes
”)
imposed with respect to ChemBridge’s ownership interest in the
Company.
(k)
Generally
Accepted Accounting Principles; Adjustments of Numbers
.
Where
any accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied. All numbers set forth herein which
refer to share prices or amounts will be appropriately adjusted to reflect
stock
splits, stock dividends, combinations of shares, recapitalizations or other
similar transactions affecting the subject class of stock.
(l)
Waiver
of Jury Trial
.
Each of
the parties hereto hereby irrevocably waives any and all right to trial by
jury
of any claim or cause of action in any legal proceeding arising out of or
related to this Agreement or the transactions or events contemplated hereby
or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of any party hereto, The parties hereto each agree that any and
all
such claims and causes of action shall be tried by a court trial without a
jury.
Each of the parties hereto further waives any right to seek to consolidate
any
such legal proceeding in which a jury trial has been waived with any other
legal
proceeding in which a jury trial cannot or has not been waived.
(m)
Conflict
Between Agreements
.
In
association with this Agreement, the parties have executed four other
agreements. Should any of the terms of this Agreement conflict with any of
the
terms of any of the other agreements between the parties, then the terms of
this
Agreement shall prevail.
*****
IN
WITNESS WHEREOF
,
the
parties hereto have executed this Restricted Stock Agreement as of the date
first written above.
CLEVELAND
BIOLABS, INC.
By:
/s/
Michael
Fonstein
Name:
Michael
Fonstein
Its:
CEO
CHEMBRIDGE
CORPORATION
By:
/s/
Eugene
Vaisberg
Name:
Eugene
Vaisberg
Its:
CEO
COMMON
STOCKHOLDERS AGREEMENT
This
COMMON
STOCKHOLDERS AGREEMENT
(this
“
Agreement
”)
is
made and entered into as of July 1, 2004, by and among Cleveland BioLabs, Inc.,
a Delaware corporation (the “
Company
”)
and
each Person (as defined below) who holds Common Stock (as defined below) and
any
other Person who becomes a stockholder of the Company, from time to time, and
executes an Instrument of Accession in the form of
Exhibit B
(collectively referred to herein as “
Stockholders
”
and
each individually as a “
Stockholder
”).
RECITALS
A.
The
Company has ten thousand (10,000) shares of common stock issued and
outstanding.
B.
The
stock
ownership of the Company is set forth in
Exhibit A
,
attached hereto all of which shares are fully paid and
non-assessable.
C.
The
parties hereto believe that it is in their mutual interest to make provisions
for the future disposition of the shares of common stock of the Company, to
the
end that continuity of harmonious management is assured, and a fair process
is
established by which said shares of common stock may be transferred, conveyed,
assigned or sold.
AGREEMENTS
In
consideration of the recitals and the mutual promises, covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as
follows:
1.
Defined
Terms
.
The
following terms, when used in this Agreement, have the respective meanings
set
forth below:
(a)
“
Approved
Sale
”
means
the sale of the Company, whether by merger, consolidation, sale of all or
substantially all of the assets of the Company or a sale of all or substantially
all of the capital stock of the Company, in one transaction or a series of
transactions, which has been approved by a majority of the securities entitled
to vote thereon and by Special Board Approval.
(b)
“
Board
”
shall
mean the Board of Directors of the Company.
(c)
“
CCF
”
shall
mean The Cleveland Clinic Foundation, a not-for-profit Ohio
corporation.
(d)
“
Code
”
shall
mean the United States Internal Revenue Code of 1986, as amended.
(e)
“
Commission
”
shall
mean the United States Securities and Exchange Commission or any successor
thereto.
(f)
“
Common
Stock
”
shall
mean the Company’s Common Stock, par value $0.005 per share.
(g)
“
Exchange
Act
”
shall
mean the Securities Exchange Act, of 1934, as amended, or any similar federal
statute as the same shall be in effect from time to time.
(h)
“
Material
Deviation
”
shall
mean any sum or allocation that, when aggregated with similar deviations made
during any calendar quarter, equals or exceeds a total of five percent (5%)
of
the then current annual budget as approved by the Board.
(i)
“
Person
”
shall
mean any individual, partnership, limited liability company, corporation, joint
venture, trust, unincorporated organization, or other entity, or a governmental
entity or any department, agency or political subdivision thereof.
(j)
“
Qualified
IPO
”
means
the Company’s first fully underwritten firm commitment public offering of shares
of Common Stock consummated pursuant to a registration statement declared
effective under the Securities Act, other than an offering made in connection
with a business acquisition or combination or an employee benefit plan, in
which
the aggregate gross proceeds to the Company after deducting underwriters’
discounts and commissions and related offering expenses equals or exceeds
Fifteen Million Dollars ($15,000,000) and in which the price per share of Common
Stock offered to the public equals or exceeds Two Dollars ($2) (such price
to be
equitably adjusted in the event of any stock dividend, stock split, combination,
recapitalization, reorganization, reclassification or other similar
event).
(k)
“
Restricted
Stock Agreements
”
shall
mean the restricted stock agreements entered into by and between the Company
and
certain of the Stockholders, and placing certain restrictions on the transfer
and disposition of the Shares.
(l)
“
Rule
144
”
shall
mean Rule 144 (including Rule 144(k)) of the Commission under the Securities
Act
or any similar provision then in force under the Securities Act.
(m)
“
Securities
Act
”
means
the Securities Act of 1933, as amended, or any similar federal statute as the
same shall be in effect from time to time.
(n)
“
Senior
Securities
”
shall
mean any class or series of securities of the Company which may be issued from
time to time by the Company or any shares of Common Stock of the Company issued
upon conversion of a security of such class or series, in either case,
designated as having registration rights senior to those rights granted in
this
Agreement with respect to the Stockholder Shares.
(o)
“
Shares
”
means
shares of Common Stock which have not been (i) sold to the public pursuant
to a
registration statement declared effective by the Commission (other than one
on
Form S-8 or a comparable form), (ii) sold pursuant to Rule 144 or (iii) sold
or
otherwise transferred in a transaction in which the rights under this Agreement
have not been assigned. For the purposes of this Agreement, any Person will
be
deemed to own, in addition to any Shares such Person actually owns, any Shares
which would then be directly or indirectly issuable upon the conversion or
exercise (whether or not then convertible or exercisable) of any other
securities of the Company owned by such Person.
(p)
“
Stockholder
Shares
”
means,
at any time, (i) Shares then held by the Stockholders, (ii) Shares that were
at
one time held by any Stockholder but are then held by (A) a successor or assign
of any Stockholder or (B) a Person who becomes a party to this Agreement and
(iii) Shares that were issued upon conversion or exercise of other Stockholder
Shares, or that were issued as a dividend or other distribution with respect
to
or in replacement of other Stockholder Shares, and are then held by (1) any
Stockholder, (2) a successor or assign of any Stockholder or (3) a subsequent
Person who becomes a party to this Agreement.
(q)
“
Special
Board Approval
”
shall
mean the prior approval of the holders of not less than 60% of the total number
of outstanding Shares.
(r)
“
transfer
”
shall
mean any sale, exchange, assignment, transfer, mortgage, pledge, encumbrance,
hypothecation, disposition, gift, devise, bequest, or other disposition or
grant
of rights or interests, whether voluntarily or involuntarily, by operation
of
law or otherwise.
2.
Board
of Directors
.
(a)
From
and
after the date hereof and until the provisions of this Section 2 cease to be
effective, each Stockholder will vote such Shares over which such Person has
voting control, and will take all other necessary or desirable actions within
his or its control and consistent with legal duty (whether in his capacity
as a
Stockholder, director, member of a Board committee or officer of the Company
or
otherwise), and the Company will take all necessary and desirable actions within
its control and consistent with legal duty, in order to cause:
(i)
the
authorized number of directors on the Board to be established at five (5),
and
meetings of the Board to be scheduled quarterly until such time as the Board
votes to schedule such meetings less frequently;
(ii)
the
election to the Board of:
(A)
two
representatives (the “
CCF
Representatives
”)
designated by CCF who shall initially be:
Paul
DiCorleto, Ph.D.; and
Theodore
Theofrastous, Esq.; and
(B)
three
representatives (the “
Company
Representatives
”)
designated by the holders of a majority of the then outstanding
Shares:
Michael
Fonstein, Ph.D.;
Andrei
Gudkov, Ph.D.; and
Yakov
Kogan, Ph.D.
(iii)
the
removal from the Board (with or without cause) of any representative(s), at
the
written request of the Persons entitled to designate such representative(s)
under (ii) above, but only upon such written request and under no other
circumstances; and
(iv)
in
the
event that any representative designated hereunder for any reason ceases to
serve as a member of the Board during such representative’s term of office, the
resulting vacancy on the Board to be filled by a representative designated
as
provided in (ii) above by the Persons entitled to designate such
representative(s) under (ii) above.
(b)
The
Company will pay the reasonable out-of-pocket expenses actually incurred by
each
director in connection with attending formal and informal meetings of the Board.
The Company will pay the non-employee Directors a reasonable fee for attending
Board meetings, such fee to be established by the Board from time to
time.
(c)
The
rights of CCF to designate, approve or add Board members under this Section
2
will terminate when CCF owns, legally or beneficially, less than five percent
(5%) of the outstanding Shares.
(d)
Notwithstanding
the foregoing, the provisions of this Section 2 will terminate automatically
and
be of no further force and effect upon the consummation of a Qualified
IPO.
3.
Initial
Negative Covenants of the Company: Special Board
Approval
.
Until
such time as the Company has raised at least two million dollars ($2,000,000)
in
financial investment(s), the Company, for itself and for each of its
Subsidiaries, whether now owned or hereafter formed or acquired, covenants
to
and agrees with the Stockholders that, so long as CCF owns, legally or
beneficially, more than ten percent (10%) of the outstanding Shares, neither
the
Company nor any Subsidiary will do any of the following without Special Board
Approval:
(a)
Board
of Directors
.
Increase the authorized number of members of the Board of
Directors;
(b)
Chief
Executive Officer
.
Hire or
terminate any Chief Executive Officer;
(c)
Dispositions
and Acquisitions
.
Directly or indirectly (i) sell, lease or otherwise dispose of any asset or
assets in a single transaction or series of related transactions (including,
without limitation, shares of stock or other ownership interests in any Person
and assets constituting a business) with a value that constitutes a Material
Deviation; (ii) acquire in any single transaction or series of related
transactions assets of any Person (including, without limitation, shares of
stock or other ownership interests in any other Person and assets constituting
a
business) where the total consideration, including, without limitation,
employment contracts, non-competition provisions, assumption of liabilities
and
payment for assets, the value of which constitute a Material Deviation; or
(iii)
make any acquisitions outside the Business;
(d)
Security
Interests
.
Create,
incur, assume, or permit to exist, any Security Interest in any of its
properties or assets whether now owned or hereafter acquired, other than
Permitted Liens or a Security Interest granted in connection with (i) trade
debt
incurred in the ordinary course of business, (ii) purchase money debt that
constitutes a Material Deviation, (iii) capitalized leases that constitute
a
Material Deviation, and (iv) debt assumed in acquisitions which have received
such approval as is herein required;
(e)
Indebtedness
.
Create,
incur, assume, or otherwise become or remain liable, directly or indirectly,
for
any manner of Indebtedness, whether by loan, guaranty, mortgage or otherwise,
in
excess of the amounts disclosed to the Stockholders in the Purchase Agreement,
except (i) as trade debt incurred in the ordinary course of business, (ii)
as
purchase money debt that constitutes a Material Deviation, (iii) as capitalized
leases not to exceed any amount that constitutes a Material Deviation, and
(iv)
pursuant to the annual budget;
(f)
Advances;
Investments
.
Except
in connection with the formation of wholly- owned subsidiaries, (i) make any
advance or loan to any person, firm or corporation, except for reasonable travel
or business expenses advanced to the Company’s or a Subsidiary’s employees or
independent contractors in the ordinary course of business, or (ii) invest
in,
acquire or hold any securities of any other Person, except bank certificates
of
deposit that are fully insured by an agency of the United States or direct
obligations of the United States or short-term money market funds;
provided,
however
,
that
this paragraph will not include trade accounts receivable incurred in the
ordinary course of business;
(g)
Capital
Expenditures
.
Make
any Capital Expenditures or commitments for such expenditures on a consolidated
basis that constitute a Material Deviation per annum in excess of the amount
provided in the annual budget;
(h)
Transactions
with Related Persons
.
Except
where specifically disclosed to the Board prior to undertaking any such
transaction and where Board approval has been obtained if the transaction
exceeds Five Thousand Dollars ($5,000), knowingly enter into any transaction,
agreement or arrangement with any stockholder, director, or officer of the
Company or of any Subsidiary, any relative by blood or marriage of any
stockholder, director or officer of the Company or of any Subsidiary or any
supplier, service organization, customer or other entity in which any
stockholder, director or officer of the Company or of any Subsidiary has a
financial interest and, in addition to the foregoing restrictions, all
transactions between the Company or any of its Subsidiaries on the one hand,
and
any Affiliate of the Company on the other hand, will be on arms’ length terms
and conditions, including fair market values and prices equivalent to those
that
would be charged and paid between parties at arms’ length at the time of the
entering into of the transactions in question;
(i)
Management
Agreements
.
Make or
enter into any agreements whereby the management, supervision or control of
its
business is to be delegated to or placed in any persons other than its duly
elected Board and officers, or make or enter into any contract or agreement
whereby the operation of its business, in whole or in part, is delegated to,
or
placed in, any agent (third party) or independent contractor;
(j)
Agreements
Regarding the Foregoing
.
Agree,
or make any binding commitment or arrangement, to take any of the actions
specified in clauses (a) through (i) above.
4.
Additional
Negative Covenants of the Company: Special Board
Approval
.
Until
such time as the Company achieved total investment or commercial financing
events wherein the Company has raised a total of at least 15 million dollars
($15,000,000), the Company, for itself and for each of its Subsidiaries, whether
now owned or hereafter formed or acquired, covenants to and agrees with the
Stockholders that, so long as CCF owns, legally or beneficially, more than
ten
percent (10%) of the outstanding Shares, neither the Company nor any Subsidiary
will do any of the following without Special Board Approval:
(a)
Change
in Number of Authorized Shares Issuance of Equity
.
Increase or decrease the authorized number of shares of Common Stock; effect
any
stock split, combination, subdivision or share dividend; issue any shares of
capital stock of the Company or any of its Subsidiaries of any class, or
securities (excluding options issued under the Company’s incentive stock option
program) convertible into or exchangeable for, capital stock, other than up
to
an aggregate of 5% of the total outstanding Shares (as adjusted for all stock
dividends, stock splits, subdivisions and combinations and including any and
all
outstanding options as of the date hereof and any outstanding shares that were
issued upon exercise of previously outstanding options), issued or granted
as
compensation to directors, senior management of the Company or any Subsidiary,
or key employees of businesses acquired by the Company or any
Subsidiary;
(b)
New
Class of Stock
.
Create
any new class or series of stock of the Company which has preference over or
is
on parity with the Common Stock;
(c)
Business
.
Directly or indirectly change the nature of its business as carried on by the
Company or its Subsidiaries in any material respect;
(d)
Public
Offering
.
Make
any underwritten public offering of the Common Shares other than a Qualified
IPO;
(e)
Merger
.
Approve
or effect any merger or consolidation with another business or
company;
(f)
Sale,
Dissolution or Liquidation
.
(i)
sell, lease or otherwise dispose of all or substantially all of the Company’s
assets, to any Person; (ii) adopt any plan or arrangement for the dissolution
or
liquidation of the Company;
(g)
Dividends
.
Declare
or pay (or make any provision for the payment of) any dividend or distribution
on any equity security;
(h)
Charter
Documents
.
Amend
its Certificate of Incorporation or its By-Laws;
(i)
Inconsistent
Agreements
.
Enter
into any agreement containing any provision that would be violated or breached
by the performance by the Company of its obligations under this
Agreement;
(j)
Registration
Rights
.
Grant
additional registration rights beyond those granted as of the date hereof;
or
(k)
Agreements
Regarding the Foregoing
.
Agree,
or make any binding commitment or arrangement, to take any of the actions
specified in clauses (a) through (j) above.
5.
Take-along
.
(a)
Except
for “Permitted Transferees” under certain of the Restricted Stock Agreements, no
Stockholder shall transfer Stockholder Shares in excess of the greater of (i)
five percent of such selling Stockholder’s Shares or (ii) one percent of the
aggregate outstanding Stockholder Shares, in a single transaction or related
series of transactions, to any Person (in such capacity, the “”
Purchaser
”)
unless
the terms and conditions of such sale, transfer or other disposition (the
“
Disposition
”)
to
such Purchaser shall contain an offer to each of the other Stockholders, to
include in such Disposition such number of shares of such Stockholder Shares
as
is determined in accordance with Section 5(b) below. At least 45 days prior
to
effecting any Disposition, such selling Stockholder (the “
Selling
Stockholder
”)
shall
promptly cause the terms and conditions of the Disposition to be reduced to
a
reasonably detailed writing (which writing shall identify the Purchaser and
shall include the offer to the other Stockholders to purchase or otherwise
acquire their Securities according to the terms and subject to the conditions
of
this Section 5), and shall deliver, or cause the Purchaser to deliver, written
notice (the “
Notice
”)
of
such terms of such Disposition to each other Stockholder. The Notice shall
be
accompanied by a true and correct copy of the agreement, if any, embodying
the
terms and conditions of the proposed Disposition or such written summary thereof
if there is no agreement. At any time after receipt of the Notice (but in no
event later than 10 Business Days after receipt), any Stockholder may accept
the
offer included in the Notice for up to such number of its shares of Stockholder
Shares as determined in accordance with the provisions of Section 5(b) below,
by
furnishing irrevocable written notice of such acceptance (the “
Acceptance
”)
to the
Selling Stockholder and to the Purchaser.
(b)
In
the
event that any Stockholder elects to accept the offer included in the Notice
described in Section 5(a) above, such Stockholder (the “
Included
Stockholder
”)
shall
have the right to sell, transfer or otherwise dispose of such number of its
shares of Stockholder Shares pursuant to, and upon consummation of, the
Disposition which is equal to the product of: (i) the total number of Shares
owned by the Included Stockholder; and (ii) a fraction, the numerator of which
shall equal 50% of the total number of Shares to be sold to the Purchaser,
and
the denominator of which shall equal the total number of Shares owned by all
Stockholders. If the Purchaser is not willing to purchase all Shares proposed
to
be sold in the Disposition by the Selling Stockholder and all Included
Stockholders, the Selling Stockholder shall reduce, to the extent necessary,
the
number of number of Common Shares the Selling Stockholder otherwise would have
sold in the Disposition so as to permit Included Stockholders to sell the number
of Shares they are entitled to sell in such Disposition pursuant to this Section
5(b).
(c)
The
purchase of Shares pursuant to this Section 5 shall be made on the same terms
(including, without limitation, the per share consideration and method of
payment, and the date of sale, transfer or other disposition), and subject
to
the same conditions, if any, as are provided to the Selling Stockholder and
stated in the Notice.
(d)
Upon
the
consummation of the disposition of Shares to the Purchaser pursuant to the
Disposition, the Selling Stockholder shall: (i) cause the Purchaser to remit
directly to each Included Stockholder the sales price of its Securities disposed
of pursuant thereto; and (ii) furnish such other evidence of the completion
and
time of completion of such disposition and the terms thereof as may be
reasonably be requested by such Included Stockholder.
(e)
If
a
Stockholder does not timely deliver the Acceptance to the Selling Stockholder
and the Purchaser, it shall be deemed to have waived any and all rights pursuant
to this Section 5 and with respect to the disposition of its Shares described
in
the Notice, and the Selling Stockholder and Included Stockholder(s) shall have
45 days (calculated from the first day next succeeding the expiration of the
10
Business Days acceptance period described above), in which to dispose of the
aggregate amount of Shares described in the Notice to the Purchaser identified
in the Notice, on terms not more favorable to the Selling Stockholder than
those
which were set forth in the Notice. If an Included Stockholder has timely
delivered the Acceptance and, if after 30 days following receipt of the Notice,
the Selling Stockholder and the Purchaser shall not have completed the
disposition of Shares to be sold in connection therewith in accordance with
the
terms of the Disposition, all the restrictions on the disposition of Shares
contained in Restricted Stock Agreements shall again be in full force and
effect.
6.
Permitted
Transfers
.
A
holder of Stockholder Shares may transfer Stockholder Shares, without complying
with Section 5 with respect to such transfer, to Permitted Transferees, if
any
(as defined in the Restricted Stock Agreements) of such holder, provided that
as
a condition precedent to any transfer of Stockholder Shares to a Permitted
Transferee (a) a transferring Stockholder must provide the Company with prior
notice of such transfer indicating the number of Shares to be transferred and
the identity of the Permitted Transferee and (b) such Stockholder’s Permitted
Transferee must agree to be bound by the terms of this Agreement as a
Stockholder, including without limitation, Sections 5 and 6, by executing an
Instrument of Accession in the form of
Exhibit B
.
7.
Sale
of the Company or its Assets
.
Each
holder of Stockholder Shares will consent to and raise no objections to an
Approved Sale and (a) if an Approved Sale is structured as a sale of stock,
each
holder of Stockholder Shares will agree to sell, and will sell, all of such
holder’s Stockholder Shares on the terms and conditions (including any escrow or
indemnification provisions) so Approved, (b) if an Approved Sale is structured
as a merger or consolidation, each holder of Stockholder Shares will vote in
favor thereof and will no exercise any dissenters’ rights of appraisal such
holder may have under law, including Delaware corporation law, and (c) if an
Approved Sale is structured as a sale of all or substantially all of the assets
of the Company and a subsequent dissolution and liquidation of the Company,
each
holder of Stockholder Shares will vote in favor thereof and will vote in favor
of the subsequent dissolution and liquidation of the Company. Each holder of
Stockholder Shares will take all necessary actions in connection with
consummation of an Approved Sale as are reasonably requested by the
Board.
8.
Legends
.
Each
certificate representing Shares (each, a “
Certificate
”)
shall
be endorsed with the following legends and such other legends as may be required
by applicable state securities laws:
TRANSFER
RESTRICTIONS
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN STOCKHOLDERS AGREEMENT, AMONG CLEVELAND BIOLABS, INC. AND
CERTAIN OTHER HOLDERS OF ITS SECURITIES, DATED AS OF JULY 1, 2004. A COPY
OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF
__________ __, 200_, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN
THE
COMPANY AND _____________ OF THE COMPANY DATED AS OF __________ __, 200_.
A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY’S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.”
9.
Holdback
Agreement
.
In
connection with any registration of the Company’s securities (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan) each Stockholder hereby agrees that, upon written request
of the Company or the underwriters managing any underwritten offering of the
Company’s securities, such Stockholder shall not sell, make any short sale of,
loan, pledge or otherwise hypothecate or encumber, grant any option for the
purchase of, or otherwise dispose of any Stockholder Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act) as may be requested
by
the Company or such managing underwriters; provided that (i) the officers and
directors of the Company who own stock of the Company, as well as any
Stockholder who owns more than one percent (1%) of the Common Stock of the
Company on a fully diluted, fully converted basis, also agree to such
restrictions, and (ii) the underwriters shall not release any party from any
lock-up agreement or similar agreement (a “
Lock
Up Release
”)
without (x) providing the undersigned at least three (3) business days’ prior
written notice of the effective date of the Lock Up Release and (y)
simultaneously releasing the undersigned and their affiliates to the same extent
from any lock-up letter or similar agreement to which they are a party. Nothing
herein shall prevent a holder of Stockholder Shares that is a partnership from
making a distribution of Stockholder Shares to its partners, a holder of
Stockholder Shares that is a trust from making a distribution of Stockholder
Shares to its beneficiaries or a holder of Stockholder Shares that is a
corporation from making a distribution of Stockholder Shares to its
stockholders, provided that the transferees of such Stockholder Shares agree
to
be bound by the provisions of this Agreement to the extent the transferor would
be so bound by executing an Instrument of Accession in the form of
Exhibit B
.
10.
Piggyback
Registration Rights
.
(a)
Right
to Piggyback
.
After
the consummation of a Qualified IPO, whenever the Company proposes to register
any of its securities under the Securities Act, either pursuant to an
underwritten primary registration on behalf of the Company or pursuant to an
underwritten secondary registration on behalf of a holder or holders of the
Company’s securities (other than on Form S-4, Form S-8 or any successor form)
and the registration form to be used may be used for the registration of any
Stockholder Shares (a “
Piggyback
Registration
”),
the
Company will give prompt written notice to each holder of Stockholder Shares
of
its intention to effect such a registration and will include in such
registration all Stockholder Shares (subject to, and in accordance with, the
priorities set forth in Section 10(b)), with respect to which the Company has
received written requests for inclusion within ten (10) days after delivery
of
the Company’s notice.
(b)
Priority
.
If the
managing underwriters advise the Company that in their opinion, the number
of
Shares requested to be included in such registration exceeds the number which
can be sold in such offering without adversely affecting the marketability
or
pricing thereof, the Company will include in such registration up to an
aggregate amount determined advisable by the underwriters: (i)
first
,
the
Shares that the Company and the holders of any Senior Securities wish to
register and (ii)
second
,
all
Stockholder Shares requested to be registered
pro
rata
among
the holders of such Stockholder Shares on the basis of the number of Stockholder
Shares which are requested to be registered.
(c)
Withdrawal
of Registration Statement
.
Notwithstanding anything herein to the contrary, the Company may withdraw any
registration statement referred to in this Section 10 at any time in its sole
discretion without thereby incurring any liability to the holders of Stockholder
Shares.
11.
Registration
Procedures
.
Whenever holders of Stockholder Shares have requested that any Stockholder
Shares be registered pursuant to this Agreement, the Company will use its
reasonable best efforts to effect the registration of such Stockholder Shares
in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company will:
(a)
use
its
reasonable best efforts to register or qualify such Stockholder Shares under
the
securities or blue sky laws of the jurisdictions as any seller reasonably
requests in writing and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Stockholder Shares owned by such seller
(provided that the Company will not be required to (i) qualify generally to
do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph or (ii) consent to general service of process in
any
such jurisdiction);
(b)
notify
each seller of Stockholder Shares at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, as promptly as
practicable thereafter, prepare and file with the Commission and furnish to
each
seller of Stockholder Shares subject to the registration statement, a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of Stockholder Shares, such prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(c)
cause
all
such Stockholder Shares to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed;
(d)
enter
into customary agreements (including an underwriting agreement in customary
form) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Stockholder Shares;
(e)
make
reasonably available for inspection by (i) any holder of Stockholder Shares
subject to the registration statement, (ii) any underwriter participating in
any
disposition pursuant to such registration statement, and (iii) any attorney,
accountant or other agent retained by any holder of Stockholder Shares, or
an
underwriter (collectively, the “
Inspectors
”),
all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the “
Records
”)
as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement. Records and other information which the
Company determines, in good faith, to be confidential and which it notifies
the
Inspectors are confidential will not be disclosed by the Inspectors unless
(x)
the disclosure of the Records in the opinion of counsel reasonably acceptable
to
the Company is necessary to avoid or correct a misstatement or omission in
the
registration statement or (y) the release of Records is ordered pursuant to
a
subpoena or other order from a court of competent jurisdiction. Each holder
of
Stockholder Shares subject to the registration statement will, upon learning
that disclosure of the Records is sought in a court of competent jurisdiction,
promptly give notice to the Company and allow the Company, at the Company’s
expense, to undertake appropriate action to prevent disclosure of the records
deemed confidential;
(f)
in
the
event that the sale of Stockholder Shares is pursuant to an underwritten
offering, use its best efforts to obtain a “cold comfort” letter from the
Company’s independent public accountants in customary form and covering such
matters of the type customarily covered by “cold comfort” letters as the holders
of Stockholder Shares being sold or the managing underwriter reasonably
requests;
(g)
use
all
reasonable efforts to obtain an opinion or opinions from counsel for the Company
in customary form;
(h)
provide
a
transfer agent and registrar for all such Stockholder Shares not later than
the
effective date of such registration statement;
(i)
at
least
forty-eight hours prior to the filing of any registration statement or
prospectus or any amendment or supplement to such registration statement or
prospectus, furnish a copy thereof to each holder of Stockholder Shares and
refrain from filing any such registration statement, prospectus, amendment
or
supplement to which counsel selected by the Stockholder Shares being registered
shall have reasonably objected on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, unless, in the case of an amendment
or supplement, in the opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the Company from
any
liabilities under any applicable federal or state law and such filing will
not
violate applicable laws; and
(j)
advise
each seller of such Stockholder Shares promptly after it shall receive notice
or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation
or
threatening of any proceeding for such purpose and use reasonable efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such
stop
order should be issued.
12.
Indemnification
.
(a)
By
the
Company
.
The
Company agrees to indemnify, to the extent permitted by law, each holder of
Stockholder Shares, its partners, officers and directors and each Person who
controls any such holder (within the meaning of the Securities Act), against
all
losses, claims, damages, liabilities and expenses (including without limitation,
reasonable attorney’s fees and expenses) caused by any untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission
of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as (i) the same are caused by or
contained in any information furnished to the Company by such holder expressly
for use therein, or (ii) a copy of such registration statement, prospectus
or
preliminary prospectus or any amendment thereof or supplement thereto was
provided to such seller of Stockholder Shares in compliance with Section 11(b)
hereof, and such seller failed to deliver such prospectus, preliminary
prospectus, amendment or supplement correcting such untrue or alleged untrue
statement of a material fact, or omission or alleged omission of a material
fact
required to be stated therein or necessary to make the statements therein not
misleading.
(b)
By
Each Holder
.
In
connection with any registration statement in which a holder of Stockholder
Shares is participating, each such holder will furnish to the Company in writing
such information and affidavits, in each case relating only to such holder,
as
the Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses (including without limitation, reasonable attorneys’
fees and expenses) resulting from any untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus,
or any amendment thereof or supplement thereto, or any omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission
is
contained in any information or affidavit so furnished by such holder; provided
that the obligation to indemnify will be several, not joint and several, among
such holders of Stockholder Shares.
(c)
Procedure
.
Any
Person entitled to indemnification under this Section 12 will (i) give prompt
written notice to the indemnifying Person of any claim with respect to which
it
seeks indemnification, and (ii) unless in the reasonable judgment of such
indemnified Person a conflict of interest between such indemnified Person and
indemnifying Person may exist with respect to such claim, permit such
indemnifying Person to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified Person. If such defense is assumed, the
indemnifying Person will not be subject to any liability for any settlement
made
by the indemnified Person without its consent, which consent will not be
unreasonably withheld. An indemnifying Person who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees
and
expenses of more than one (1) counsel for all indemnified Persons with respect
to such claim, unless in the reasonable judgment of any indemnified Person
a
conflict of interest may exist between such indemnified Person and any other
indemnified Person with respect to such claim. The payments required by this
Section 12 will be made periodically during the course of the investigation
or
defense, as and when bills are received or expenses incurred.
(d)
Contribution
.
If for
any reason the indemnification provided for in Section 12(a) or 12(b) hereof
is
unavailable to an indemnified Person as contemplated thereby, the indemnifying
Person, in lieu of indemnifying such indemnified Person, shall contribute to
the
amount paid or payable by such indemnified Person as a result of such loss,
claim, damage, liability or expense in such proportion as is appropriate to
reflect the relative fault of the indemnified Person and the indemnifying
Person, as well as any other relevant equitable considerations. The relative
fault of such indemnifying Person and indemnified Person shall be determined
by
reference to, among other things, whether the untrue statement of material
fact
or omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying Person or indemnified Person, and
the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties hereto agree that
it
would not be just and equitable if contribution pursuant to this Section 12
were
determined by
pro
rata
allocation or by any other method of allocation that does not take account
of
equitable considerations referred to in this paragraph. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of fraudulent misrepresentation.
(e)
Survival
.
This
Section 12 will remain in full force and effect regardless of any investigation
made by or on behalf of any indemnified Person or any officer, director, agent
or, controlling Person of such indemnified Person and will survive any transfer
of Shares pursuant to the terms hereunder.
13.
Other
Registration Provisions
.
(a)
Priority
of Subsequent Investors
.
Subject
to the provisions of this Agreement, the Company may grant unlimited demand
registration rights and a senior priority in any piggyback registration to
holders of Senior Securities from time to time, including without limitation,
classes or series of Senior Securities that do not exist as of the date of
this
Agreement, as determined by Special Board Approval.
(b)
Registration
Expenses
.
All
expenses incident to the Company’s performance of or compliance with this
Agreement, including without limitation (i) all registration and filing fees,
fees and expenses of compliance with Federal and state securities or blue sky
laws, (ii) all listing fees, printing expenses, messenger and delivery expenses,
(iii) fees and disbursements of counsel for the Company, (iv) fees and
disbursements of all independent certified public accountants and other Persons
retained by the Company including underwriters (other than underwriter’s
discounts and commissions) (all such expenses being herein called “
Registration
Expenses
”)
will
be borne by the Company;
provided
,
however
,
that
each seller of Stockholder Shares shall bear (i) all fees and disbursements
of
counsel such seller retains in connection with the registration of Stockholder
Shares and (ii) all underwriting commissions and discounts and transfer taxes
attributable directly to any Stockholder Shares sold for such seller’s
account.
(c)
Selection
of Underwriters
.
The
Company shall have the right, subject, so long as CCF owns, legally or
beneficially, more than five percent (5%) of the outstanding Shares, to the
reasonable approval of CCF, to select the underwriter(s) or investment banker(s)
to administer any underwritten registration of shares of Common Stock, including
without limitation, any Piggyback Registration.
(d)
Compliance
with Rule 144
.
In the
event that the Company (i) registers a class of securities under Section 12
of
the Exchange Act, or (ii) commences to file reports under Section 13 or 15(d)
of
the Exchange Act, the Company agrees: (a) to use its reasonable best efforts
to
make and keep available to the public and all holders who propose to sell
securities in compliance with Rule 144 that information required by Rule 144
and
to enable such holders to make sales pursuant to Rule 144; and (b) to furnish
to
such holders forthwith upon request a written statement by the Company of
compliance with the filing requirements of the Commission as set forth in Rule
144.
(e)
Participation
in Underwritten Registrations
.
No
holder of Stockholder Shares may participate in any registration hereunder
which
is underwritten unless such holder (i) agrees to sell such holder’s Stockholder
Shares on the basis provided in any underwriting arrangements approved by the
Company or any other Persons entitled to approve such arrangements, and (ii)
completes and executes all questionnaires, powers-of-attorney, custody
agreements, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements;
provided
,
however
,
that
any indemnity granted by a holder of Stockholder Shares under such agreements
shall be several and not joint.
14.
Miscellaneous
.
(a)
Termination
.
The
provisions set forth in Sections 2, 3, 4, 5 and 6 shall terminate upon the
consummation of a Qualified IPO and the rights provided under Section 10 shall
terminate with respect to a holder of Stockholder Shares as soon as such holder
is eligible to sell all of such holder’s Stockholder Shares pursuant to Rule 144
without restriction as to the number of Stockholder Shares sold within a stated
period of time.
(b)
Notices
.
Any
notice, demand, or communication required or permitted to be given by any
provision of this Agreement shall be delivered personally by overnight courier
or by registered or certified mail, return receipt requested, to the following
addresses, or such other address as any party hereto designates by written
notice to the Company, and shall be deemed to be given upon delivery, if
delivered personally, one business day after delivery to the courier, if
delivered by overnight courier, or two business days after mailing, if
mailed:
(i)
If
to the
Company:
Cleveland
BioLabs, Inc.
____________________
____________________
Attention:
Chief Executive Officer
With
a
copy to:
Katten
Muchin Zavis Rosenman
525
West
Monroe Street, Suite 1600
Chicago,
Illinois 60661
Attention:
Kurt W. Florian, Esq.
(ii)
If
to
CCF, to:
The
Cleveland Clinic Foundation
9500
Euclid Avenue
Cleveland,
Ohio 44196
Attn:
[General Counsel]
with
required copies to:
Squire,
Sanders & Dempsey L.L.P.
4900
Key
Tower
127
Public Square
Cleveland,
Ohio 44114
Attn:
Daniel G. Berick, Esq.
and
CCF
Innovations
9500
Euclid Avenue
Cleveland,
Ohio 44195
Attn:
Chief Commercialization Counsel
(iii)
If
to any
other Stockholder, to the address set forth on the stock record books of the
Company.
(c)
Application
of Delaware Law
.
This
Agreement and its interpretation shall be governed exclusively by its terms
and
by the laws of the State of Delaware.
(d)
Amendments
Waivers
.
Any
provision of this Agreement may be amended or waived in writing by the holders
of a majority of the Stockholder Shares and this Agreement may be amended by
the
Board, without the consent of the Stockholders, to cure any ambiguity, to
correct or supplement any provisions herein which may be inconsistent with
any
other provision herein, or to add other provisions with respect to matters
arising under this Agreement which will not be inconsistent with the provisions
of this Agreement;
provided
,
however
that no
amendment shall be adopted pursuant to this section unless the adoption thereof
is for the benefit of or not adverse to the interests of the
Stockholders.
(e)
Execution
of Additional Instruments
.
Each
Stockholder hereby agrees to execute such other and further statements of
interest and holdings, designations and other instruments necessary to comply
with any laws, rules, or regulations.
(f)
Construction
.
The
language used in this Agreement will be deemed the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction will be used against any party hereto.
(g)
Headings
.
The
headings in this Agreement are inserted for convenience only and are in no
way
intended to describe, interpret, define, or limit the scope, extent or intent
of
this Agreement or any provision hereof.
(h)
Severability
.
If any
provision of this Agreement or the application thereof to any Person or
circumstances shall be invalid, illegal, or unenforceable to any extent, the
remainder of this Agreement and the application thereof shall not be affected
and shall be enforceable to the fullest extent permitted by law.
(i)
Heirs,
Successors and Assigns
.
Each
and all of the covenants, terms, provisions, and agreements herein contained
shall be binding upon and inure to the benefit of the parties hereto and, to
the
extent permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns.
(j)
Creditors
.
None of
the provisions of this Agreement shall be for the benefit of or enforceable
by
any creditors of the Company or any Stockholder.
(k)
Counterparts
.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same
instrument.
IN
WITNESS WHEREOF
,
the
parties hereto have executed and delivered this Common Stockholders Agreement
as
of the date first above written.
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
Name:
Michael
Fonstein
|
|
Title:
CEO
|
|
|
|
|
THE
CLEVELAND CLINIC FOUNDATION
|
|
|
|
|
By:
|
/s/ Michael
P. O’Boyle
|
|
Name:
Michael
P. O’Boyle
|
|
Title:
Chief
Financial Officer
|
(SIGNATURE
PAGE TO STOCKHOLDERS AGREEMENT)
SIGNATURE
BLOCK FOR INDIVIDUAL
|
Mr.
|
|
|
(1)
|
Mrs.
|
Signature:
|
/s/____________________
|
|
Ms.
|
Date:
|
|
|
|
|
|
|
Joint
Tenant/Tenant in Common (if applicable):
|
|
|
|
Mr.
|
|
|
(2)
|
Mrs.
___________________
|
Signature:
|
_____________________
|
|
Ms.
|
Date:
|
_____________________
|
|
|
|
|
|
TYPE
OF OWNERSHIP:
|
|
|
|
|
|
|
|
_____
Individual
|
________
|
Joint
Tenants with Right of Survivorship
|
|
|
|
|
|
_____
Tenants
in Common
|
________
|
Community
Property (check only if a resident of a Community Property
State)
|
|
|
|
|
|
|
|
|
SIGNATURE
BLOCK FOR ENTITIES
|
Name:
________________________________
|
|
|
|
By:
________________________________
|
|
(Signature)
|
|
|
|
________________________________
|
|
(Signer’s
Printed Name)
|
|
|
|
Its:
__________________________
|
|
|
|
Date:
__________________________
|
|
|
____
Partnership
____
Corporation
____
Trust
____
Bank
(SIGNATURE
PAGE TO STOCKHOLDERS
AGREEMENT)
EXHIBIT
A
STOCKHOLDERS
OF CLEVELAND BIOLABS, INC.
Stockholder
|
Common
Stock
|
%
of Outstanding Common Stock
|
Shares
Issuable upon exercise of Warrants
|
Fully
Diluted Ownership
|
Fully
Diluted Ownership %
|
|
|
|
|
|
|
Employees
|
|
|
|
|
|
Michael
Fonstein
|
2,200
|
22.0%
|
|
2,200
|
21.1%
|
Yakov
Kogan
|
1,200
|
12.0%
|
|
1,200
|
11.5%
|
Lena
Feinstein
|
450
|
4.5%
|
|
450
|
4.3%
|
George
Stark
|
350
|
3.5%
|
|
350
|
3.4%
|
Mike
Chernov
|
85
|
0.9%
|
|
85
|
0.8%
|
Katia
Gurova
|
180
|
1.8%
|
|
180
|
1.7%
|
Vadim
Krivokrisenko
|
85
|
0.9%
|
|
85
|
0.8%
|
|
|
|
|
|
|
Outside
Directors
|
|
|
|
|
|
Andrei
Gudkov
|
2,600
|
26.0%
|
|
2,600
|
24.9%
|
|
|
|
|
|
|
Institutional
Shareholders
|
|
|
|
|
|
ChemBridge
Corporation
|
600
|
6.0%
|
444
|
1,044
|
10.0%
|
Cleveland
Clinic Foundation
|
2,250
|
22.5%
|
|
2,250
|
21.5%
|
Totals
|
10,000
|
100.0%
|
444
|
10,444
|
100.0%
|
(SIGNATURE
PAGE TO STOCKHOLDERS
AGREEMENT)
EXHIBIT
B
INSTRUMENT
OF ACCESSION
The
undersigned, The Cleveland Clinic Foundation, in connection with its acquisition
of shares of capital stock of Cleveland BioLabs, Inc. (the “
Company
”),
hereby agrees to become a party to and a Stockholder under that certain
Stockholders Agreement, dated as of July 1, 2004 (the “
Stockholders
Agreement
”)
and,
effective as of the date hereof shall be entitled to all of the rights and
benefits, and subject to all of the obligations, of a Stockholder under the
Stockholders Agreement. All of the securities of the Company owned, from time
to
time, by the undersigned, shall be subject to the restrictions on transfer
set
forth in the Stockholders Agreement.
This
Instrument of Accession shall take effect and shall become a part of said
Stockholders Agreement upon its execution and its delivery to the Company by
the
undersigned.
Executed
as of the date set forth below under the laws of the State of
Delaware.
|
Signature:
________________________
|
|
|
Date: _______________________
|
Address:
________________________
|
|
________________________
|
|
________________________
|
Received
and accepted:
Cleveland
BioLabs, Inc.
By:
_______________________
Date:
______________________
EXCLUSIVE
LICENSE AGREEMENT
THIS
EXCLUSIVE LICENSE AGREEMENT
(“Agreement”) is made effective the first day of July, 2004 (“Effective Date”)
by and between The Cleveland Clinic Foundation, a non-profit Ohio corporation
(“CCF”), and Cleveland BioLabs, Inc., a corporation organized and existing under
the laws of the State of Ohio (“CBL”).
WHEREAS
,
CCF
owns the Licensed Patents and CCF Technology which were developed at CCF prior
to the Effective Date of this Agreement and, in addition may be further
developed at CCF under the direction of Dr. Andrei Gudkov, an employee of CCF
(“Doctor”),
WHEREAS
,
CCF
desires to have the Licensed Rights developed and used for the benefit of CBL,
CCF and the public pursuant to the Development Plan and the Research and
Development Milestones, and
WHEREAS
,
CBL
desires a license under all of the Licensed Rights.
NOW,
THEREFORE
,
in
consideration of the mutual covenants and agreements set forth below, the
parties covenant and agree as follows:
Section
1.
Definitions
.
For
the
purpose of this Agreement, the definitions of
Appendix
A
shall
apply.
Section
2.
Grant
.
A.
Exclusive
License to CBL
.
Subject
to the terms and conditions of this Agreement, CCF hereby grants to CBL an
exclusive license under the Licensed Rights to: (a) make, have made, develop,
use, import, export, distribute, market, promote, offer for sale and sell
Products, (b) practice any method, process or procedure within the Licensed
Patents or the CCF Technology, and (c) otherwise exploit the Licensed Rights
within the Licensed Territory for use within the Licensed Field; and to have
any
of the foregoing performed on its behalf by a third party. This grant shall
be
subject to the rights retained by CCF set forth in Section 2.G.
B.
Affiliates
.
CBL
may
extend the right and license granted to CBL under Section 2.A to any Affiliate
provided that such Affiliate consents to be bound by the terms of this Agreement
to the same extent as CBL.
C.
Right
to Sublicense
.
CBL
and
any Affiliate may grant and authorize sublicenses within the scope of the right
and license granted to CBL pursuant to this Agreement, upon termination of
this
Agreement, any and all existing sublicenses shall survive; provided that such
sublicensees promptly agree in writing to be bound by the terms of this
Agreement.
D.
Rights
of First Refusal to CBL
.
CBL
will
have an option to license additional inventions in the CCF Technology, which
are
not covered under Existing Patent Rights as follows:
(i)
CCF
shall
promptly provide CBL with a written, enabling disclosure (“Invention Disclosure
Report”) with respect to any invention or discovery in the Licensed Field
conceived or reduced to practice, alone or jointly with others, by Doctor,
or by
other CCF personnel arising out of or in direct connection with work in Doctor’s
laboratory or under his direction (an “Option Invention”), during the term of
this Agreement.
(ii)
CBL
shall
have the option to include any Option Invention within the CCF Technology for
all purposes of this Agreement. To exercise such option with respect to any
particular Option Invention, CBL shall notify CCF within sixty (60) days after
receiving an Invention Disclosure Report and a written request from CCF as
to
whether CBL wishes to acquire a license to such Option Invention. If CBL elects
to acquire such a license, the Option Invention shall be included within the
License Rights and all worldwide patents rights disclosing the Option Invention
shall be included with the Licensed Patents, both under this Agreement. CBL
and
CCF agree promptly to update
Appendix
G
hereto
upon request by either party from time to time, to reflect all patents and
patent applications then within the Licensed Patents.
E.
Disclosure
of Licensed Rights
.
As
promptly as practicable following the date of this Agreement and on an ongoing
basis thereafter, CCF will disclose to CBL all Licensed Rights which are
licensed under this Agreement in such form as may be reasonable to describe
the
Licensed Rights to CBL clearly and economically.
F.
Control
of Patent Prosecution by CBL
.
(i)
CBL
shall
have primary responsibility to (a) file and prosecute any domestic and/or
foreign patent application which discloses the Licensed Rights, and all
additional applications with respect to Improvements, and (b) maintain any
patent that may issue therefrom. All such patent applications and patents
issuing therefrom shall be deemed to be patent applications and patents within
the Licensed Patents and CCF shall have all right, title and interest therein,
subject to the license granted to CBL under this Agreement. All costs and
expenses of all such patent work, including preparation fees, filing fees,
taxes, annuities, working fees, issuance fees, maintenance fees, and/or renewal
and extension charges shall be paid by CBL.
(ii)
CBL
shall
give CCF a reasonable opportunity to review (a) the text of all such
applications before filing, and (b) the content of any proposed responses to
official actions of the United States Patent and Trademark Office and foreign
patent offices during prosecution of such patent applications; and shall consult
with CCF with respect thereto. For purposes of this Section (ii), “reasonable”
shall mean sufficiently in advance of any decision by CBL or any deadline
imposed upon written response by CBL so as to allow CCF to meaningfully review
such decision or written response and also provide comments to CBL in advance
of
such decision or deadline to allow comments of CCF to be considered and
incorporated into CBL’s decision or written response.
(iii)
In
consultation with CCF, CBL will file patent applications within the Licensed
Patents, prosecute patent applications within the Licensed Patents, and maintain
patents within the Licensed Patents, in each case pursuant to CBL’s rights under
this Section 2.F in such countries as CBL may desire from time to time by notice
to CCF. In the event CBL does not file for or continue prosecution of any such
patent application within the Licensed Patents or maintain any such patent
pursuant to CBL’s rights under this Section 2.F, in any country, (a) CBL shall
notify CCF in writing pursuant to Section (iv) below, and in such event CCF
may
at its discretion pursue such filing, prosecution and/or maintenance, and (b)
CBL’s license with respect to such patent application and/or such patent in such
country shall terminate.
(iv)
CBL
agrees to keep CCF informed in a timely manner of the contents, status and
progress of all patent applications within the Licensed Patents filed and
prosecuted by CBL, and to provide copies of such patent applications and
documents relating thereto to CCF. CBL agrees to provide CCF with such
information and documentation with respect to all Licensed Patents, as CCF
shall
reasonably request. CBL further agrees that CBL will not allow any such patent
application or any patent that may issue therefrom to become abandoned until
CCF
has determined, and informed CBL, that CCF does not desire to continue
prosecution or appeal(s) or maintenance of such patent application or patent
in
accordance with CCF’s rights pursuant to Section (iii) above; provided that
CBL’s obligations to continue prosecution or appeals(s) or maintenance of any
such patent application or patent will not extend beyond the three (3) month
anniversary of CBL’s written notice to CCF of CBL’s election pursuant to Section
(iii) above.
(v)
In
the
event that CBL elects not to file any patent application within the Licensed
Patents, or thereafter elects not to continue prosecution of any such patent
application, or elects not to maintain any patent that may issue therefrom
pursuant to Section (iii) above, CCF shall have the right, at CCF’s option and
expense and in its own make, to file for and prosecute such patent application
and maintain such patent using patent counsel selected by CCF, and CBL shall
cooperate therewith.
G.
Research
Use Right
.
All
licenses granted under Section 2 of this Agreement are subject to a reserved,
irrevocable, exclusive, fully-paid up non-assignable license back to CCF to
make
and use, for academic or research purposes only, any applicable CCF Technology,
the Licensed Patents and any Improvement or Innovation created by CBL or
CCF.
H.
Right
to Publish
.
Subject
to Section 19, all licenses granted under this Agreement (including, without
limitation, those set forth in Sections 2.A and 2.B) are subject to a reserved,
irrevocable, exclusive, fully-paid up non-assignable license back to CCF to
publish the general scientific findings from research related to the Licensed
Rights.
Section
3.
Development
and Regulatory Approvals and Diligence Provisions
.
A.
Development
Plan
.
(i)
CBL
agrees to and warrants that it has the expertise necessary to independently
evaluate the inventions of the Licensed Patents and to develop Products for
sale
in the commercial market and that all licenses, rights and benefits granted
by
CCF to CBL under this Agreement are specifically contingent upon CBL’s diligent
and timely efforts to develop Products for the commercial market.
(ii)
CBL
agrees to provide CCF within ninety (90) days of the execution and delivery
of
this Agreement with a Development Plan describing the steps necessary to allow
the inventions of the Licensed Patents to be utilized to provide Products for
sale in the commercial market. In addition, within sixty (60) days following
the
end of each semi-annual period of CBL’s fiscal year ending on June 30 and
December 31 (each, a “Half-Year”) for the term of this Agreement, CBL will
provide CCF with a written Development Report summarizing CBL’s product
development activities since the last Development Report and any necessary
adjustments to the Development Plan. All development activities and strategies
and all aspects of product design and decisions to market and the like are
entirely at the discretion of CBL, and CBL shall rely entirely on its own
expertise with respect thereto. CCF’s review of CBL’s Development Plan is solely
to verify the existence of CBL’s commitment to development activity and to
assure compliance with CBL’s obligations to utilize the inventions of the
Licensed Patents to commercialize Products for the marketplace, as set forth
in
Section 3.B. CCF reserves the right to audit CBL’s records relating to
development of Products as required hereunder. Such record keeping and audit
procedures shall be subject to the procedures and restrictions set forth for
audit of the financial records of CBL in Section 6.
B.
Diligence
Provisions
.
(i)
CBL
shall
use commercially diligent efforts to bring one or more Products to market as
soon as practical, consistent with sound and reasonable business practices
and
judgments. CBL shall be deemed to have satisfied its obligations under this
Paragraph (i) if CBL has an ongoing and active research, development,
manufacturing, marketing or sublicensing program, as appropriate, directed
toward bringing such Product to market in a timely fashion. Any efforts of
CBL’s
sublicensees shall be considered efforts of CBL for the sole purpose of
determining CBL’s compliance with its obligation under this Paragraph
(i).
(ii)
If
in
CCF’s estimation, CBL is not fulfilling its obligations under Paragraph (i)
above and CCF so notifies CBL in writing, CCF and CBL shall negotiate in good
faith to revise the Exclusive License Agreement.
C.
CBL
shall
be solely responsible for securing any federal, including U.S. Food and Drug
Administration (“FDA”), state, local or foreign Regulatory Approval necessary
for commercial sale of Products. Each Regulatory Approval shall be made in
CBL’s
name or in the name of an Affiliate or lawful designee of CBL unless applicable
law requires otherwise, or CCF and CBL otherwise agree that a particular
approval be made in the name of CCF or an Affiliate or lawful designee of CCF.
CCF agrees that, notwithstanding any such Regulatory Approval made in its name,
CBL retains the exclusive rights to make, have made, import, export, use,
distribute, promote, offer for sale and sell Products as granted to CBL in
this
Agreement. CCF will lend assistance on a reasonable basis to facilitate CBL’s
acquisition of necessary Regulatory Approvals for commercial sale. Such
assistance will include the provision to CBL as promptly as reasonably
practicable of scientific and clinical data obtained by CCF relating to the
Licensed Rights and the Products. CBL shall be responsible for reimbursing
CCF
for any reasonable direct costs associated with such activity.
D.
CBL
shall, at its own expense, use reasonable commercial efforts to develop and
obtain Regulatory Approvals for, and commercialize the Products in such
countries in the Licensed Territory where, in CBL’s sole opinion, it is
commercially desirable to do so. The parties acknowledge and agree that all
business decisions, including, without limitation, decisions relating to the
registration, manufacture, sate, commercialization, design, price, distribution,
marketing and promotion of Products covered under this Agreement, shall be
within the sole discretion of CBL. CCF acknowledges that CBL is in the business
of developing, manufacturing, marketing and selling biopharmaceutical products.
Nothing in this Agreement shall be construed as restricting CBL’s conduct of
such business or imposing on CBL the duty to market and/or sell Products for
which royalties are payable hereunder to the exclusion of, or in preference
to,
any other CBL product, or in any way other than in accordance with its normal
commercial practices.
Section
4.
Consideration
.
A.
License
Fees
.
In
partial consideration of the rights and licenses granted by CCF to CBL under
this Agreement, CBL agrees to issue to CCF within forty-five (45) days of the
execution and delivery of this Agreement the aggregate number of shares of
CBL
stock set forth in and subject to the terms of the Common Stock Subscription
Agreement set forth in
Appendix
B
.
B.
Milestone
Payments
.
For
each
Product developed by CBL, a CBL affiliate, or a joint venture in which CBL
is
involved, CBL shall pay to CCF Milestone Payments, creditable against Earned
Royalties, and Sublicense Royalties, as development of a Product progresses
through major developmental milestones as follows:
(1)
For
Products limited to biodefense uses:
(i)
For
any
INDA filing for a Product, $50,000;
(ii)
For
any
Product entering Phase II clinical trials, $100,000;
(iii)
For
any
PLA (Product License Application) or NDA filing for a
Product,
$350,000; and
(iv)
Upon
regulatory approval permitting any Product to be sold to the commercial market,
$1,000,000; or
(2)
For
all
other Products:
(i)
For
any
INDA filing for a Product, $50,000;
(ii)
For
any
Product entering Phase II clinical trials, $250,000;
(iii)
For
any
Product entering Phase III clinical trials, $700,000;
(iv)
For
any
PLA (Product License Application) or NDA filing for a Product, $1,500,000;
and
(v)
Upon
regulatory approval permitting any Product to be sold to the commercial market,
$4,000,000;
provided
that the applicable milestone due CCF under this Section has not accrued on
another Product that is for the same (i) application; or (ii)
target.
C.
Earned
Royalties
.
(i)
In
further consideration of the rights and licenses granted by CCF to CBL under
this Agreement, CBL agrees to pay CCF for each Product Sold in the commercial
market by CBL, a CBL affiliate, or a joint venture in which CBL is involved,
CBL
agrees to pay to CCF as “Earned Royalties” a royalty calculated as a percentage
of the Net Sales of Products in accordance with the terms and conditions of
this
Agreement. The royalty is deemed earned as of earlier of the date CBL receives
payment for the sale, lease or other disposition of the Product for
consideration or the date the Product is Sold to a consumer. Subject to the
terms of this Agreement, the royalty shall remain fixed while this Agreement
is
in effect as follows: (a) for any Licensed Patent which is solely owned by
CCF,
a rate of two percent (2%); (b) for any Licensed Patent which is jointly owned
by CCF and CBL, a rate of one percent (1%).
(ii)
Royalties
due CCF under this Agreement shall be reduced by the amount of royalties, if
any, paid to third parties by CBL, its Affiliates or sublicensees in order
to
make, use or sell the Products, pursuant to agreements entered into in good
faith after the date of this Agreement with parties owning or controlling a
patent containing patent claims which, but for such agreements, would bar the
manufacture, use or sale of a Product derived from any of the Licensed
Rights.
(iii)
The
obligation to pay royalties under this Agreement shall be waived and excused
to
the extent that statutes, laws, codes or government regulations (including
currency exchange regulations) of any foreign country in which Products are
sold
prevent such royalty payments by the seller of Products (whether CBL, its
Affiliates or sublicensees). In the event that royalty payments to CCF are
excused pursuant to this paragraph, the parties shall negotiate a mutually
acceptable arrangement that preserves the benefit of this Agreement for each
of
the parties;
(iv)
If
a
compulsory license is granted to a third party with respect to a Product in
any
country in the Licensed Territory with a royalty rate lower than provided in
this Section 4.C, then the royalty rate to be paid by CBL to CCF on the selling
price in that country shall be reduced to the rate paid by the compulsory
licensee.
(v)
In
the
event that more than one patent within the Licensed Patents is applicable to
any
Product subject to royalties under Section 4.C or Section 4.D, then only one
royalty shall be paid to CCF as follows: (a) for more than one Licensed Patent,
each of which is solely owned by CCF, the royalty shall be at the rate of a
Licensed Patent solely owned by CCF, (b) for more than one Licensed Patent,
one
of which is jointly owned by CCF and CBL, the royalty shall be at the rate
of a
Licensed Patent jointly owned by CCF and CBL.
(vi)
The
royalties payable under Section 4.C shall be paid on a country-by-country basis
on each Product until the expiration of all Licensed Patents which cover such
Product in such country.
(vii)
In
the
event that more than one patent within the Licensed Patents is applicable to
any
Product subject to royalties under Section 4.C or Section 4.D, then the Earned
Royalties due CCF hereunder shall be equal to the amount calculated in Section
4.C(i) multiplied by X divided by Y, where “X” is the number of applicable
patents within the Licensed Patents that are solely owned by CCF and “Y” is the
total number of applicable patents within the Licensed Patents.
D.
Sublicense
Royalties
.
(i)
In
further consideration of the rights and licenses granted by CCF to CBL under
this Agreement, CBL agrees to pay CCF for each Product Sold in the commercial
market by a Sublicensee as “Sublicensed Royalties” a royalty calculated as a
percentage of the royalties received from the Sublicenses equal to:
(a)
Where
sublicenses have been granted by CBL prior to the filing of an INDA for a
Product, under the sponsorship of CBL, CBL shall pay to CCF the following
royalty rates for Product Sales: (1) for the sublicense of Licensed Patents
solely owned by CCF, thirty-five percent (35%) of any and all upfront
Sublicensing Fees, and thirty-five percent (35%) of all royalties received
from
the Sublicensee; or (2) for any sublicense of Licensed Patents which are jointly
owned by CCF and CBL, seventeen and one half percent (17 1/2 %) of any and
all
upfront Sublicensing Fees, and seventeen and one half percent (17 1/2 %) of
all
royalties received from the Sublicensee.
(b)
Where
sublicenses have been granted after filing of an INDA for a Product, under
the
sponsorship of CBL, but prior to final approval of the relevant PLA/NDA, CBL
shall pay to CCF the following royalty rates for Product Sales: (1) for the
sublicense of Licensed Patents solely owned by CCF, twenty percent (20%) of
any
and all upfront Sublicensing Fees, and twenty percent (20%) of all royalties
received from the Sublicensee; or (2) for any sublicense of Licensed Patents
which are jointly owned by CCF and CBL, ten percent (10%) of any and all upfront
Sublicensing Fees, and ten percent (10%) of all royalties received from the
Sublicensee.
(c)
Where
sublicenses have been granted after final approval of the relevant PLA/NDA
for a
Product, CBL shall pay to the following royalty rates for Product Sales: (1)
for
the sublicense of Licensed Patents solely owned by CCF, ten percent (10%) of
any
and all upfront Sublicensing Fees, and ten percent (10%) of all royalties
received from the Sublicensee; or (2) for any sublicense of Licensed Patents
which are jointly owned by CCF and CBL, five percent (5%) of any and all upfront
Sublicensing Fees, and five percent (5%) of all royalties received from the
Sublicensee.
(ii)
“Sublicense
Fees” shall mean all cash license fees received by CBL or an Affiliate upon
execution of a sublicense between CBL or an Affiliate with a Sublicensee
relating to Products (net of withholding taxes or other tax-related reductions
in accordance with Section 4.F(iii) herein), or equity (including options to
purchase equity) in the Sublicensee that CBL or an Affiliate receives upon
execution of such a sublicense in lieu of such a cash license fee. It is
understood that Sublicense Fees shall not include royalties, advances against
future royalties, Product development funds, equity investments, or scientific
benchmark payments or payments for past research expenditures relating to
development of Products. In addition, it is understood that this Section 4.D
shall not be deemed to require CBL to share with CCF any cash or equity received
by CBL in connection with an acquisition by a third party of all or
substantially all of the business or assets of CCF to which this Agreement
pertains.
E.
Accrual
of Payments
.
Amounts
due to CCF under Sections 4.B, 4.C, and 4.D. of this Agreement will be accrued,
without interest, until such time as CCF’s equity ownership in CBL falls below
five percent (5%) of the total outstanding shares of CBL on a fully-diluted
basis or CBL has received more than thirty million dollars ($30,000,000) in
funding and/or revenues from non-CCF sources; provided however that any accrued
accounts will become due upon (i) liquidation of CBL, winding-up of the CBL’s
operations; (ii) termination of this Agreement; or (iii) to the extent such
amounts due to CCF are related to a particular patent application or patent
within the Licensed Patents for which CBL exercises its rights under Section
7.D.
F.
Accounting;
Payments
.
(i)
Subject
to Section 4.E, amounts owing to CCF under Sections 4.B, 4.C, and 4.D shall
be
paid on a semi-annual basis, with such amounts due and received by CCF on or
before the sixtieth (60th) day following the end of each Half-Year in which
such
amounts were earned. The balance of any amounts, which remain unpaid more than
thirty (30) days after they are due to CCF, shall accrue interest until paid
at
the rate of the lesser of one percent (1%) per month or the maximum amount
allowed under applicable law. However, in no event shall this interest provision
be construed as a grant of permission for any payment delays.
(ii)
Except
as
otherwise directed, all amounts owing to CCF under this Agreement shall be
paid
in U.S. dollars to CCF at the address provided in Section 17.i. If any currency
conversion shall be required in connection with the payment of royalties
hereunder, such conversion shall be made at the rate used by CBL in calculating
CBL’s own revenues for financial reporting purposes.
(iii)
Any
withholding or other tax that CBL or Affiliate are required by law to withhold
shall be deducted from said royalties and promptly paid to the taxing authority.
If royalties paid to CBL or Affiliate by a sublicensee on Net Sales of Products
are reduced for withholding or similar taxes, the Sublicense Royalties due
CCF
shall equal the amount calculated in Section 4.D multiplied by (1-X), where
“X”
equals the total percentage of Net Sales payable as any withholding or other
tax. In regard to any tax so deducted, CBL shall furnish CCF with proper
evidence of the taxes paid.
(iv)
A
full
accounting showing how any amounts owing to CCF under Section 4.C have been
calculated shall be submitted to CCF on the date of each such payment. Such
accounting shall be on a per-country and product line, model or trade name
basis
and shall be summarized either on the form shown in
Appendix
C
of this
Agreement or in a reporting format that contains substantially similar
information. In the event no payment is owed to CCF, a statement setting forth
that fact shall be supplied to CCF.
Section
5.
Representations
and Warranties
.
A.
CCF
represents and warrants that:
(i)
except
to
the extent otherwise provided under Section 15 of this Agreement with respect
to
U.S. Government interests, it is the owner of the Licensed Rights free and
clear
of any lien, encumbrance, royalty or other payment obligation, and, to the
best
of its actual knowledge, without any conflict with or infringement of the rights
of any third party;
(ii)
CCF
has
all requisite authority to execute and deliver this Agreement and perform its
obligations hereunder, including, without limitation, the right to grant the
licenses granted to CBL under this Agreement;
(iii)
it
has
not previously assigned, transferred, conveyed or otherwise encumbered any
of
its right, title and interest in the Licensed Rights;
(iv)
to
the
best of its actual knowledge, there are no third party pending patent
applications which, if issued, cover the development, manufacture, use or sale
of Products;
(v)
there
are
no claims, judgments or settlements against or owed by CCF or pending or, to
the
best of its actual knowledge, threatened claims or litigation relating to the
Licensed Rights;
(vi)
there
are
no collaborative, licensing, transfer, supply, distributorship or marketing
agreements or arrangements or other similar agreements to which it or any of
its
Affiliates are party relating to any of the Licensed Rights or Products;
and
(vii)
neither
it nor its Affiliates shall enter into any oral or written agreement or
arrangement that would be inconsistent with its obligations under this
Agreement;
(viii)
to
the
best of its knowledge, CCF does not own any rights in any other patent or patent
application, the claims of which would dominate the claims of a patent or patent
application within the Licensed Patents as applied to the Licensed Field, or
that claim any invention of Doctor relating to the Licensed Field.
However,
nothing in this Agreement shall be construed as:
(i)
a
warranty or representation by CCF as to the validity or scope of any of the
Licensed Patents;
(ii)
except
to
the extent provided above in this Section 5.A, a warranty or representation
that
anything made, used, sold or otherwise disposed of under the license granted
in
this Agreement will or will not infringe patents of third parties;
or
(iii)
an
obligation to furnish any know-how not provided in the Licensed Rights or any
services, other than those specified in this Agreement.
B.
CCF
MAKES
NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO USE, SALE,
OR OTHER DISPOSITION BY CBL OR ITS VENDEES OR OTHER TRANSFEREES OF PRODUCTS
INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED UNDER THIS
AGREEMENT.
C.
CBL
represents and warrants that Products produced under the license granted herein
shall be manufactured in accordance with all material respects with applicable
federal, state and local laws, rules and regulations, including, without
limitation, in accordance in all material respects with all applicable rules
and
regulations of the FDA.
Section
6.
Recordkeeping
.
A.
CBL
shall
keep books and records sufficient to verify the accuracy and completeness of
CBL’s accounting referred to above, including without limitation inventory,
purchase and invoice records relating to the Products or their manufacture.
In
addition, CBL shall maintain documentation evidencing that CBL is in fact
pursuing development of Products as required herein. Such documentation may
include, but is not limited to, invoices for studies advancing development
of
Products, laboratory notebooks, internal job cost records, and filings made
to
the Internal Revenue Service to obtain tax credit, if available, for research
and development of Products. Such books and records shall be preserved for
a
period not less than three (3) years after they are created during and after
the
term of this Agreement.
B.
CBL
shall
take all reasonable steps necessary so that the accounting firm representing
CBL, or any other registered CPA mutually agreeable to CCF and CBL, may within
sixty (60) days of request by CCF review and copy all the books and records
to
allow CCF to verify the accuracy of CBL’s royalty reports and Development
Reports. Such review shall be performed at the expense of CCF upon reasonable
notice and during regular business hours at a single U.S. location of CBL’s
choice.
C.
If
a
royalty payment deficiency is determined, CBL shall pay the royalty deficiency
outstanding within thirty (30) days of receiving written notice thereof, plus
interest on outstanding amounts as described in Section 4.F(i). If a royalty
payment deficiency for a calendar year exceeds the lesser of five percent (5%)
of the royalties paid for that year or $50,000, then CBL shall be responsible
for paying CCF’s reasonable out-of-pocket expenses incurred with respect to such
review, but such payment shall not exceed the amount of the
deficiency.
Section
7.
License
Term and Termination Provisions
.
A.
The
term
(the “Term”) of this license shall begin on the date of this Agreement and
continue until this Agreement is terminated as provided herein or the payment
of
Earned Royalties under Section 4.C, once begun, ceases for more than one- (1)
year other than as a result of the circumstances described in Section 7.0 or
due
to reduction or off-set provisions in this Agreement.
B.
Any
and
all licenses granted under this Agreement are strictly subject to CBL’s diligent
efforts to commercialize Products. CCF may, at its option terminate this
Agreement ninety days (90) after giving written notice of termination to CBL
during the continuation of any of the following events by CBL:
(i)
failure
to achieve the mutually-agreed upon objectives set forth in the Development
Plan, as set forth in
Appendix
D
attached
hereto and subject to the Research and Development Milestones, as set forth
in
Appendix
F
attached
hereto;
(ii)
failure
to timely pay any monies due to CCF;
(iii)
failure
to timely submit to CCF any Development Report;
(iv)
commission
daily breach in any material respect of any other covenant herein
contained;
(v)
committing
any act of bankruptcy, becoming insolvent, or unable to pay its debts as they
become due, filing a petition under any bankruptcy or insolvency act, or having
any such petition filed against it which is not dismissed within sixty- (60)
days; or
(vi)
offering
any component of the Licensed Rights to its creditors or any other third party
in violation of this Agreement;
provided
that CBL may avoid such termination if before the end of such ninety (90) day
period CBL notifies CCF in writing that such breach or default has been cured.
However, if CBL disputes such breach in writing within such ninety (90) day
period, CCF shall not have the right to terminate this Agreement unless and
until a tribunal of competent jurisdiction has determined that this Agreement
was materially breached. Furthermore, this paragraph shall not suspend any
obligation of CBL to compensate CCF for any undisputed amount, as provided
for
under any term of this Agreement, during the pendency of any determination
of
breach.
C.
Notwithstanding
the foregoing, the obligations of CBL with respect to the commercialization
of
Products under this Agreement are expressly conditioned upon the continuing
absence of a materially adverse condition which results in a delay in the
commercialization of the Products, including, but not limited to, a
substantially adverse condition or event relating to the safety or efficacy
of a
Product or unfavorable pricing, pricing reimbursement, labeling or lack of
Regulatory Approval, and the obligation of CBL to develop or market any such
Product, and CCF’s right to terminate this Agreement set forth in this Section
7.C, shall be delayed, tolled or suspended so long as such condition or event
exists (i) as mutually agreed by CBL and CCF; or (ii) as determined by
arbitration pursuant to Section 22.
D.
CBL
may
terminate this Agreement in its entirety or as to any particular patent
application or patent within the Licensed Patents at any time by giving at
least
ninety- (90) days written notice of such termination to CCF. A brief statement
of the reasons for termination shall accompany such a notice. From and after
the
effective date of a termination under this Paragraph with respect to a
particular patent application or patent, such patent application and patent
in
the particular country shall cease to be within the Licensed Patents for all
purposes of this Agreement. Upon a termination of this Agreement in its entirety
under this Paragraph, all rights and obligations of CBL and CCF shall terminate,
except as provided in Section 7.F.
E.
Upon
termination of this Agreement, CBL’s rights to the Licensed Rights or any
Improvement granted hereunder and all use thereof shall terminate and any and
all rights in the Licensed Patents and the CCF Technology shall revert back
to
CCF and, if requested by CCF, CBL shall destroy or return, at CCF’s sole option,
all copies of any media or materials which are the property of CCF, including
but not limited to all documentation, notes, plans, drawings, copies, samples
and computer code. Notwithstanding the termination of this Agreement, CBL shall
remain obligated to provide an accounting for and to pay royalties earned up
to
the date of the termination, subject to Section 4.C and all rights granted
to
CCF under this Agreement to any extant Innovations or Improvements shall remain
in effect.
F.
Expiration
or termination of the Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination, and the provisions of Section
2.B, the last sentence of Section 2.D.i, and Sections 2.F, 2.G, 7.E, 7.F, 16,
19, 22 and 23 shall survive the expiration or termination of this Agreement
and
remain in full force and effect regardless of the cause of termination. Any
expiration or early termination of this Agreement shall be without prejudice
to
the rights of either party against the other accrued or accruing under this
Agreement prior to termination.
G.
Waiver
by
either party of a single breach or default, or a succession of breaches or
defaults, shall not deprive such party of any right to terminate this Agreement
in the event of any subsequent breach or default.
H.
In
the
event that this Agreement is terminated for any reason, CBL, Affiliates and
customers of either CBL or an Affiliate may, after the effective date of such
termination, sell or otherwise dispose of all Products and parts therefor that
CBL, Affiliates and customers of either CBL or an Affiliate may have on hand
on
the effective date of such termination, subject to CBL’s payment to CCF of
royalties pursuant to Section 4 of this Agreement. Upon termination of this
Agreement for any reason, any sublicense granted by CBL or an Affiliate, if
any,
under this Agreement shall survive, provided that the sublicensee promptly
agrees in writing to be bound by the applicable terms of this
Agreement.
Section
8.
Assignability
.
This
Agreement may not be assigned by CBL without the prior written consent of CCF,
which will not be unreasonably withheld provided that such assignee or
transferee promptly agrees in writing to be bound by the terms and conditions
of
this Agreement. CCF may assign its right to receive payments
hereunder.
Section
9.
Contest
of Validity
.
In
the
event CBL or a third party contests the validity of any Licensed Patent, CBL
shall continue to pay royalties with respect to that patent as if such contest
were not underway to an escrow agent mutually agreed to by the parties, to
be
held in a separate interest bearing account in accordance with the terms of
a
mutually acceptable escrow agreement between the parties in form and substance
as is customary for such purposes, until such time as a court of last resort
adjudicates the validity or invalidity of such patent. If such court of last
resort confirms the invalidity or unenforceability of such patent, then all
royalties previously paid by CBL into escrow pursuant to this paragraph,
together with all interest accrued thereon and any other amounts earned in
respect thereof (collectively, the “Escrow Funds”), shall be promptly paid to
CBL. If such court of last resort confirms the validity or enforceability of
such patent, then the Escrow Funds shall be promptly paid to CCF.
Section
10.
Protection
of Licensed Rights
.
CCF
and
CBL agree to assist each other to the extent necessary to protect any of CCF’s
or CBL’s rights in the Licensed Rights. CCF and CBL shall notify each other in
writing of any infringements by others of the Licensed Rights. Following receipt
of such notification, CCF and CBL shall engage in meaningful consultation as
to
the means of preventing such infringements and shall cooperate in any
preliminary steps, short of filing a lawsuit, including but not limited to
preliminary investigations, engagement of counsel and/or sending
cease-and-desist letters, that CCF and CBL shall mutually determine are required
prior to the filing of any lawsuit. Pursuant to Section 11 below, CBL may
commence or prosecute any claims or suits in its own name or join CCF as a
party
thereto. However, should CBL decline or fail to commence or prosecute such
claims or suits, CCF may itself institute such claims or suits in its own name
and join CBL as a party thereto, except that CCF shall not institute such claims
or suits without first obtaining the written consent of CBL to do so, which
consent shall not be unreasonably withheld, conditioned or delayed. CCF and
CBL
shall cooperate fully in any claims or suits commenced and prosecuted by either
party pursuant to this Section 10.
Section
11.
Enforcement
of Licensed Rights
.
A.
CBL
has
the right, but not the obligation, to defend the Licensed Rights against
infringement, interference or opposition by other parties in any country,
including by bringing any legal action for infringement or opposition or
defending any counterclaim of invalidity, notice of opposition or action of
a
third party for declaratory judgment of non-infringement or interference. CBL
may bring or defend, or subject to CCF’s approval, which approval shall not be
unreasonably withheld, conditioned or delayed, may settle any such actions
solely at its own expense and through counsel of its selection; provided,
however, that CCF shall be entitled in each instance to participate through
counsel of its selection and at its own expense. CCF has no obligation or
responsibility with respect to any such infringement action or interference
except to provide reasonable assistance to CBL as requested, and CBL shall
reimburse CCF for its reasonable out-of-pocket expenses in connection with
any
such assistance. CBL shall be entitled to credit against royalties payable
to
CCF hereunder fifty percent (50%) of its out-of-pocket costs and expenses
incurred in connection with such action, including, without limitation, legal
fees, expert fees and related costs and expenses, at a rate not to exceed fifty
percent (50%) of the royalties due CCF in any Half Year. Any amounts entitled
to
be so credited and not previously credited may be carried forward. In the event
of a favorable settlement or award of damages, the amount received shall be
shared equally by CCF and CBL, provided that CBL may deduct from CCF’s share any
uncredited share of the above expenses. CCF’s sole financial obligation with
respect to such litigation will be limited to the right of CBL to credit fifty
percent (50%) of its costs and expenses against royalties as provided
herein.
B.
In
the
event CBL is permanently enjoined from exercising any of the License Rights
granted hereunder pursuant to an infringement action brought by a third party,
or if CBL elects not to undertake the defense or settlement of such a claim
of
alleged infringement for a period of six (6) months from notice of such claim
or
suit, then CBL’s rights and obligations under this Agreement with respect to
said License Rights will terminate upon written notice of CCF, subject to
Section 7 of this Agreement. If CBL elects to defend any such action, then
CBL
shall be entitled to credit against royalties payable to CCF hereunder fifty
percent (50%) of its out-of-pocket costs and expenses incurred in connection
with such action at a rate not to exceed fifty percent (50%) of the royalties
due CCF in any Half Year. Any amounts entitled to be so credited and not
previously credited may be carried forward.
Section
12.
Patent
Marking
.
CBL
shall
mark all Products or Products’ packaging with the appropriate patent number
reference in compliance with the requirements of United States law (see 35
U.S.C. §287).
Section
13.
Product
Liability and Conduct of Business
.
A.
CBL
shall, at all times during the term of this Agreement and thereafter, indemnify,
defend and hold CCF and its respective trustees, officers, employees, students,
and agents harmless against all claims and expenses, including legal expenses
and reasonable attorneys fees, arising out of the death of or injury to any
person or persons or out of any damage to property and against any other claim,
proceeding, demand, expense and liability of any kind whatsoever (other than
infringement claims) resulting from the production, manufacture, sale, use,
lease, consumption or advertisement of Products arising from any right or
obligation of CBL hereunder. CCF at all times reserves the right to select
and
retain counsel of its own to represent CCF’s interests in any such action,
subject to CBL’s sole control of the defense thereof and all related settlement
negotiations.
B.
Neither
party shall be liable to the other party for any indirect, special,
consequential, or other damages whatsoever, whether grounded in tort (including
negligence), strict liability, contract or otherwise. Except as provided in
this
Agreement, CCF shall not have any responsibilities or liabilities whatsoever
with respect to Product(s).
C.
CBL
shall
at all times comply in all material respects, through insurance or
self-insurance, with all statutory workers’ compensation and employers’
liability requirements covering any and all employees with respect to activities
performed under this Agreement.
D.
CBL
warrants that it now maintains and will continue to maintain liability insurance
coverage that, based on industry experience, it believes to be appropriate
to
the risk involved in marketing the Products subject to this Agreement. Within
ninety (90) days after the execution of this Agreement and thereafter annually
between January 1 and January 31 of each year, CBL will present evidence to
CCF
that such coverage is being maintained. In addition, CBL shall provide CCF
with
at least ten (10) days prior written notice of any change in or cancellation
of
the insurance coverage.
Section
14.
Use
of
Names
.
CBL
shall
not use the name, logo, likeness, trademarks, image or other intellectual
property of CCF for any advertising, marketing, endorsement or any other
purposes without the specific prior written consent of an authorized
representative of CCF as to each such use. For purposes of the foregoing
provision, an authorized representative of CCF means a representative of CCF’s
Department of Media Relations and/or CCF’s Office of General
Counsel.
Section
15.
United
States Government Interests
.
It
is
understood that the United States Government (through one or more of its
agencies or otherwise) may have funded research resulting in the inventions
embodied in the Licensed Patents, and if so, the United States Government may
have certain rights relative thereto under the provisions of 35 U.S.C. §200-212
and applicable regulations of Chapter 37 of the Code of Federal Regulations.
This Agreement shall be subject to such rights under any such Government funding
agreement, applicable law or regulation. CCF represents and warrants that it
(i)
has complied and agrees to continue to comply during the term of this Agreement
with all laws and regulations applicable to such a Government funding agreement,
and (ii) has done and will continue to do all acts necessary to retain ownership
of all inventions within the Licensed Rights, including disclosing subject
inventions to the Government and electing to retain title in subject
inventions.
Section
16.
Miscellaneous
.
This
Agreement shall be governed, construed, and interpreted in all respects in
accordance with the laws of the State of Ohio without regard to that state’s
conflict of laws provisions. The parties hereto are independent contractors
and
not joint venturers or partners.
Notices.
Any
notice required to be given pursuant to the provisions of this Agreement shall
be in writing and shall be deemed to have been given at the earlier of the
time
when actually received as a consequence of any effective method of delivery,
including but not limited to hand delivery, transmission by telecopier, or
delivery by a professional courier service or the time when sent by certified
or
registered mail addressed to the party for whom intended at the address below
or
at such changed address as the party shall have specified by written notice,
provided that any notice of change of address shall be effective only upon
actual receipt.
Communications
of a scientific nature to:
Andrei
Gudkov, Ph.D.
The
Cleveland Clinic Foundation
Lerner
Research Institute / NC-20
9500
Euclid Avenue
Cleveland,
OH 44195
Communications
relating to use of name, intellectual property and/or licensing
to:
Commercialization
Counsel
CCF
Innovations / ND20
9500
Euclid Avenue
Cleveland,
OH 44195
Payments
to:
The
Cleveland Clinic Foundation
Re:
CCF-CBL License
P.O.
Box
931532
Cleveland,
OH 44193-5007
Attn:
Ms.
Caryn Cua
The
CCF
Federal Tax ID Number is 34-0714585
Cleveland
Biolabs, Inc.
10265
Carnegie Avenue
Cleveland,
Ohio 44106
Attn:
Michael Fonstein
With
a
copy to:
Howrey
Simon Arnold & White
321
N.
Clark Street
Suite
3400
Chicago,
Illinois 60610
Fax:
(312) 595-2250
Tel:
(312) 595-1239
Attn:
Teddy C. Scott, Jr.
Section
17.
Integration
.
This
Agreement constitutes the full understanding between the parties with reference
to the subject matter hereof, and no statements or agreements by or between
the
parties, whether orally or in writing, except as provided for elsewhere in
this
Section 18, made prior to or at the signing hereof, shall vary or modify the
written terms of this Agreement. Neither party shall claim any amendment,
modification, or release from any provisions of this Agreement by mutual
agreement, acknowledgment, or otherwise, unless such mutual agreement is in
writing, signed by the other party, and specifically states that it is an
amendment to this Agreement.
Section
18.
Severability
.
If
any
provision of this Agreement is held to be invalid, the other provisions will
not
be affected to the greatest extent possible consistent with the parties’
intent.
Section
19.
Confidentiality
.
A.
CBL
acknowledges that the CCF Technology is based upon and includes valuable trade
secrets and confidential information of CCF, the development of which reflects
the investment of considerable expertise and other resources. CCF acknowledges
that CBL may disclose valuable confidential information to CCF pursuant to
the
terms of this Agreement. Accordingly, both parties agree to keep any
Confidential Information and the CCF Technology in confidence and not to use
or
disclose the same except in pursuance of the terms of this
Agreement.
B.
Both
parties agree to keep any information identified as confidential by the
disclosing party, confidential using methods at least as stringent as each
party
uses to protect its own confidential information. “Confidential Information”
shall include CBL’s Development Plan and development reports, CBL’s books and
records maintained pursuant to Section 6, all CCF Technology, Improvements,
the
Licensed Rights and all information concerning them and any other information
marked confidential or accompanied by correspondence indicating such information
is confidential exchanged between the parties hereto. Except as may be
authorized in advance in writing by the other party, each party shall grant
access to the Confidential Information only to its own employees involved in
research relating to the CCF Technology and/or manufacture or marketing of
the
Products, and each party shall require such employees to be bound by this
Agreement as well. Each party agrees not to use any Confidential Information
to
its advantage and the other party’s detriment, including, but not limited to, in
the case of CBL, claiming priority to any application serial numbers of any
Licensed Patents in any patent prosecution by CBL, The confidentiality and
use
obligations set forth above apply to all or any part of the Confidential
Information disclosed hereunder except to the extent that:
(i)
the
recipient party can show by written record that it possessed the information
prior to its receipt from the other party;
(ii)
the
information was already available to the public or became so through no fault
of
the recipient party;
(iii)
the
information is subsequently disclosed to the recipient party by a third party
that has the right to disclose it free of any obligations of the disclosing
party; or
(iv)
the
information is required by law or regulation to be disclosed; provided, however,
that the party subject to such disclosure requirement has provided written
notice to the other party promptly to enable such other party to seek a
protective order or otherwise prevent disclosure of such Confidential
Information.
C.
The
parties agree to keep the nature, existence and terms of this Agreement
confidential until first publicly announced by the parties pursuant to a joint
press release mutually approved by the parties. The content and timing of all
press releases and similar public communications regarding this Agreement and
the subject matter hereof will be mutually agreed to in writing by the parties,
and neither party may make or issue any public announcement or press release
that refers to the other party or describes any aspect of this Agreement without
having first received the prior written consent of the other party.
Notwithstanding the foregoing, either party may make any public announcement
or
disclosure that it reasonably believes is required by law, rule or regulation
of
any governmental authority or other regulatory body (including, without
limitation, the SEC or the FDA).
D.
Notwithstanding
the provisions of this Section 19, CBL shall have the right to disclose
Confidential Information, including CCF Technology, to its sublicensees, agents,
consultants, Affiliates or other third parties (collectively, “Agents”) in
accordance with this paragraph. Such disclosure shall be limited only to those
Agents involved in the research, development, manufacturing, marketing or
promotion of Products. Any such Agents must agree in advance and in writing
to
be bound by confidentiality and non-use obligations substantially similar to
those contained in this Agreement. In addition, CBL and its Agents may make
disclosure of such Confidential Information of CCF as may be necessary in order
to obtain or maintain any Regulatory Approvals, including, in connection with
clinical trials, regulatory applications and filings, and
otherwise.
Section
20.
Anti-Kickback
Statute and Stark Law Compliance
.
By
entering into this Agreement, the parties specifically intend to comply with
all
applicable laws, rules and regulations, including (i) the federal anti-kickback
statute (42 U.S.C. § 1320a-7b) and the related safe harbor regulations; and (ii)
the Limitation on Certain Physician Referrals, also referred to as the “Stark
Law” (42 U.S.C. §1395nn). Accordingly, no part of any consideration paid
hereunder is a prohibited payment for the recommending or arranging for the
referral of business or the ordering of items or services; nor are the payments
intended to induce illegal referrals of business. In the event that any part
of
this Agreement is determined to violate federal, state, or local laws, rules,
or
regulations, the parties agree to negotiate in good faith revisions to the
provision or provisions that are in violation. In the event the parties are
unable to agree to new or modified terms as required to bring the entire
Agreement into compliance, either party may terminate this agreement upon sixty-
(60) days prior written notice to the other party.
Section
21.
Eligibility
to Participate in Federal Health Care Programs
.
By
signing this agreement, CBL hereby represents and warrants the following: (a)
that is has not been debarred, excluded, suspended or otherwise determined
to be
ineligible to participate in any federal health care programs (collectively,
“Debarment” or “Debarred”, as applicable); and (b) that it shall not knowingly
employ or contract with, with or without compensation, any individual or entity
(singularly or collectively, “Agent”) listed by a federal agency as Debarred. To
comply with this provision, CBL shall make reasonable inquiry into the status
of
any Agent contracted or arranged by CBL to fulfill the terms of this Agreement.
In the event that CBL and/or Agent either (i) becomes Debarred or (ii) receives
notice of action or threat of action with respect to its Debarment during the
term of this Agreement, CBL agrees to notify CCF immediately. CBL agrees to
timely notify CCF in the event that CBL has identified or reasonably suspects
potential violations associated with its performance under this Section, and
the
nature of such potential violation, to enable CCF to take prompt corrective
action. Further, in the event that CBL or Agent becomes Debarred as set forth
above and such Debarment shall have become final and non-appealable, this
Agreement relative to such entity or individual’s participation hereunder may be
terminated upon written notice.
Section
22.
Alternative
Dispute Resolution
.
A.
The
parties shall attempt in good faith to resolve any dispute arising out of or
relating to this Agreement promptly between officials who have authority to
settle the controversy.
B.
If
the
matter has net been resolved by negotiation within thirty- (30) days, the
parties shall attempt in good faith to settle the dispute by mediation under
the
then-current rules of the American Arbitration Association (“AAA”). The neutral
third party will be selected from the panel of neutrals of the AAA in accordance
with the selection process of the AAA.
C.
If
the
matter has not been resolved by mediation within sixty- (60) days of the
initiation of such procedure, or if either party will not participate in a
mediation, the dispute shall be settled by arbitration in accordance with the
then-current Commercial Rules of Arbitration of the AAA, by a sole arbitrator
selected from the AAA panel of neutrals in accordance with its procedure for
the
selection of arbitrators. The United States Arbitration Act, 9 U.S.C. §1-16,
shall govern the arbitration, and any court having jurisdiction thereof may
enter judgment upon the award rendered by the arbitrator. The parties agree
that
any mediation or arbitration shall be held in Cleveland, Ohio.
Section
23.
Authority
.
The
persons signing on behalf of CCF and CBL hereby warrant and represent that
they
have authority to execute this Agreement on behalf of the party for whom they
have signed.
Section
24.
Publication
.
To
avoid
loss of patent rights as a result of premature public disclosure of patentable
information, CCF agrees to submit to CBL, at least forty-five (45) days prior
to
submission for publication or disclosure materials intended for publication
or
disclosure relating to inventions, discoveries or information within the
Licensed Rights, or that may include an Option Invention. CBL shall notify
CCF
within thirty-five (35) days of receipt of such materials whether CCF desires
to
file a patent application on any invention disclosed in such materials. In
the
event that CBL desires to file such a patent application, CCF shall withhold
publication and disclosure of patentable information for a period not to exceed
ninety (90) days from the date of receipt of such materials by CBL. Further,
if
such material contains Confidential Information that CBL has provided to CCF,
CCF agrees to remove such Confidential Information from the proposed publication
or disclosure. The parties understand and agree that the foregoing time periods
may be modified by written agreement of the parties.
IN
WITNESS WHEREOF
,
the
parties hereto have duly executed this Agreement on the dates indicated
below.
THE
CLEVELAND CLINIC FOUNDATION:
|
|
By:
/s/
Michael
O’Boyle
|
Date:
12/20
,
2004
|
Name:
Michael
O’Boyle
|
|
Title:
Chief
Financial Officer
|
|
THE
CLEVELAND BIOLABS, INC.:
|
|
By:
/s/
Michael
Fonstein
|
|
Name:
Michael
Fonstein
|
|
Title:
Chief
Executive Officer
|
|
Acknowledged
(not a signatory):
|
|
By:
/s/
Christopher M.
Cobur
|
|
Name:
Christopher
M. Coburn
|
|
Title:
Executive
Director, CCF Innovations
|
|
By:
/s/
Andrei Gudkov,
PhD
|
|
Name:
Andrei
Gudkov, PhD
|
|
Title:
Chairman,
Department of Molecular Biology, The Cleveland Clinic
Foundation
|
By:
/s/
Paul DiCorletto,
PhD
|
|
Name:
Paul
DiCorletto, PhD
|
|
Title:
Director,
Lerner Research Institute, The Cleveland Clinic Foundation
|
Approved
as to Form (not a signatory):
|
|
By:
/s/
Theodore C. Theofrastous,
Esq.
|
|
Name:
Theodore
C. Theofrastous, Esq.
|
|
Title:
Chief Commercialization Counsel
CCF
Innovations
|
|
APPENDIX
A
DEFINITIONS
A.
“Affiliate”
shall mean any individual or entity directly or indirectly controlling,
controlled by or under common control with, a party to this Agreement. For
purposes of this Agreement, the direct or indirect ownership of seventy-five
percent (75%) or more of the outstanding voting securities of an entity, or
the
right to receive seventy-five percent (75%) or more of the profits or earnings
of an entity shall be deemed to constitute control. For purposes of this
Agreement, the direct or indirect ownership of fifty percent (50%) or more
of
the outstanding voting securities of an entity, or the right to receive fifty
percent (50%) or more of the profits or earnings of an entity shall be deemed
to
constitute control upon written consent of CCF, which will not be unreasonably
withheld. Such other relationship as in fact results in actual control over
the
management, business and affairs of an entity shall also be deemed to constitute
control.
B.
“CCF
Technology” shall mean all CCF’s unpatented inventions, know-how, trade secrets,
analysis, discoveries, techniques, methods, clinical and other data, and other
intellectual property relating to the research of Doctor or arising out of
or in
direct connection with work of Doctor in the field of regulating cell death:
(i)
curing cancer treatment side effects by differential modulation cell death
/
survival mechanisms uniquely deregulated in cancer cells; (ii) selective
sensitization of cancer cells to treatment by using the same approach; (iii)
using anti-apoptotic proteins secreted by microbial parasites to cure tissue
damage associated with cancer treatment, inflammation and other pathologies
(stroke, heart attack).
C.
“Control”
or “Controlled” shall mean, with respect to any intellectual property right,
possession of the ability, whether by ownership or license, to assign, or to
grant a license, sublicense, immunities or other rights as provided for herein
to such item or under such right without violating the terms of any agreement
or
other arrangement with any Third Party.
D.
“Development
Plan” shall mean CBL’s Products research and development plan having at least
the information specified in
Appendix
D
to this
Agreement. The Development Plan shall be sent to the address specified in
Appendix
E
.
E.
“Development
Report” shall mean a written account of CBL’s progress under the Development
Plan having at least the information specified in
Appendix
E
to this
Agreement.
F.
“Improvement” shall mean any modification of an invention described in the
Licensed Patents that, if unlicensed, would infringe one or more claims of
any
Licensed Patent.
G.
“Innovation”
shall mean all inventions, discoveries and enhancements and all data resulting
in whole or in part from the practice of the Licensed Rights.
H.
“Licensed
Field” shall mean shall mean the practice, production, manufacture, sale and use
of the Licensed Rights for the discovery, development and commercialization
of
methods, techniques, devices, systems, animals and therapeutics in the field
of
regulating cell death:
(i)
CBLC100
series: small molecules that restore the activity of p53 tumor suppressor in
cancers, including renal cell carcinomas, sarcomas, prostate cancers and other
types of malignancies; curaxines and derivatives thereof are representative
examples of this category;
(ii)
CBLB101
series: substances of biological nature (i.e., cytokines, chemokines and other
secreted molecules) and their bioactive derivatives produced by tumor cells
and
capable of modulating cell surviv
al;
TGFβ
2
and
derivatives thereof and derivatives thereof are representative examples of
this
category;
(iii)
CBLB501
series: natural factors produced by extracellular parasites and symbionts of
humans and other mammalian species and their bioactive derivatives capable
of
modulating cell survival mechanisms of host cells; flagellin of
Salmonella
typhimurium
and
derivatives thereof are representative examples of this category;
(iv)
CBLC500
series: small molecules modulating tumor and normal cell sensitivity to
cytotoxic chemicals by altering activity and substrate specificity of multidrug
transporters; inhibitors of MRP1 and derivatives thereof are representative
examples of this category.
I.
Licensed
Patents
.
(i)
“Licensed
Patents” shall mean any and all rights in and to:
(a)
the
patents and patent applications described in
Appendix
G
hereto
(the “Existing Patent Rights”) and all patents anywhere in the world issuing
thereon;
(b)
any
patent or patent application of any kind anywhere in the world that claims
or
discloses any of the Licensed Rights; and
(c)
all
divisions, continuations, continuations-in-part, patents of addition, patents,
substitutions, registrations, reissues, reexaminations or extensions of any
kind
with respect to any of the foregoing applications and patents, and to the extent
the same claim and disclose an Option Invention, with respect to which CBL
exercises its option pursuant to Section 2.D above to include the same within
the Licensed Patents.
(ii)
In
the
event that CCF is a joint owner of an invention by reason of the fact that
an
employee or consultant of CBL is a joint inventor of such an invention, it
is
understood that the Licensed Patents include only CCF’s rights as a joint owner
of the patents and patent applications that claim such joint invention. From
time to time during the term of this Agreement, upon request by either party,
CBL and CCF shall update
Appendix
G
hereto
to include all patent applications and patents that are within the Licensed
Patents.
J.
“Licensed
Rights” shall mean, collectively inventions, discoveries and information covered
by Licensed Patents or CCF Technology within the Licensed Field.
K.
“Licensed
Territory” shall be worldwide.
L.
“Products”
shall refer to and mean any and all products that employ or are in any way
produced by the practice of the Licensed Rights.
M.
“Regulatory
Approval” shall mean for each country in the Licensed Territory all permits,
consents and approvals required to lawfully manufacture, import, market, sell
and use Products in the Licensed Field.
N.
“Net
Sales” shall mean the gross amount collected from sales of Products to the
end-user of such Products, less (i) trade, cash and quantity discounts actually
allowed or paid; (ii) credits, allowances and adjustments actually granted
to
customers; (iii) charge back payments and rebates granted to managed care
organizations or to federal, state, local or foreign governments, their
agencies, and purchasers and reimbursers or to trade customers, including,
but
not limited to, wholesalers and buying groups; (iv) separately itemized or
allocated (in direct proportion to the amount of sales of such Products bears
to
the total amount of sales of all CBL products) shipping costs, insurance or
other transportation costs, to the extent not paid or absorbed by non-Affiliate
purchasers of such Products; and (v) sales, use and/or other excise taxes or
duties actually paid. All costs shall be determined in accordance with generally
accepted accounting principles.
O.
“Sales”
or “Sell” or “Sold” shall mean the transfer or disposition of a Product for
value to a party other than CBL or an Affiliate.
P.
“Sublicensee”
shall mean the sublicensee, other than an Affiliate, of any Licensed
Rights.
APPENDIX
B
COMMON
STOCK SUBSCRIPTION AGREEMENT
APPENDIX
C
CCF
ROYALTY REPORT (Example)
Licensee:__________________________________________
|
|
Agreement
No:___________________________________
|
|
Inventor:___________________________________________
|
|
CCF
Case No.____________________________________
|
|
Period
Covered:
From:
/ /
|
|
Through:
/ /
|
|
Prepared
By: _______________________________________
|
|
Date:___________________________________________
|
|
Approved
By:________________________________________
|
|
Date:___________________________________________
|
|
|
|
|
|
If
license covers several major product lines, please prepare a separate report
for
each line. Then combine all product lines into a summary report.
Report
Type: Single Product Line Report:
_________________________________________
|
Multi-product
Summary Report.
Page
1 of ____________ Pages
|
Report
Currency:
U.
S. Dollars
Other________________________________________
|
Country
|
Gross
Sales
|
Less
Itemized
Allowances
|
Net
Sales
|
Royalty
Rate
|
Period
Royalty Amount
|
This
Year
|
Last
Year
|
U.S.A.
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
Europe
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
|
|
|
|
Other
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
|
|
|
|
Total
Royalty: ________________
|
Conversion
Rate: ________________
|
Royalty
in U.S. Dollars:
$________________
|
APPENDIX
D
DEVELOPMENT
PLAN
CBL
shall
submit a development plan of the scope outlined below to CCF within ninety-(90)
days of the execution of this Agreement In general, the plan should provide
CCF
with a summary overview of the activities that CBL believes are necessary to
make Products available for sale in the commercial marketplace.
Please
note -
a
current or updated business plan may be substituted for a Development Plan
provided that specific milestones are identified in the plan and all of the
topics identified below are covered
.
I.
Development
Program
A.
Development
Activities to be Undertaken
(Please
break activities into subunits with the date of completion of major
milestones)
1.
2.
.
.
B.
Estimated
Total Development Time
II.
Governmental
Approval
A.
Types
of
submissions required
B.
Government
agency e.g. FDA, USDA, etc.
III.
Proposed
Market Approach
IV.
Competitive
Information
A.
Potential
Competitors
B.
Potential
Competitive Devices/Compositions
C.
Known
Competitor’s plans, developments, technical achievements
D.
Anticipated
Date of Product Launch
Total
Length
:
approximately 2-3 pages
APPENDIX
E
DEVELOPMENT
REPORT
A.
Date
development plan initiated and time period covered by this report.
B.
Development
Report (4-8 paragraphs).
|
1.
|
Activities
completed since last report including the object and parameters of
the
development, when initiated, when completed and the
results.
|
|
2.
|
Activities
currently under investigation, i.e., ongoing activities including
object
and parameters of such activities, when initiated, and projected
date of
completion.
|
C.
Future
Development Activities (4-8 paragraphs).
|
1.
|
Activities
to be undertaken before next report including, but not limited to,
the
type and object of any studies conducted and their projected starting
and
completion dates.
|
|
2.
|
Estimated
total development time remaining before a product will be
commercialized.
|
D.
Changes
to initial development plan (2-4 paragraphs).
1.
Reasons
for change.
2.
Variables
that may cause additional changes.
E.
Items
to
be provided if applicable:
|
1.
|
Information
relating to Product that has become publicly available, e.g., published
articles, competing products, patents,
etc.
|
|
2.
|
Development
work being performed by third parties other than CBL to include name
of
third party, reasons for use of third party, planned future uses
of third
parties including reasons why and type of
work.
|
|
3.
|
Update
of competitive information trends in industry, government compliance
(if
applicable) and market plan.
|
PLEASE
SEND DEVELOPMENT REPORTS TO:
CCF
Innovations
Attn.:
Executive Director
9500
Euclid Avenue / Mailcode D-20
Cleveland,
OH 44195
APPENDIX
F
RESEARCH
AND DEVELOPMENT MILESTONES
APPENDIX
G
LICENSED
PATENT APPLICATION AND PATENTS
U.S.
Provisional Patent Application 60/526,538 - “Methods of Inhibiti
ng
Apoptosis Using Latent TGFβ
"
U.S.
Provisional Patent Application 60/526,666 - “Methods of Identifying of
Modulators of Apoptosis From Parasites and Uses Thereof”
U.S.
Provisional Patent Application 60/526,496 - “Methods of Inhibiting Apoptosis
Using Inducers of NF-kB”
U.S.
Provisional Patent Application 60/526,667 - “Methods of Inhibiting Apoptosis
Using Latent TGF
β
”
U.S.
Provisional Patent Application 60/526,460 - “Methods of Protecting Against
Radiation Using Inducers of NF-kB”
U.S.
Provisional Patent Application 60/526,461 - “Methods of Protecting Against
Radiation Using Flagellin”
U.S.
Provisional Patent Application 60/571,149 - “Small Molecules Inhibitors of MRP1
and Other Multidrug Transporters”
U.S.
Provisional Patent Application 60/589,637 - “Activation of p53 and Inhibition of
NF-kB for cancer treatment”
CLEVELAND
BIOLABS, INC.
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “
Agreement
”),
made
as of this 1
st
day of
August, 2004, is entered into by Cleveland Biolabs, Inc., a Delaware
corporation with its principal place of business at 10265 Carnegie Ave.,
Cleveland, OH 44106 (and together with its subsidiaries, affiliates,
successors or assigns the “
Company
”),
and
Dr. Michael Fonstein, (the “
Executive
”).
PRELIMINARY
RECITALS
A.
The
Company, among other things, is engaged in the business of conducting research
and development of new pharmaceuticals in the field of cancer treatment and
that
provide protection for cells against harmful radiation (the “
Business
”).
B.
Executive
has been employed as the Company’s
Chief
Executive Officer
and with
the Company since its inception in June 2003.
C.
The
Company and Executive desire to formally state the terms of said employment
and
set forth the terms and conditions of Executive’s continued employment with the
Company in this Agreement.
NOW,
THEREFORE
,
in
consideration of the premises, the mutual covenants of the parties hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.
Employment
.
1.1
Engagement;
Duties and Powers
.
The
Company agrees to employ Executive, and Executive agrees to accept employment
with the Company, as Chief Executive Officer for the Term and in accordance
with
the terms and conditions of this Agreement. During the Term, Executive shall
serve as the Company’s Chief Executive Officer and shall have such
responsibilities, duties and authorities, and shall render such services of
an
executive and administrative character or act in such other capacity for the
Company and its affiliates, as the board of directors of the Company (the
“
Board
”)
shall
from time to time lawfully direct. Executive shall perform the duties and carry
out the responsibilities assigned to him, to the best of his ability, in a
trustworthy, businesslike and efficient manner for the purpose of advancing
the
business of the Company. Executive acknowledges that his duties and
responsibilities hereunder will require his full business time and effort and
agrees that, during the Term, he will not engage in any other business activity
or have any business pursuits or interests which materially interfere or
conflict with the performance of his duties hereunder, provided, that nothing
in
this
Section 1.1
shall be
deemed to prohibit Executive from making Permitted Investments. Executive may
accept positions on grant panels, boards of Directors, act as a consultant
for
compensation with the permission of the Board.
1.2
Term
.
The
engagement of Executive under this Agreement shall begin on the date hereof
and
shall continue through and until December 31, 2007 (the “
Initial
Period
”)
unless
extended as provided in this
Section 1.2
.
Thereafter, the term of this Agreement shall automatically renew and extend
for
additional consecutive one-year periods (“
Renewal
Periods
”)
unless
one of the parties shall deliver a written notice of termination to the other
party at least sixty (60) days prior to the expiration of the Initial Period
or
any Renewal Period. The Initial Period through the then current Renewal Period,
if any, is hereinafter referred to as the “
Term
.”
Notwithstanding anything to the contrary contained herein, the Term is subject
to termination pursuant to
Section 1.3
.
1.3
Termination
.
(a)
If
Executive dies during the Term, this Agreement shall automatically terminate
on
the date of Executive’s death.
(b)
The
Company may terminate Executive’s employment hereunder upon written notice to
Executive at any time (i) due to the Permanent Disability of Executive or
(ii) for Cause or without Cause, for any or no reason. Such termination
shall be effective upon the date of service of such notice pursuant to
Section 14.6
.
For
purposes of this Agreement, “
Cause
”
means
the occurrence of any of the following events, as determined in the reasonable
good faith judgment of the Board:
(i)
the
failure of Executive to perform his duties hereunder or comply with reasonable
directions of the Board which continues for ten (10) days after the Board has
given written notice to Executive, specifying in reasonable detail the manner
in
which Executive has failed to perform such duties or comply with such
directions;
(ii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act or acts constituting (a) a felony,
(b) dishonesty or disloyalty with respect to the Company or
(c) fraud;
(iii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act, or has failed to take action, which act or
failure to take action (a) adversely affects the Company’s business or
reputation or (b) indicates alcohol abuse or drug use by Executive that
adversely affects his performance of the essential job functions
hereunder;
(iv)
the
breach, non-performance or non-observance of any of the terms of this Agreement
(other than as described in clause (i) above) or any other agreement to
which Executive and the Company are parties, by Executive, if such breach,
non-performance or non-observance shall continue beyond a period of ten (10)
business days immediately after written notice thereof by the Company to
Executive; or
(v)
notwithstanding
clause (iv) above, any breach of the Restrictive Covenants.
(c)
Executive
may terminate and resign from his Employment hereunder upon not less than sixty
(60) days prior written notice to the Company.
Executive
shall be deemed to have a “
Permanent
Disability
”
for
purposes of this Agreement if he suffers a physical or mental illness, injury
or
infirmity that prevents him from performing, with or without reasonable
accommodations, his essential job functions under this Agreement, for a total
period of 120 days in any 360-day period. The Board shall determine, according
to the facts then available, whether and when the Permanent Disability of
Executive has occurred. Such determination shall not be arbitrary or
unreasonable, and the Board may, but shall not be required to, take into
consideration the opinion of Executive’s personal physician, if reasonably
available, and such determination by the Board shall be final and binding on
the
parties hereto.
2.
Compensation
and Benefits
.
2.1
Base
Salary
.
As
consideration for the services of Executive hereunder, the Company shall pay
Executive an annual base salary of $120,000 (the “
Base
Salary
”),
payable in accordance with the Company’s customary payroll practices as in
effect from time to time. Notwithstanding the foregoing, during the period
beginning on and including January 1, 2005 and for each year during the
Term thereafter, the Board, in its sole discretion, may elect to cause the
Company to adjust the Executive’s Base Salary by an amount to be determined by
the Board in its sole judgment based upon Executive’s and the Company’s
performance and the achievement of the other goals and objectives approved
by
the Board for such year.
2.2
Discretionary
Bonus
.
Following the end of each fiscal year the Board, in its sole discretion, may
elect to cause the Company to award to Executive a bonus (the “
Discretionary
Bonus
”)
for
such year, in an amount to be determined by the Board in its sole judgment
based
upon Executive’s and the Company’s performance and the achievement of the other
goals and objectives approved by the Board for such year. Such Discretionary
Bonus shall be payable as determined by the Board and only if Executive is
employed by the Company as of the date such Discretionary Bonus is
paid.
2.3
Compensation
After Termination
.
(a)
If
Executive is terminated by the Company for Cause or resigns, then the Company
shall have no further obligations hereunder or otherwise with respect to
Executive’s employment hereunder from and after the date of said termination
(except payment of the Base Salary and other amounts owed to Executive for
reimbursable business expenses accrued through the date of said termination),
and the Company shall continue to have all other rights available hereunder
(including, without limitation, all rights under the Restrictive Covenants
at
law or in equity).
(b)
If
Executive is terminated by the Company without Cause, Executive shall be
entitled to receive as severance pay an amount equal to the Base Salary that
would otherwise have been payable if Executive continued his employment
hereunder, for a 6 month period, payable in accordance with the Company’s
payroll policies, reduced by the amount of compensation earned by Executive
at
other employment. The Company shall have no other obligations hereunder or
otherwise with respect to Executive’s employment from and after the termination
date, and the Company shall continue to have all other rights available
hereunder (including, without limitation, all rights under the Restrictive
Covenants at law or in equity).
(c)
If
Executive is terminated due to Permanent Disability or death, Executive or
Executive’s estate, as the case may be, shall be entitled to receive as
severance pay an amount equal to the Base Salary that would otherwise have
been
payable if Executive continued his employment hereunder for the period that
otherwise would be remaining in the Term (without any further adjustment as
described in Section 2.1), payable in accordance with the Company’s payroll
policies. Notwithstanding the foregoing, in the event Executive is Permanently
Disabled or dies as a result of, or in the conduct of, his employment activities
hereunder, then Executive or Executive’s estate, as the case may be, shall be
entitled to receive severance pay in an amount equal to the Base Salary that
would otherwise have been payable if Executive continued his employment
hereunder (without any further adjustment as described in
Section 2.1
)
for a
period of not less than eighteen (18) months, payable in accordance with the
Company’s payroll policies. The Company shall have no other obligations
hereunder or otherwise with respect to Executive’s employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including, without limitation, all rights under the
Restrictive Covenants at law or in equity).
2.4
Profit
Sharing, Pension and Salary Deferral Benefits
.
It is
understood by the parties to this Agreement that, during the Term, Executive
shall be entitled to participate in or accrue benefits under any pension, salary
deferral or profit sharing plan now existing or hereafter created for employees
of the Company upon terms and conditions equivalent to those which the Company
may provide for other key management employees.
2.5
Fringe
Benefits and Expenses During the Term
.
(a)
Executive
shall be eligible to participate in any benefit plans maintained by the Company
for its key management employees from time to time, including, without
limitation, group life, disability and medical insurance in accordance with
such
plans as from time to time in effect and applicable to key management employees
of the Company.
(b)
Executive
shall be entitled to three weeks paid vacation per year for the first year,
and
four weeks paid vacation per year thereafter, earned pro rata during his
employment, to be taken at such times as may be approved by the Board or its
authorized designees. The maximum vacation pay that may accrue is four weeks
(“
Vacation
Cap
”).
When
Executive accrues four weeks of vacation, no further vacation will accrue until
he uses vacation time and reduces the accrued vacation time below the vacation
cap. He will then accrue vacation time until the vacation cap of four weeks
is
reached.
(c)
The
Company shall provide Executive sick days on substantially the same terms as
offered to other key management employees.
(d)
The
Company shall reimburse Executive for all ordinary, necessary and reasonable
travel and other business expenses incurred by him in connection with the
performance of his duties hereunder, in accordance with the Company’s policy.
Such reimbursement shall be made upon presentation of itemized expense
statements and such other supporting documentation as the Company may reasonably
require.
2.6
Taxes,
Etc
.
All
compensation payable to Executive hereunder is stated in gross amount and shall
be subject to all applicable withholding taxes, other normal payroll and any
other amounts required by law to be withheld.
3.
Confidentiality
.
3.1
Company
Information
.
Executive agrees at all times during the term of my employment and thereafter,
to hold in strictest confidence, and not to use, except for the benefit of
the
Company, or to disclose to any person, firm or corporation without written
authorization of the Board of Directors of the Company, any Confidential
Information of the Company, except under a non-disclosure agreement duly
authorized and executed by the Company. Executive understands that “
Confidential
Information
”
means
any non-public information that relates to the actual or anticipated business
or
research and development of the Company, technical data, trade secrets or
know-how, including, but not limited to, research, product plans or other
information regarding Company’s products or services and markets therefor,
customer lists and customers software, developments, inventions, processes,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, finances or other business information. Executive
further understands that Confidential Information does not include any of the
foregoing items which have become publicly known and made generally available
through no wrongful act of mine or of others who were under confidentiality
obligations as to the item or items involved or improvements or new versions
thereof.
3.2
Former
Employer Information
.
Executive agrees that he will not, during my employment with the Company,
improperly use or disclose any proprietary information or trade secrets of
any
former or concurrent employer or other person or entity and that Executive
will
not bring onto the premises of the Company any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
3.3
Third
Party Information
.
Executive recognizes that the Company has received and in the future will
receive from third parties their confidential or proprietary information subject
to a duty on the Company’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes. Executive agrees
to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to
use
it except as necessary in carrying out my work for the Company consistent with
the Company’s agreement with such third party.
4.
Inventions
.
4.1
Inventions
Retained and Licensed
.
Executive has attached hereto, as
Exhibit A
,
a list
describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made prior to his employment with
the
Company (collectively referred to as “
Prior
Inventions
”),
which
belong to Executive, which relate to the Company’s proposed business, products
or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, Executive represents that there
are
no such Prior Inventions. If in the course of Executive’s employment with the
Company, Executive incorporates into a Company product, process or service
a
Prior Invention owned by Executive or in which Executive has an interest,
Executive hereby grants to the Company a nonexclusive, royalty-free, fully
paid-up, irrevocable, perpetual, worldwide license to make, have made, modified
use and sell such Prior Invention as part of or in connection with such product,
process or service, and to practice any method related thereto.
4.2
Assignment
of Inventions
.
Executive agrees that he will promptly make full written disclosure to the
Company, will hold in trust for the sole right and benefit of the Company,
and
hereby assign to the Company, or its designee, all my right, title, and interest
in and to any and all inventions, original works of authorship, developments,
concepts, improvements, designs, discoveries, ideas, trademarks or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which Executive may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived or developed or reduced to practice, during
the period of time Executive am in the employ of the Company (collectively
referred to as “
Inventions
”).
Executive further acknowledges that all original works of authorship which
are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are “works made for hire,” as that term is defined in the United States
Copyright Act. Executive understands and agrees that the decision whether or
not
to commercialize or market any invention developed by me solely or jointly
with
others is within the Company’s sole discretion and for the Company’s sole
benefit and that no royalty will be due to him as a result of the Company’s
efforts to commercialize or market any such invention.
4.3
Inventions
Assigned to the United States
.
Executive agrees to assign to the United States government all my right, title,
and interest in and to any and all Inventions whenever such full title is
required to be in the United States by a contract between the Company and the
United States or any of its agencies.
4.4
Maintenance
of Records
.
Executive agrees to keep and maintain adequate and current written records
of
all Inventions made by me (solely or jointly with others) during the term of
my
employment with the Company. The records will be in the form of notes, sketches,
drawings, and any other format that may be specified by the Company. The records
will be available to and remain the sole property of the Company at all
times.
4.5
Patent
and Copy Registrations
.
Executive agrees to assist the Company, or its designee, at the Company’s
expense, in every proper way to secure the Company’s rights in the Inventions
and any copyrights, patents, mask work rights or other intellectual property
rights relating thereto in any and all countries, including the disclosure
to
the Company of all pertinent information and data with respect thereto, the
execution of all applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary in order to apply for and
obtain such rights and in order to assign and convey to the Company, its
successors, assigns, and nominees the sole and exclusive rights, title and
interest in and to such Inventions, and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto. Executive further
agree that my obligation to execute or cause to be executed, when it is in
my
power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If the Company is unable because of my mental
or
physical incapacity or for any other reason to secure my signature to apply
for
or to pursue any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of authorship
assigned to the Company as above, then Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as his
agent and attorney in fact, to act for and in his behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts
to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
him.
5.
Conflicting
Employment
.
Executive agrees that, during the term of his employment with the Company,
Executive will not engage in any other employment, occupation or consulting
directly related to the business in which the Company is now involved or becomes
involved during the term of my employment, nor will Executive engage in any
other activities that conflict with my obligations to the Company, unless
written consent is given by the Board of Directors of the Company.
6.
Returning
Company Documents
.
Executive agrees that, at the time of leaving the employ of the Company, he
will
deliver to the Company (and will not keep in his possession, recreate or deliver
to anyone else) any and all devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items developed by Executive pursuant to his employment with the Company or
otherwise belonging to the Company, its successors or assigns, including,
without limitation, those records maintained pursuant to paragraph 4.4. In
the event of the termination of Executive’s employment, Executive agrees to sign
and deliver the “Termination Certification” attached hereto as
Exhibit B
.
7.
Notification
of New Employer
.
In the
event that Executive leaves the employ of the Company, Executive hereby grant
consent to notification by the Company to my new employer about my rights and
obligations under this Agreement.
8.
Solicitation
of Employees
.
Executive agrees that for a period of twelve (12) months immediately following
the termination of my relationship with the Company for any reason, whether
with
or without cause, Executive shall not either directly or indirectly solicit,
induce, recruit or encourage any of the Company’s employees to leave their
employment, or take away such employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Company, either for myself or for any
other person or entity.
9.
Non-Competition
.
Executive agrees that during the period of employment and for a period of two
(2) years immediately following the termination of his relationship with the
Company for any reason, whether with or without cause, Executive shall not
directly or indirectly own, manage, operate, consult or to be employed in a
business substantially similar to
(as
defined by the Company’s therapeutic area and core
technology)
,
or
competitive with, the present business of the Company and its successors and
assigns or such other business activity in which the Company and its successors
and assigns may substantially engage during the term of employment.
10.
Conflict
of Interest Guidelines
.
Executive agrees to diligently adhere to the Conflict of Interest Guidelines
attached as
Exhibit D
hereto.
11.
Representations
.
Executive agrees to execute any proper oath or verify any proper document
required to carry out the terms of this Agreement. Executive represent that
his
performance of all the terms of this Agreement will not breach any agreement
to
keep in confidence proprietary information acquired by Executive in confidence
or in trust prior to Executive’s employment by the Company. Executive hereby
represent and warrant that Executive have not entered into, and Executive will
not enter into, any oral or written agreement in conflict herewith.
12.
Policy
Manual
.
Executive agrees that he is responsible for knowing the contents of the
Company’s Policy Manual, the contents of which may be modified or eliminated at
any time.
13.
Arbitration
and Equitable Relief
.
13.1
Arbitration
.
IN
CONSIDERATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY, ITS PROMISE TO ARBITRATE
ALL EMPLOYMENT-RELATED DISPUTES AND EXECUTIVE RECEIPT OF THE COMPENSATION,
PAY
RAISES AND OTHER BENEFITS PAID TO EXECUTIVE BY THE COMPANY, AT PRESENT AND
IN
THE FUTURE, EXECUTIVE AGREES THAT ANY AND ALL CONTROVERSIES, CLAIMS, OR DISPUTES
WITH ANYONE (INCLUDING THE COMPANY AND ANY EMPLOYEE, OFFICER, DIRECTOR,
SHAREHOLDER OR BENEFIT PLAN OF THE COMPANY TO THEIR CAPACITY AS SUCH OR
OTHERWISE) ARISING OUT OF, RELATING TO, OR RESULTING FROM EXECUTIVE EMPLOYMENT
WITH THE COMPANY OR THE TERMINATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY,
INCLUDING ANY BREACH OF THIS AGREEMENT, SHALL BE SUBJECT TO BINDING ARBITRATION
UNDER THE RULES AMERICAN ARBITRATION ASSOCIATION. DISPUTES WHICH EXECUTIVE
AGREE
TO ARBITRATE, AND THEREBY AGREE TO WAIVE ANY RIGHT TO A TRIAL BY JURY, INCLUDE
ANY STATUTORY CLAIMS UNDER STATE OR FEDERAL LAW, INCLUDING, BUT NOT LIMITED
TO,
CLAIMS UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
OR
THE OLDER WORKERS BENEFIT PROTECTION ACT. EXECUTIVE FURTHER UNDERSTANDS THAT
THIS AGREEMENT TO ARBITRATE ALSO APPLIES TO ANY DISPUTES THAT THE COMPANY MAY
HAVE WITH EXECUTIVE.
13.2
Procedure
.
EXECUTIVE AGREES THAT ANY ARBITRATION WILL BE ADMINISTERED BY THE AMERICAN
ARBITRATION ASSOCIATION (“
AAA
”)
AND
THAT THE NEUTRAL ARBITRATOR WILL BE SELECTED IN A MANNER CONSISTENT WITH ITS
NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES. EXECUTIVE AGREE THAT
THE ARBITRATOR SHALL HAVE THE POWER TO DECIDE ANY MOTIONS BROUGHT BY ANY PARTY
TO THE ARBITRATION, INCLUDING MOTIONS FOR SUMMARY JUDGMENT AND/OR ADJUDICATION
AND MOTIONS TO DISMISS AND DEMURRERS, PRIOR TO ANY ARBITRATION HEARING.
EXECUTIVE ALSO AGREES THAT THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY
REMEDIES, INCLUDING ATTORNEYS’ FEES AND COSTS, AVAILABLE UNDER APPLICABLE LAW.
EXECUTIVE UNDERSTANDS THE COMPANY WILL PAY FOR ANY ADMINISTRATIVE OR HEARING
FEES CHARGED BY THE ARBITRATOR OR AAA EXCEPT THAT EXECUTIVE SHALL PAY THE FIRST
$125.00 OF ANY FILING FEES ASSOCIATED WITH ANY ARBITRATION EXECUTIVE INITIATES.
EXECUTIVE AGREES THAT THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY
ARBITRATION IN A MANNER CONSISTENT WITH THE RULES AND THAT TO THE EXTENT THAT
THE AAA’S NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES CONFLICT WITH
THE RULES, THE RULES SHALL TAKE PRECEDENCE. EXECUTIVE AGREES THAT THE DECISION
OF THE ARBITRATOR SHALL BE IN WRITING.
13.3
Remedy
.
EXCEPT
AS PROVIDED BY THE RULES AND THIS AGREEMENT, ARBITRATION SHALL BE THE SOLE,
EXCLUSIVE AND FINAL REMEDY FOR ANY DISPUTE BETWEEN ME AND THE COMPANY.
ACCORDINGLY, EXCEPT AS PROVIDED FOR BY THE RULES AND THIS AGREEMENT, NEITHER
EXECUTIVE NOR THE COMPANY WILL BE PERMITTED TO PURSUE COURT ACTION REGARDING
CLAIMS THAT ARE SUBJECT TO ARBITRATION. NOTWITHSTANDING, THE ARBITRATOR WILL
NOT
HAVE THE AUTHORITY TO DISREGARD OR REFUSE TO ENFORCE ANY LAWFUL COMPANY POLICY,
AND THE ARBITRATOR SHALL NOT ORDER OR REQUIRE THE COMPANY TO ADOPT A POLICY
NOT
OTHERWISE REQUIRED BY LAW WHICH THE COMPANY HAS NOT ADOPTED.
13.4
Availability
of Injunctive Relief
.
IN
ADDITION TO THE RIGHT UNDER THE RULES TO PETITION THE COURT FOR PROVISIONAL
RELIEF, EXECUTIVE AGREES THAT ANY PARTY MAY ALSO PETITION THE COURT FOR
INJUNCTIVE RELIEF WHERE EITHER PARTY ALLEGES OR CLAIMS A VIOLATION OF THIS
EMPLOYMENT AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY OR ANY OTHER AGREEMENT
REGARDING TRADE SECRETS, CONFIDENTIAL INFORMATION OR NONSOLICITATION. EXECUTIVE
UNDERSTANDS THAT ANY BREACH OR THREATENED BREACH OF SUCH AN AGREEMENT WILL
CAUSE
IRREPARABLE INJURY AND THAT MONEY DAMAGES WILL NOT PROVIDE AN ADEQUATE REMEDY
THEREFOR AND BOTH PARTIES HEREBY CONSENT TO THE ISSUANCE OF AN INJUNCTION.
IN
THE EVENT EITHER PARTY SEEKS INJUNCTIVE RELIEF, THE PREVAILING PARTY SHALL
BE
ENTITLED TO RECOVER REASONABLE COSTS AND ATTORNEYS FEES.
13.5
Administrative
Relief
.
EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT DOES NOT PROHIBIT HIM FROM PURSUING
AN
ADMINISTRATIVE CLAIM WITH A LOCAL, STATE OR FEDERAL ADMINISTRATIVE BODY SUCH
AS
THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING, THE EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION OR THE WORKERS’ COMPENSATION BOARD. THIS AGREEMENT DOES, HOWEVER,
PRECLUDE EXECUTIVE FROM PURSUING COURT ACTION REGARDING ANY SUCH
CLAIM.
13.6
Voluntary
Nature of Agreement
.
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE IS EXECUTING THIS AGREEMENT
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE
ELSE. EXECUTIVE FURTHER ACKNOWLEDGES AND AGREES THAT HE HAS CAREFULLY READ
THIS
AGREEMENT AND THAT HE HAS ASKED ANY QUESTIONS NEEDED FOR HIM TO UNDERSTAND
THE
TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND
IT, INCLUDING THAT EXECUTIVE
IS
WAIVING HIS RIGHT TO A JURY TRIAL
.
FINALLY, EXECUTIVE AGREES THAT HE HAS BEEN PROVIDED AN OPPORTUNITY TO SEEK
THE
ADVICE OF AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
14.
Miscellaneous
.
14.1
Income
Tax Treatment
.
Executive and the Company acknowledge that it is the intention of the Company
to
deduct all amounts paid under
Section 2
hereof
as ordinary and necessary business expenses for income tax purposes. Executive
agrees and represents that he will treat all amounts paid hereunder as ordinary
income (except for expense reimbursement) for income tax purposes.
14.2
Assignment
.
Executive may not assign any of his rights or obligations hereunder without
the
written consent of the Company. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or
not.
14.3
Severability
.
Whenever possible, each provision of this Agreement shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition
or
invalidity, without invalidating the remainder of this Agreement.
14.4
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the
same Agreement.
14.5
Descriptive
Headings; Interpretation
.
The
descriptive headings in this Agreement are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. The use of the word “
including
”
in
this
Agreement shall be by way of example rather than by limitation.
14.6
Notices
.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given if (i) delivered personally to the
recipient, (ii) sent to the recipient by reputable express courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or (iii) transmitted by
telecopy to the recipient with a confirmation copy to follow the next day to
be
delivered by overnight carrier. Such notices, demands and other communications
shall be sent to the addresses indicated below:
|
To
the Company:
|
Cleveland
BioLabs, Inc.
|
|
|
10265 Carnegie Avenue
|
|
|
Cleveland, OH 44106-2130
|
|
|
Attention:
Chief
Financial Officer
|
|
|
Facsimile:
__________________
|
|
|
Katten
Muchin Zavis Rosenman
|
|
|
525 West Monroe Street
|
|
|
Chicago, IL 60661-3693
|
|
|
Attention:
Kurt W. Florian, Esq.
|
|
|
Facsimile: (312)
902-1061
|
|
|
|
|
|
15 W 155 81
st
Street
|
|
|
Burr Ridge, IL 60521
|
|
|
|
|
|
with a copy to:
|
|
|
__________________________
|
|
|
__________________________
|
|
|
__________________________
|
|
|
Attention:__________________
|
|
|
Facsimile:
__________________
|
or
to
such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Date
of
service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) one day after the date of delivery to the overnight
courier if sent by overnight courier or (z) the next business day after the
date of transmittal by telecopy.
14.7
Preamble;
Preliminary Recitals
.
The
Preliminary Recitals set forth in the Preamble hereto are hereby incorporated
and made part of this Agreement.
14.8
Entire
Agreement
.
Except
as otherwise expressly set forth herein, this Agreement sets forth the entire
understanding of the parties, and supersedes and preempts all prior oral or
written understandings and agreements with respect to the subject matter
hereof.
14.9
Governing
Law
.
This
Agreement shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Agreement shall be governed by, the laws of the State of Ohio without giving
effect to provisions thereof regarding conflict of laws.
14.10
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.
14.11
Amendment
and Waivers
.
Any
provisions of the Agreement may be amended or waived only with the prior written
consent of the Company and Executive.
|
|
|
|
Michael
Fonstein
|
Date:
01/01/04
|
Signature
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
Name
of Executive (typed or printed)
|
|
|
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
/s/
|
Andrei
Gudkov
|
|
By:
|
Andrei
Gudkov
|
|
Its:
|
Founder & Director
|
|
|
|
|
Exhibit
A
LIST
OF PRIOR INVENTIONS
AND
ORIGINAL WORKS OF AUTHORSHIP
Title
|
|
Date
|
|
Identifying
Number
or
Brief Description
|
|
|
|
|
|
|
|
|
|
|
____
No
inventions or improvements
____
Additional
Sheets Attached
Signature
of Executive: ________________________________
Print
Name of Executive: _______________________________
Date: _____________________________________________
Exhibit
B
CLEVELAND
BIOLABS, INC.
TERMINATION
CERTIFICATION
This
is
to certify that the undersigned does not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Cleveland BioLabs, Inc., its subsidiaries, affiliates,
successors or assigns (together, the “Company”).
I
further
certify that I have complied with all the terms of the Company’s Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I
further
agree that, in compliance with the Employment Agreement, I will preserve as
confidential all trade secrets, confidential knowledge, data or other
proprietary information relating to products, processes, know-how, designs,
formulas, developmental or experimental work, computer programs, data bases,
other original works of authorship, customer lists, business plans, financial
information or other subject matter pertaining to any business of the Company
or
any of its employees, clients, consultants or licensees.
I
further
agree that for twelve (12) months from this date, I will not solicit, induce,
recruit or encourage any of the Company’s employees to leave their
employment.
I
further
agree that for twelve (12) months from this date I will not directly or
indirectly own, manage, operate, consult or to be employed in a business
substantially similar to, or competitive with, the present business of the
Company and its successors and assigns or such other business activity in which
the Company and its successors and assigns may substantially engage during
the
term of employment.
Date: ___________________
|
|
|
|
(Employee’s
Signature) __________________________
|
|
|
|
|
|
|
|
|
(Type/Print
Employee’s Name)
|
|
|
|
|
Exhibit
D
CLEVELAND
BIOLABS, INC.
CONFLICT
OF INTEREST GUIDELINES
It
is the
policy of Cleveland BioLabs, Inc. to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles
of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1.
Revealing
confidential information to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this policy whether
or
not for personal gain and whether or not harm to the Company is intended. (The
Employment Agreement elaborates on this principle and is a binding
agreement.)
2.
Accepting
or offering substantial gifts, excessive entertainment, favors or payments
which
may be deemed to constitute undue influence or otherwise be improper or
embarrassing to the Company.
3.
Participating
in civic or professional organizations that might involve divulging confidential
information of the Company.
4.
Initiating
or approving personnel actions affecting reward or punishment of employees
or
applicants where there is a family relationship or is or appears to be a
personal or social involvement.
5.
Initiating
or approving any form of personal or social harassment of
employees.
6.
Investing
or holding outside directorship in suppliers, customers, or competing companies,
including financial speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
7.
Borrowing
from or lending to employees customers or suppliers.
8.
Acquiring
real estate of interest to the Company.
9.
Improperly
using or disclosing to the Company any proprietary information or trade secrets
of any former or concurrent employer or other person or entity with whom
obligations of confidentiality exist.
10.
Unlawfully
discussing prices, costs, customers, sales or markets with competing companies
or their employees.
11.
Making
any unlawful agreement with distributors with respect to prices.
12.
Improperly
using or authorizing the use of any inventions which are the subject of patent
claims of any other person or entity.
13.
Engaging
in any conduct which is not in the best interest of the Company.
Each
officer, employee and independent contractor must take every necessary action
to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
CLEVELAND
BIOLABS, INC.
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “
Agreement
”),
made
as of this 1
st
day of
August, 2004, is entered into by Cleveland Biolabs, Inc., a Delaware
corporation with its principal place of business at 10265 Carnegie Ave.,
Cleveland, OH 44106 (and together with its subsidiaries, affiliates,
successors or assigns the “
Company
”),
and
Dr. Yakov Kogan, (the “
Executive
”).
PRELIMINARY
RECITALS
A.
The
Company, among other things, is engaged in the business of conducting research
and development of new pharmaceuticals in the field of cancer treatment and
that
provide protection for cells against harmful radiation (the “
Business
”).
B.
Executive
has been employed as the Company’s
Executive
Vice President, Business Development
and with
the Company since its inception in June 2003.
C.
The
Company and Executive desire to formally state the terms of said employment
and
set forth the terms and conditions of Executive’s continued employment with the
Company in this Agreement.
NOW,
THEREFORE
,
in
consideration of the premises, the mutual covenants of the parties hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.
Employment
.
1.1
Engagement;
Duties and Powers
.
The
Company agrees to employ Executive, and Executive agrees to accept employment
with the Company, as Executive Vice President, Business Development for the
Term
and in accordance with the terms and conditions of this Agreement. During the
Term, Executive shall serve as the Company’s Executive Vice President, Business
Development and shall have such responsibilities, duties and authorities, and
shall render such services of an executive and administrative character or
act
in such other capacity for the Company and its affiliates, as the board of
directors of the Company (the “
Board
”)
shall
from time to time lawfully direct. Executive shall perform the duties and carry
out the responsibilities assigned to him, to the best of his ability, in a
trustworthy, businesslike and efficient manner for the purpose of advancing
the
business of the Company. Executive acknowledges that his duties and
responsibilities hereunder will require his full business time and effort and
agrees that, during the Term, he will not engage in any other business activity
or have any business pursuits or interests which materially interfere or
conflict with the performance of his duties hereunder, provided, that nothing
in
this
Section 1.1
shall be
deemed to prohibit Executive from making Permitted Investments. Executive may
accept positions on grant panels, boards of Directors, act as a consultant
for
compensation with the permission of the Board.
1.2
Term
.
The
engagement of Executive under this Agreement shall begin on the date hereof
and
shall continue through and until December 31, 2007 (the “
Initial
Period
”)
unless
extended as provided in this
Section 1.2
.
Thereafter, the term of this Agreement shall automatically renew and extend
for
additional consecutive one-year periods (“
Renewal
Periods
”)
unless
one of the parties shall deliver a written notice of termination to the other
party at least sixty (60) days prior to the expiration of the Initial Period
or
any Renewal Period. The Initial Period through the then current Renewal Period,
if any, is hereinafter referred to as the “
Term
.”
Notwithstanding anything to the contrary contained herein, the Term is subject
to termination pursuant to
Section 1.3
.
1.3
Termination
.
(a)
If
Executive dies during the Term, this Agreement shall automatically terminate
on
the date of Executive’s death.
(b)
The
Company may terminate Executive’s employment hereunder upon written notice to
Executive at any time (i) due to the Permanent Disability of Executive or
(ii) for Cause or without Cause, for any or no reason. Such termination
shall be effective upon the date of service of such notice pursuant to
Section 14.6
.
For
purposes of this Agreement, “
Cause
”
means
the occurrence of any of the following events, as determined in the reasonable
good faith judgment of the Board:
(i)
the
failure of Executive to perform his duties hereunder or comply with reasonable
directions of the Board which continues for ten (10) days after the Board has
given written notice to Executive, specifying in reasonable detail the manner
in
which Executive has failed to perform such duties or comply with such
directions;
(ii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act or acts constituting (a) a felony,
(b) dishonesty or disloyalty with respect to the Company or
(c) fraud;
(iii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act, or has failed to take action, which act or
failure to take action (a) adversely affects the Company’s business or
reputation or (b) indicates alcohol abuse or drug use by Executive that
adversely affects his performance of the essential job functions
hereunder;
(iv)
the
breach, non-performance or non-observance of any of the terms of this Agreement
(other than as described in clause (i) above) or any other agreement to
which Executive and the Company are parties, by Executive, if such breach,
non-performance or non-observance shall continue beyond a period of ten (10)
business days immediately after written notice thereof by the Company to
Executive; or
(v)
notwithstanding
clause (iv) above, any breach of the Restrictive Covenants.
(c)
Executive
may terminate and resign from his Employment hereunder upon not less than sixty
(60) days prior written notice to the Company.
Executive
shall be deemed to have a “
Permanent
Disability
”
for
purposes of this Agreement if he suffers a physical or mental illness, injury
or
infirmity that prevents him from performing, with or without reasonable
accommodations, his essential job functions under this Agreement, for a total
period of 120 days in any 360-day period. The Board shall determine, according
to the facts then available, whether and when the Permanent Disability of
Executive has occurred. Such determination shall not be arbitrary or
unreasonable, and the Board may, but shall not be required to, take into
consideration the opinion of Executive’s personal physician, if reasonably
available, and such determination by the Board shall be final and binding on
the
parties hereto.
2.
Compensation
and Benefits
.
2.1
Base
Salary
.
As
consideration for the services of Executive hereunder, the Company shall pay
Executive an annual base salary of $120,000 (the “
Base
Salary
”),
payable in accordance with the Company’s customary payroll practices as in
effect from time to time. Notwithstanding the foregoing, during the period
beginning on and including January 1, 2005 and for each year during the
Term thereafter, the Board, in its sole discretion, may elect to cause the
Company to adjust the Executive’s Base Salary by an amount to be determined by
the Board in its sole judgment based upon Executive’s and the Company’s
performance and the achievement of the other goals and objectives approved
by
the Board for such year.
2.2
Discretionary
Bonus
.
Following the end of each fiscal year the Board, in its sole discretion, may
elect to cause the Company to award to Executive a bonus (the “
Discretionary
Bonus
”)
for
such year, in an amount to be determined by the Board in its sole judgment
based
upon Executive’s and the Company’s performance and the achievement of the other
goals and objectives approved by the Board for such year. Such Discretionary
Bonus shall be payable as determined by the Board and only if Executive is
employed by the Company as of the date such Discretionary Bonus is
paid.
2.3
Compensation
After Termination
.
(a)
If
Executive is terminated by the Company for Cause or resigns, then the Company
shall have no further obligations hereunder or otherwise with respect to
Executive’s employment hereunder from and after the date of said termination
(except payment of the Base Salary and other amounts owed to Executive for
reimbursable business expenses accrued through the date of said termination),
and the Company shall continue to have all other rights available hereunder
(including, without limitation, all rights under the Restrictive Covenants
at
law or in equity).
(b)
If
Executive is terminated by the Company without Cause, Executive shall be
entitled to receive as severance pay an amount equal to the Base Salary that
would otherwise have been payable if Executive continued his employment
hereunder, for a 6-month period, payable in accordance with the Company’s
payroll policies, reduced by the amount of compensation earned by Executive
at
other employment. The Company shall have no other obligations hereunder or
otherwise with respect to Executive’s employment from and after the termination
date, and the Company shall continue to have all other rights available
hereunder (including, without limitation, all rights under the Restrictive
Covenants at law or in equity).
(c)
If
Executive is terminated due to Permanent Disability or death, Executive or
Executive’s estate, as the case may be, shall be entitled to receive as
severance pay an amount equal to the Base Salary that would otherwise have
been
payable if Executive continued his employment hereunder for the period that
otherwise would be remaining in the Term (without any further adjustment as
described in
Section 2.1
),
payable in accordance with the Company’s payroll policies. Notwithstanding the
foregoing, in the event Executive is Permanently Disabled or dies as a result
of, or in the conduct of, his employment activities hereunder, then Executive
or
Executive’s estate, as the case may be, shall be entitled to receive severance
pay in an amount equal to the Base Salary that would otherwise have been payable
if Executive continued his employment hereunder (without any further adjustment
as described in
Section 2.1
)
for a
period of not less than eighteen (18) months, payable in accordance with the
Company’s payroll policies. The Company shall have no other obligations
hereunder or otherwise with respect to Executive’s employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including, without limitation, all rights under the
Restrictive Covenants at law or in equity).
2.4
Profit
Sharing; Pension and Salary Deferral Benefits
.
It is
understood by the parties to this Agreement that, during the Term, Executive
shall be entitled to participate in or accrue benefits under any pension, salary
deferral or profit sharing plan now existing or hereafter created for employees
of the Company upon terms and conditions equivalent to those which the Company
may provide for other key management employees.
2.5
Fringe
Benefits and Expenses During the Term
.
(a)
Executive
shall be eligible to participate in any benefit plans maintained by the Company
for its key management employees from time to time, including, without
limitation, group life, disability and medical insurance in accordance with
such
plans as from time to time in effect and applicable to key management employees
of the Company.
(b)
Executive
shall be entitled to three weeks paid vacation per year for the first year,
and
four weeks paid vacation per year thereafter, earned pro rata during his
employment, to be taken at such times as may be approved by the Board or its
authorized designees. The maximum vacation pay that may accrue is four weeks
(“
Vacation
Cap
”).
When
Executive accrues four weeks of vacation no further vacation will accrue until
he uses vacation time and reduces the accrued vacation time below the vacation
cap. He will then accrue vacation time until the vacation cap of four weeks
is
reached.
(c)
The
Company shall provide Executive sick days on substantially the same terms as
offered to other key management employees.
(d)
The
Company shall reimburse Executive for all ordinary, necessary and reasonable
travel and other business expenses incurred by him in connection with the
performance of his duties hereunder, in accordance with the Company’s policy.
Such reimbursement shall be made upon presentation of itemized expense
statements and such other supporting documentation as the Company may reasonably
require.
2.6
Taxes,
etc
.
All
compensation payable to Executive hereunder is stated in gross amount and shall
be subject to all applicable withholding taxes, other normal payroll and any
other amounts required by law to be withheld.
3.
Confidentiality
.
3.1
Company
Information
.
Executive agrees at all times during the term of my employment and thereafter,
to hold in strictest confidence, and not to use, except for the benefit of
the
Company, or to disclose to any person, firm or corporation without written
authorization of the Board of Directors of the Company, any Confidential
Information of the Company, except under a non-disclosure agreement duly
authorized and executed by the Company. Executive understands that “
Confidential
Information
”
means
any non-public information that relates to the actual or anticipated business
or
research and development of the Company, technical data, trade secrets or
know-how, including, but not limited to, research, product plans or other
information regarding Company’s products or services and markets therefor,
customer lists and customers software, developments, inventions, processes,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, finances or other business information. Executive
further understands that Confidential Information does not include any of the
foregoing items which have become publicly known and made generally available
through no wrongful act of mine or of others who were under confidentiality
obligations as to the item or items involved or improvements or new versions
thereof.
3.2
Former
Employer Information
.
Executive agrees that he will not, during my employment with the Company,
improperly use or disclose any proprietary information or trade secrets of
any
former or concurrent employer or other person or entity and that Executive
will
not bring onto the premises of the Company any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
3.3
Third
Party
.
Executive recognizes that the Company has received and in the future will
receive from third parties their confidential or proprietary information subject
to a duty on the Company’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes. Executive agrees
to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to
use
it except as necessary in carrying out my work for the Company consistent with
the Company’s agreement with such third party.
4.
Inventions
.
4.1
Inventions
Retained and Licensed
.
Executive has attached hereto, as
Exhibit A
,
a list
describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made prior to his employment with
the
Company (collectively referred to as “
Prior
Inventions
”),
which
belong to Executive, which relate to the Company’s proposed business, products
or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, Executive represents that there
are
no such Prior Inventions. If in the course of Executive’s employment with the
Company, Executive incorporates into a Company product, process or service
a
Prior Invention owned by Executive or in which Executive has an interest,
Executive hereby grants to the Company a nonexclusive, royalty-free, fully
paid-up, irrevocable, perpetual, worldwide license to make, have made, modify,
use and sell such Prior Invention as part of or in connection with such product,
process or service, and to practice any method related thereto.
4.2
Assignment
of Invention
.
Executive agrees that he will promptly make full written disclosure to the
Company, will hold in trust for the sole right and benefit of the Company,
and
hereby assign to the Company, or its designee, all my right, title, and interest
in and to any and all inventions, original works of authorship, developments,
concepts, improvements, designs, discoveries, ideas, trademarks or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which Executive may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived or developed or reduced to practice, during
the period of time Executive am in the employ of the Company (collectively
referred to as “
Inventions
”).
Executive further acknowledges that all original works of authorship which
are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are “works made for hire,” as that term is defined in the United States
Copyright Act. Executive understands and agrees that the decision whether or
not
to commercialize or market any invention developed by me solely or jointly
with
others is within the Company’s sole discretion and for the Company’s sole
benefit and that no royalty will be due to him as a result of the Company’s
efforts to commercialize or market any such invention.
4.3
Inventions
Assigned to the United States
.
Executive agrees to assign to the United States government all my right, title,
and interest in and to any and all Inventions whenever such full title is
required to be in the United States by a contract between the Company and the
United States or any of its agencies.
4.4
Maintenance
of Records
.
Executive agrees to keep and maintain adequate and current written records
of
all Inventions made by me (solely or jointly with others) during the term of
my
employment with the Company. The records will be in the form of notes, sketches,
drawings, and any other format that may be specified by the Company. The records
will be available to and remain the sole property of the Company at all
times.
4.5
Patent
and Copyright Registrations
.
Executive agrees to assist the Company, or its designee, at the Company’s
expense, in every proper way to secure the Company’s rights in the inventions
and any copyrights, patents, mask work rights or other intellectual property
rights relating thereto in any and all countries, including the disclosure
to
the Company of all pertinent information and data with respect thereto, the
execution of all applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary in order to apply for and
obtain such rights and in order to assign and convey to the Company, its
successors, assigns, and nominees the sole and exclusive rights, title and
interest in and to such Inventions, and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto. Executive further
agree that my obligation to execute or cause to be executed, when it is in
my
power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If the Company is unable because of my mental
or
physical incapacity or for any other reason to secure my signature to apply
for
or to pursue any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of authorship
assigned to the Company as above, then Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as his
agent and attorney in fact, to act for and in his behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts
to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
him.
5.
Conflicting
Employment
.
Executive agrees that, during the term of his employment with the Company,
Executive will not engage in any other employment, occupation or consulting
directly related to the business in which the Company is now involved or becomes
involved during the term of my employment, nor will Executive engage in any
other activities that conflict with my obligations to the Company, unless
written consent is given by the Board of Directors of the Company.
6.
Returning
Company Documents
.
Executive agrees that, at the time of leaving the employ of the Company, he
will
deliver to the Company (and will not keep in his possession, recreate or deliver
to anyone else) any and all devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items developed by Executive pursuant to his employment with the Company or
otherwise belonging to the Company, its successors or assigns, including,
without limitation, those records maintained pursuant to paragraph 4.4. In
the event of the termination of Executive’s employment, Executive agrees to sign
and deliver the “Termination Certification” attached hereto as
Exhibit B
.
7.
Notification
of New Employer
.
In the
event that Executive leaves the employ of the Company, Executive hereby grant
consent to notification by the Company to my new employer about my rights and
obligations under this Agreement
8.
Solicitation
of Employees
.
Executive agrees that for a period of twelve (12) months immediately following
the termination of my relationship with the Company for any reason, whether
with
or without cause, Executive shall not either directly or indirectly solicit,
induce, recruit or encourage any of the Company’s employees to leave their
employment, or take away such employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Company, either for myself or for any
other person or entity.
9.
Non-Competition
.
Executive agrees that during the period of employment and for a period of two
(2) years immediately following the termination of his relationship with the
Company for any reason, whether with or without cause, Executive shall not
directly or indirectly own, manage, operate, consult or to be employed in a
business substantially similar to
(as
defined by the Company’s therapeutic area and core
technology)
,
or
competitive with, the present business of the Company and its successors and
assigns or such other business activity in which the Company and its successors
and assigns may substantially engage during the term of employment.
10.
Conflict
of Interest Guidelines
.
Executive agrees to diligently adhere to the Conflict of Interest Guidelines
attached as
Exhibit D
hereto.
11.
Representations
.
Executive agrees to execute any proper oath or verify any proper document
required to carry out the terms of this Agreement. Executive represents that
his
performance of all the terms of this Agreement will not breach any agreement
to
keep in confidence proprietary information acquired by Executive in confidence
or in trust prior to Executive’s employment by the Company. Executive hereby
represent and warrant that Executive have not entered into, and Executive will
not enter into, any oral or written agreement in conflict herewith.
12.
Policy
Manual
.
Executive agrees that he is responsible for knowing the contents of the
Company’s Policy Manual, the contents of which may be modified or eliminated at
any time.
13.
Arbitration
and Equitable Relief
.
13.1
Arbitration
.
IN
CONSIDERATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY, ITS PROMISE TO ARBITRATE
ALL EMPLOYMENT-RELATED DISPUTES AND EXECUTIVE RECEIPT OF THE COMPENSATION,
PAY
RAISES AND OTHER BENEFITS PAID TO EXECUTIVE BY THE COMPANY, AT PRESENT AND
IN
THE FUTURE, EXECUTIVE AGREES THAT ANY AND ALL CONTROVERSIES, CLAIMS, OR DISPUTES
WITH ANYONE (INCLUDING THE COMPANY AND ANY EMPLOYEE, OFFICER, DIRECTOR,
SHAREHOLDER OR BENEFIT PLAN OF THE COMPANY IN THEIR CAPACITY AS SUCH OR
OTHERWISE) ARISING OUT OF, RELATING TO OR RESULTING FROM EXECUTIVE EMPLOYMENT
WITH THE COMPANY OR THE TERMINATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY,
INCLUDING ANY BREACH OF THIS AGREEMENT, SHALL BE SUBJECT TO BINDING ARBITRATION
UNDER THE RULES AMERICAN ARBITRATION ASSOCIATION. DISPUTES WHICH EXECUTIVE
AGREES TO ARBITRATE, AND THEREBY AGREES TO WAIVE ANY RIGHT TO A TRIAL BY JURY,
INCLUDE ANY STATUTORY CLAIMS UNDER STATE OR FEDERAL LAW, INCLUDING, BUT NOT
LIMITED TO, CLAIMS UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE
AMERICANS WITH DISABILITIES ACT OF 1990, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967 OR THE OLDER WORKERS BENEFIT PROTECTION ACT. EXECUTIVE FURTHER
UNDERSTANDS THAT THIS AGREEMENT TO ARBITRATE ALSO APPLIES TO ANY DISPUTES THAT
THE COMPANY MAY HAVE WITH EXECUTIVE.
13.2
Procedure
.
EXECUTIVE AGREES THAT ANY ARBITRATION WILL BE ADMINISTERED BY THE AMERICAN
ARBITRATION ASSOCIATION (“
AAA
”)
AND
THAT THE NEUTRAL ARBITRATOR WILL BE SELECTED IN A MANNER CONSISTENT WITH ITS
NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES. EXECUTIVE AGREE THAT
THE ARBITRATOR SHALL HAVE THE POWER TO DECIDE ANY MOTIONS BROUGHT BY ANY PARTY
TO THE ARBITRATION, INCLUDING MOTIONS FOR SUMMARY JUDGMENT AND/OR ADJUDICATION
AND MOTIONS TO DISMISS AND DEMURRERS, PRIOR TO ANY ARBITRATION HEARING.
EXECUTIVE ALSO AGREES THAT THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY
REMEDIES, INCLUDING ATTORNEYS’ FEES AND COSTS, AVAILABLE UNDER APPLICABLE LAW.
EXECUTIVE UNDERSTANDS THE COMPANY WILL PAY FOR ANY ADMINISTRATIVE OR HEARING
FEES CHARGED BY THE ARBITRATOR OR AAA EXCEPT THAT EXECUTIVE SHALL PAY THE FIRST
$125.00 OF ANY FILING FEES ASSOCIATED WITH ANY ARBITRATION EXECUTIVE INITIATES.
EXECUTIVE AGREES THAT THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY
ARBITRATION IN A MANNER CONSISTENT WITH THE RULES AND THAT TO THE EXTENT THAT
THE AAA’S NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES CONFLICT WITH
THE RULES THE RULES SHALL TAKE PRECEDENCE. EXECUTIVE AGREES THAT THE DECISION
OF
THE ARBITRATOR SHALL BE IN WRITING.
13.3
Remedy
.
EXCEPT
AS PROVIDED BY THE RULES AND THIS AGREEMENT ARBITRATION SHALL BE THE SOLE,
EXCLUSIVE AND FINAL REMEDY FOR ANY DISPUTE BETWEEN ME AND THE COMPANY.
ACCORDINGLY, EXCEPT AS PROVIDED FOR BY THE RULES AND THIS AGREEMENT, NEITHER
EXECUTIVE NOR THE COMPANY WILL BE PERMITTED TO PURSUE COURT ACTION REGARDING
CLAIMS THAT ARE SUBJECT TO ARBITRATION. NOTWITHSTANDING, THE ARBITRATOR WILL
NOT
HAVE THE AUTHORITY TO DISREGARD OR REFUSE TO ENFORCE ANY LAWFUL COMPANY POLICY,
AND THE ARBITRATOR SHALL NOT ORDER OR REQUIRE THE COMPANY TO ADOPT A POLICY
NOT
OTHERWISE REQUIRED BY LAW WHICH THE COMPANY HAS NOT ADOPTED.
13.4
Availability
of Injunctive Relief
.
IN
ADDITION TO THE RIGHT UNDER THE RULES TO PETITION THE COURT FOR PROVISIONAL
RELIEF, EXECUTIVE AGREES THAT ANY PARTY MAY ALSO PETITION THE COURT FOR
INJUNCTIVE RELIEF WHERE EITHER PARTY ALLEGES OR CLAIMS A VIOLATION OF THIS
EMPLOYMENT AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY OR ANY OTHER AGREEMENT
REGARDING TRADE SECRETS, CONFIDENTIAL INFORMATION OR NONSOLICITATION. EXECUTIVE
UNDERSTANDS THAT ANY BREACH OR THREATENED BREACH OF SUCH AN AGREEMENT WILL
CAUSE
IRREPARABLE INJURY AND THAT MONEY DAMAGES WILL NOT PROVIDE AN ADEQUATE REMEDY
THEREFOR AND BOTH PARTIES HEREBY CONSENT TO THE ISSUANCE OF AN INJUNCTION.
IN
THE EVENT EITHER PARTY SEEKS INJUNCTIVE RELIEF, THE PREVAILING PARTY SHALL
BE
ENTITLED TO RECOVER REASONABLE COSTS AND ATTORNEYS FEES.
13.5
Administrative
Relief
.
EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT DOES NOT PROHIBIT HIM FROM PURSUING
AN
ADMINISTRATIVE CLAIM WITH A LOCAL, STATE OR FEDERAL ADMINISTRATIVE BODY SUCH
AS
THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING, THE EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION OR THE WORKERS’ COMPENSATION BOARD. THIS AGREEMENT DOES, HOWEVER,
PRECLUDE EXECUTIVE FROM PURSUING COURT ACTION REGARDING ANY SUCH
CLAIM.
13.6
Voluntary
Nature of Agreement
.
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE IS EXECUTING THIS AGREEMENT
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE
ELSE. EXECUTIVE FURTHER ACKNOWLEDGES AND AGREES THAT HE HAS CAREFULLY READ
THIS
AGREEMENT AND THAT HE HAS ASKED ANY QUESTIONS NEEDED FOR HIM TO UNDERSTAND
THE
TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND
IT, INCLUDING THAT EXECUTIVE
IS
WAIVING HIS RIGHT TO A JURY TRIAL
.
FINALLY, EXECUTIVE AGREES THAT HE HAS BEEN PROVIDED AN OPPORTUNITY TO SEEK
THE
ADVICE OF AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
14.
Miscellaneous
.
14.1
Income
Tax Treatment
.
Executive and the Company acknowledge that it is the intention of the Company
to
deduct all amounts paid under
Section 2
hereof
as ordinary and necessary business expenses for income tax purposes. Executive
agrees and represents that he will treat all amounts paid hereunder as ordinary
income (except for expense reimbursement) for income tax purposes.
14.2
Assignment
.
Executive may not assign any of his rights or obligations hereunder without
the
written consent of the Company. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or
not.
14.3
Severability
.
Whenever possible, each provision of this Agreement shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition
or
invalidity, without invalidating the remainder of this Agreement.
14.4
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the
same Agreement.
14.5
Descriptive
Headings; Interpretation
.
The
descriptive headings in this Agreement are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. The use of the word “
including
”
in
this
Agreement shall be by way of example rather than by limitation.
14.6
Notices
.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given if (i) delivered personally to the
recipient, (ii) sent to the recipient by reputable express courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or (iii) transmitted by
telecopy to the recipient with a confirmation copy to follow the next day to
be
delivered by overnight carrier. Such notices, demands and other communications
shall be sent to the addresses indicated below:
|
To
the Company:
|
Cleveland
BioLabs, Inc.
10268
Carnegie Ave.
Cleveland,
OH 44106
Attention:
Chief Officer
Facsimile:
________________
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|
with
a copy to:
|
Katten
Muchin Zavis Rosenman
525
West Monroe Street
Chicago,
IL 60661-3693
Attention:
Kurt W. Florian, Esq.
Facsimile:
(312) 902-1061
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To
Executive:
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Yakov
Kogan
4930-A
S. Cornell Ave.
Chicago,
IL 60615
Facsimile:
________________
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|
with a copy to:
|
________________________
Attention:
________________
Facsimile:_________________
|
or
to
such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Date
of
service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) one day after the date of delivery to the overnight
courier if sent by overnight courier or (z) the next business day after the
date of transmittal by telecopy.
14.7
Preamble;
Preliminary Recitals
.
The
Preliminary Recitals set forth in the Preamble hereto are hereby incorporated
and made part of this Agreement.
14.8
Entire
Agreement
.
Except
as otherwise expressly set forth herein, this Agreement sets forth the entire
understanding of the parties, and supersedes and preempts all prior oral or
written understandings and agreements with respect to the subject matter
hereof.
14.9
Governing
Law
.
This
Agreement shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Agreement shall be governed by, the laws of the State of Ohio without giving
effect to provisions thereof regarding conflict of laws.
14.10
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.
14.11
Amendment
and Waivers
.
Any
provisions of the Agreement may be amended or waived only with the prior written
consent of the Company and Executive.
Date:
August
1, 2004
|
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/s/
Yakov
N. Kogan
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Signature
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Yakov N. Kogan
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Name
of Executive (typed or printed)
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CLEVELAND
BIOLABS, INC.
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By:
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/s/
Michael
Fonstein
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Its:
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CEO
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Exhibit
A
LIST
OF PRIOR INVENTIONS
AND
ORIGINAL WORKS OF AUTHORSHIP
Title
|
Date
|
Identifying
Number
or
Brief Description
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____
No
inventions or improvements
____
Additional
Sheets Attached
Signature
of Executive: _______________________
Print
Name of Executive: ______________________
Date:
_____________________________________
Exhibit
B
CLEVELAND
BIOLABS, INC.
TERMINATION
CERTIFICATION
This
is
to certify that the undersigned does not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Cleveland BioLabs, Inc., its subsidiaries, affiliates,
successors or assigns (together, the “Company”).
I
further
certify that I have complied with all the terms of the Company’s Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I
further
agree that, in compliance with the Employment Agreement, I will preserve as
confidential all trade secrets, confidential knowledge, data or other
proprietary information relating to products, processes, know-how, designs,
formulas, developmental or experimental work, computer programs, data bases,
other original works of authorship, customer lists, business plans, financial
information or other subject matter pertaining to any business of the Company
or
any of its employees, clients, consultants or licensees.
I
further
agree that for twelve (12) months from this date, I will not solicit, induce,
recruit or encourage any of the Company’s employees to leave their
employment.
I
further
agree that for [time from section 8] within [distance from section 8]
I will not directly or indirectly own, manage, operate, consult or to be
employed in a business substantially similar to, or competitive with, the
present business of the Company and its successors and assigns or such other
business activity in which the Company and its successors and assigns may
substantially engage during the term of employment.
Date:
_______________
(Employee’s
Signature) _______________________
__________________________________________
(Type/Print
Employee’s Name)
Exhibit
D
CLEVELAND
BIOLABS, INC.
CONFLICT
OF INTEREST GUIDELINES
It
is the
policy of Cleveland BioLabs, Inc. to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles
of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1.
Revealing
confidential information to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this policy whether
or
not for personal gain and whether or not harm to the Company is intended. (The
Employment Agreement elaborates on this principle and is a binding
agreement.)
2.
Accepting
or offering substantial gifts, excessive entertainment, favors or payments
which
may be deemed to constitute undue influence or otherwise be improper or
embarrassing to the Company.
3.
Participating
in civic or professional organizations that might involve divulging confidential
information of the Company.
4.
Initiating
or approving personnel actions affecting reward or punishment of employees
or
applicants where there is a family relationship or is or appears to be a
personal or social involvement.
5.
Initiating
or approving any form of personal or social harassment of
employees.
6.
Investing
or holding outside directorship in suppliers, customers, or competing companies,
including financial speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
7.
Borrowing
from or lending to employees customers or suppliers.
8.
Acquiring
real estate of interest to the Company.
9.
Improperly
using or disclosing to the Company any proprietary information or trade secrets
of any former or concurrent employer or other person or entity with whom
obligations of confidentiality exist.
10.
Unlawfully
discussing prices, costs, customers, sales or markets with competing companies
or their employees.
11.
Making
any unlawful agreement with distributors with respect to prices.
12.
Improperly
using or authorizing the use of any inventions which are the subject of patent
claims of any other person or entity.
13.
Engaging
in any conduct which is not in the best interest of the Company.
Each
officer, employee and independent contractor must take every necessary action
to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
CONSULTING
AGREEMENT
THIS
CONSULTING AGREEMENT (the “Agreement”), effective as of August 1, 2004. is
entered into by Cleveland BioLabs, Inc., a Delaware corporation with its
principal place of business at 10265 Carnegie Ave., Cleveland, OH 44106, U.S.A.
(the “Company”), and Dr. Andrei Gudkov, with an address at 7800 Blackberry Lane,
Gates Mills, OH 44040 (the “Consultant”).
The
Company desires to retain the services of the Consultant and the Consultant
desires to perform certain services for the Company. In consideration of the
mutual covenants and promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged
by
the parties hereto, the parties agree as follows:
1.
Services
.
The
Consultant agrees to provide such advice and consulting services concerning
matters of expansion of Company’s core business as the Company may from time to
time in its sole discretion request in writing (“Consulting Services”). During
the Consultation Period, the Consultant shall not engage in any activity that
has a conflict of interest with the Company, including any competitive
employment, business, or other activity, and he shall not assist any other
person or organization that competes, or intends to compete, with the
Company.
2.
Term
.
This
Agreement shall commence on the date hereof and shall continue for a thirty
six
months period (the “Consultation Period”), unless earlier terminated in
accordance with the provisions of Section 4.
3.
Compensation
.
3.1
Company
will pay to a consultant a monthly fee of $4,000 based on a work load of
approximately 25 hours per month.
3.2
Expenses
.
Consultant shall be reimbursed for all of his expenses incurred in connection
with the performance by Consultant of the services as contemplated by this
Agreement, including air travel and accommodations when reasonably necessary,
in
each case subject to prior approval by the Company, including prior approval
as
to the class of travel and accommodations and maximum per diem
costs.
3.3
Benefits.
The
Consultant shall not be entitled to any benefits, coverages or privileges,
including, without limitation, social security, unemployment, medical or pension
payments, made available to employees of the Company.
4.
Termination
.
The
Company may terminate the Consultation Period, effective immediately upon
receipt of notice, but only if the Consultant (a) breaches or threatens to
breach any provision of Section 6, (b) engages in any malfeasance, misconduct
or
conduct likely to cause reputational harm to the Company, (c) enters into a
relationship with any third party which creates a conflict of interest with
his
Consulting Services for the Company, or (d) dies or becomes physically or
mentally disabled such that, in the Company’s reasonable judgment, he cannot
perform the duties contemplated hereunder, and any such termination under (a),
(b), (c) or (d) shall be deemed a “for cause” termination. Either party may
terminate the Agreement, without cause, upon 30 days notice in writing to the
other party. Following termination, the Company shall pay all fees owing for
services rendered prior to the termination date, as such fees become
payable.
5.
Cooperation
.
The
Consultant shall use his best reasonable efforts in the performance of his
obligations under this Agreement. The Company shall provide such access to
its
information and property as may be reasonably required in order to facilitate
the Consultant’s performance of his obligations hereunder. The Consultant shall
cooperate with the Company’s personnel, shall not interfere with the conduct of
the Company’s business, and shall observe all rules, regulations and security
requirements of the Company concerning the safety of persons and property,
to
the extent Consultant is apprised of same.
6.
Inventions
and Proprietary Information
.
6.1
Inventions
.
(a)
All
inventions, discoveries, computer programs, data, technology, designs,
innovations and improvements (whether or not patentable or copyrightable or
able
to be protected by trademark) (“Inventions”) related to the business of the
Company which are made, conceived, reduced to practice, created, written,
designed or developed by the Consultant, solely or jointly with others and
whether during normal business hours or otherwise, during the Consultation
Period or thereafter if resulting or directly derived from Proprietary
Information (as defined below), shall be the sole property of the Company.
Inventions shall also include, whether or not derived from Proprietary
information, mailing lists, databases, articles and other works prepared or
assembled on behalf of the Company or for use in the Company’s business. The
Consultant hereby assigns to the Company all Inventions and any and all related
patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States
and
elsewhere and appoints any officer of the Company as his duly authorized
attorney to execute, file, prosecute and protect the same before any government
Consultant, court or authority. Upon the request of the Company and at the
Company’s expense, the Consultant shall execute such further assignments,
documents and other instruments as may be necessary or desirable to fully and
completely assign all Inventions to the Company and to assist the Company in
applying for, obtaining and enforcing patents or copyrights or other rights
in
the United States and in any foreign country with respect to any
Invention.
(b)
The
Consultant shall promptly disclose to the Company all Inventions and will
maintain adequate and current written records in the form of notes, sketches,
drawings and as may be specified by the Company to document the conception
and/or first actual reduction to practice of any Invention. Such written records
shall be available to and remain the sole property of the Company at all
times.
6.2
Proprietary
Information
.
(a)
The
Consultant acknowledges that his relationship with the Company is one of high
trust and confidence and that in the course of his service to the Company he
will have access to and contact with Proprietary Information. The Consultant
agrees that he will not, during the Consultation Period or at any time
thereafter, disclose to others, or use for his benefit or the benefit of others,
any Proprietary Information or Invention.
(b)
For
purposes of this Agreement, “Proprietary Information” shall mean, by way of
illustration and not limitation, all information (whether or not patentable
or
copyrightable or able to be protected by trademark) owned, possessed or used
by
the Company, including, without limitation, any Invention, formula, vendor
information, customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software, software
documentation, hardware design, Internet domain name, technology, marketing
or
business plan, forecast, unpublished financial statement, budget, license,
price, cost and employee list that is communicated to, learned of, developed
or
otherwise acquired by the Consultant in the course of his service to the
Company.
(c)
The
Consultant’s obligations under this Section 6.2 shall not apply to any
information that (i) is or becomes known to the general public under
circumstances involving no breach by the Consultant or others of the terms
of
this Section 6.2, (ii) is generally disclosed to third parties by the Company
without restriction on such third parties, or (iii) is approved for release
by
written authorization of the President or Chief Executive Officer of the
Company.
(d)
Upon
termination of this Agreement or at any other time upon request by the Company,
the Consultant shall promptly deliver to the Company all records, files, a
computer-readable version of all mailing lists and databases, memoranda, notes,
designs, data, reports, price lists, customer lists, drawings, plans, computer
programs, software, software documentation, sketches, laboratory and research
notebooks and other documents (and all copies or reproductions of such
materials) relating to the business of the Company.
(e)
The
Consultant represents that his retention by the Company and his performance
under this Agreement does not, and shall not, breach any agreement that
obligates him to keep in confidence any trade secrets or confidential or
proprietary information of his or of any other party or to refrain from
competing, directly or indirectly, with the business of any other party. The
Consultant shall not disclose to the Company any trade secrets or confidential
or proprietary information of any other party.
6.3
Remedies
.
The
Consultant acknowledges that any breach of the provisions of this Section 6
shall result in serious and irreparable injury to the Company for which the
Company cannot be adequately compensated by monetary damages alone. The
Consultant agrees, therefore, that, in addition to any other remedy it may
have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Consultant and to seek both temporary and permanent injunctive
relief (to the extent permitted by law) without the necessity of proving actual
damages.
7.
Independent
Contractor Status
.
The
Consultant shall perform all services under this Agreement as an “independent
contractor” and not as an employee or agent of the Company. The Consultant is
not authorized to assume or create any obligation or responsibility, express
or
implied, on behalf of or in the name of, the Company or to bind the Company
in
any manner.
8.
Notices
.
All
notices required or permitted under this Agreement shall be in writing and
shall
be deemed effective upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to
the
other party at the address shown above or at such other address or addresses
as
either party shall designate to the other in accordance with this Section
8.
9.
Pronouns
.
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or newer forms, and the singular
forms of nouns and pronouns shall include the plural, and vice
versa.
10.
Entire
Agreement
.
This
Agreement constitutes the entire agreement between the parties and supersedes
all prior agreements and understandings, whether written or oral, relating
the
subject matter of this Agreement.
11.
Amendment
.
This
Agreement may be amended or modified only by a written instrument executed
by
both the Company and the Consultant.
12.
Governing
Law
.
This
Agreement shall be construed, interpreted and enforced in accordance with the
laws of the State of Ohio.
13.
Successors
and Assigns
.
This
Agreement shall be binding upon, and inure to the benefit of, both parties
and
their respective permitted successors and assigns, including any corporation
with which, or into which, the Company may be merged or which may succeed to
its
assets or business; provided, however, that the obligations of the Consultant
are personal and shall not be assigned by him, but the fees and other sums
accruing to, and the related rights and benefits of Consultant hereunder shall
be freely assignable and shall inure to the benefit of Consultant’s successors
and assigns including, without limitation, the representatives of his estate
and
his heirs.
14.
Miscellaneous
.
14.1
No
delay
or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by
the
Company on any one occasion shall be effective only in that instance and shall
not be construed as a bar or waiver of any right on any other
occasion.
14.2
The
captions of the sections of this Agreement are for convenience of reference
only
and in no way define, limit or affect the scope or substance of any section
of
this Agreement.
14.3
In
the
event that any provision of this Agreement shall be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired
thereby.
14.4
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same
instrument.
14.5
The
Company agrees to defend, indemnify and hold harmless the Consultant against
all
claims, demands and actions concerning, or in any way relating to, the Company’s
performance or alleged breach of any contracts with customers procured by
Consultant, or the Consultant’s activities on behalf of the Company except in
the event of Consultant’s breach of this Agreement, negligence or willful
misconduct.
IN
WITNESS WHEREOF. the parties hereto have executed this Agreement as of the
day
and year set forth above.
Cleveland Biolabs, Inc.
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/s/ Michael
Fonstein, Ph.D.
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By:
Michael
Fonstein, Ph.D.
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Title:
CEO
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CONSULTANT:
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/s/ Andrei
Gudkov
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THIS
CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF PREFERRED STOCK AND COMMON STOCK
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER.
CONVERTIBLE
PROMISSORY NOTE
October 18, 2004 (the “
Issuance
Date
”)
|
$
[109,000]
|
Cleveland
BioLabs, Inc., a Delaware corporation, located at 7800 Blackberry Lane, Gates
Mills, Ohio 44040 (“
Borrower
”
or
the
“
Corporation
”),
hereby promises to pay to the order of Children’s Cancer Institute Australia for
Medical Research, located at Children’s Cancer Institute Australia for Medical
Research, P.O. Box 81, Randwick, NSW AUSTRALIA 2031 (the “
Lender
”),
the
principal amount of $109,000 together with interest thereon calculated from
the
date hereof in accordance with the provisions of this Convertible Promissory
Note (this “
Note
”).
1.
Principal
Amount
.
The
amount on the face of this Note shall constitute the principal amount of this
Note (the “
Principal
Amount
”).
The
Principal Amount shall accrue interest at an annual rate equal to six percent
(6%), compounded annually. The Principal Amount plus any and all accrued and
unpaid interest through and including any Conversion Date shall constitute
the
Conversion Amount (the “
Conversion
Amount
”).
2.
Maturity
.
If the
Note shall not have previously been converted pursuant to a Mandatory
Conversion, on the Maturity Date the Note shall be surrendered to the
Corporation, and, at the option of the Lender, the Conversion Amount shall
be
(i) converted into Common Stock at the Fixed Conversion Price (as defined below)
or (ii) redeemed by the Corporation. The Lender may elect to convert the
Conversion Amount at the Fixed Conversion Price. If the Lender does not elect
such a conversion, the Corporation shall redeem the entire Conversion Amount
of
the Note and the Lender shall be paid all principal and accrued and unpaid
interest thereon, in accordance with the terms of the Note. “
Maturity
Date
”
means
the earlier to occur of (i) a Change of Control and (ii) the date that is
thirty-six (36) months after the Issuance Date. The Corporation shall give
written notice to the Lender of a Change of Control within five (5) business
days of the occurrence thereof and the Lender will have five (5) business days
after such notice to elect to so convert the Conversion Amount.
3.
Conversion
of Note
.
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(a)
|
Conversion
of the Conversion Amount
.
This Note may be converted, in whole or in part, into shares of Common
Stock of the Corporation at any time prior to the Maturity Date in
accordance with the terms of this Section 3(a) and Section 3(f).
Upon
surrendering the Note to the Corporation, the Conversion Amount shall
be
converted into Common Stock at the fixed conversion price of $1,500
per
share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Common
Stock Conversion
.”
Upon Common Stock Conversion, the Lender, as a holder of Common Stock,
shall be entitled to the same rights and benefits accorded to the
other
holders of the Common Stock.
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(b)
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Conversion
of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation consummates
an
Initial Public Offering of the Common Stock (the “
Mandatory
Conversion Date
”),
the Note shall be surrendered to the Corporation, and the Conversion
Amount shall be automatically converted into Common Stock at the
fixed
conversion price of $1,500 per share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Mandatory
Conversion
.”
Upon Mandatory Conversion, the Lender, as a holder of Common Stock,
shall
be entitled to the same rights and benefits accorded to the other
holders
of the Common Stock.
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(c)
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Optional
Conversion of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation shall raise
any
additional funds either through the issuance of additional debt or
equity
(the “
Optional
Conversion Date
”),
at the election of the Lender the Note may be surrendered to the
Corporation, and the Conversion Amount shall then be converted into
the
new equity or new debt as is being sold and issued by the Corporation
(the
“
New
Equity
”
or “
New
Debt
,”
as applicable). The Conversion Amount shall be converted (i) if into
New
Equity, at a price per share equal to the lower price per share at
which
the New Equity is sold by the Corporation or (ii) if into New Debt,
into
the new debt instrument with a principal amount equal to the Conversion
Amount. Such event shall be referred to as the “
Optional
Conversion
.”
Upon an Optional Conversion, the Lender, as a holder of New Equity
or New
Debt, shall be entitled to the same rights and benefits accorded
to the
other holders of the New Equity or New Debt. This Optional Conversion
shall not apply to (i) any transaction involving the Company’s issuances
of securities (A) as consideration in a merger or consolidation,
(B) in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital) or (C) as consideration
for the acquisition of a business, product, license or other assets
by the
Company, (ii) the issuance of Common Stock in a registered public
offering, (iii) the issuance of securities upon exercise or conversion
of
the Company’s warrants or other convertible securities outstanding on the
Issuance Date, and (iv) the issuance of securities in connection
with any
stock splits or stock dividends of the
Company.
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(d)
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Computation
of the Number of Conversion Shares
.
Upon conversion into equity, the Lender shall receive a number of
shares
of New Equity or Common Stock, as the case may be, equal to the number
of
shares computed by dividing (1) the Conversion Amount by (2) the
applicable conversion price set forth above in Section 2, 3(a), 3(b)
or
Section 3(c), as the case may be (the “
Conversion
Shares
”).
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(e)
|
Notices
.
If the Corporation shall sell any New Equity or New Debt prior to
October
17, 2007, the Corporation shall give written notice to the Lender
at least
twenty (20) business days prior thereto setting forth the price per
share
and/or rights and benefits of such New Equity or New
Debt.
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(f)
|
Note
Conversion Deliveries
.
The Corporation and the Lender hereby agree to take such actions
as may be
required to ensure that upon conversion of the Note, the following
shall
occur:
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(i)
|
the
Lender shall surrender its originally executed Note to the Corporation
and
such Note shall be deemed
cancelled;
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(ii)
|
the
Corporation shall deliver to the Lender a certificate or certificates
representing the number of Conversion Shares issuable by reason of
such
conversion, or instruments in principal amount of the Conversion
Amount,
in the Lender’s name. Such certificates or other instruments shall bear a
legend which is substantially similar to such legends affixed to
other
certificates or instruments of the same class or series of stock
or
debt.
|
|
(iii)
|
the
Lender hereby agrees to execute and deliver to the Corporation any
documents which other holders of such equity or debt have executed
with
respect to shares issued in the sale of New Equity or New Debt, or
the
Corporation’s Common Stockholders Agreement in the event the Lender
converts this Note into Common
Stock.
|
4.
Triggering
Events
.
|
(a)
|
Definition
.
For purposes of this Note, a Triggering Event shall be deemed to
have
occurred if:
|
|
(i)
|
Borrower
fails to properly convert this Note on the terms and conditions specified
herein;
|
|
(ii)
|
Borrower
fails to properly redeem this Note or pay any accrued and unpaid
interest
upon maturity on the terms and conditions specified
herein;
|
|
(iii)
|
The
institution of a proceeding against Borrower under any state insolvency
laws, federal bankruptcy law, or similar debtor relief laws then
in
effect;
|
|
(b)
|
Consequences
of Triggering Event
.
|
|
(i)
|
If
a Triggering Event has occurred, the holder of this Note may demand
(by
written notice delivered to Borrower) immediate payment of all of
the
outstanding principal amount of this Note, plus any accrued interest
thereon.
|
|
(ii)
|
Any
holder of this Note shall also have any other rights which such holder
may
have been afforded under any contract or agreement at any time or
any
other rights which such holder may have pursuant to applicable
law.
|
5.
Cancellation
.
After
conversion of the entire Conversion Amount or upon redemption and payment of
all
principal and accrued and unpaid interest on the Note at maturity, the Note
shall be surrendered by the holder hereof to the Corporation for cancellation
and shall not be reissued.
6.
Representations,
Warranties and Covenants as to Common Stock
.
The
Corporation hereby represents, warrants, covenants and agrees as
follows:
|
(a)
|
This
Note is, and any Notes issued in substitution for or replacement
of this
Note will upon issuance be, duly authorized and validly issued, and
no
further consent or authorization is required by the Corporation,
its Board
of Directors or its stockholders. The Corporation has the requisite
corporate power and authority to enter into and perform its obligations
under this Note in accordance with the terms hereof. This Note constitutes
the valid and binding obligation of the Corporation, enforceable
against
the Corporation in accordance with its
terms.
|
|
(b)
|
The
Corporation will not, by amendment of its Certificate of Incorporation,
as
amended (the “
Certificate
of Incorporation
”),
or through any reorganization, transfer of assets, consolidation,
merger,
dissolution, issue or sale of securities, or any other voluntary
action,
avoid or seek to avoid the observance or performance of any of the
terms
to be observed or performed by it hereunder, but will at all times
in good
faith assist in the carrying out of all the provisions of this Note
consistent with the tenor, purpose and specific language of this
Note.
|
|
(c)
|
The
execution, delivery and performance of this Note by the Corporation,
the
performance by the Corporation of its obligations hereunder and the
consummation by the Corporation of the transactions contemplated
hereby
will not (i) result in a violation of the Certificate of Incorporation
of
the Corporation or its bylaws; (ii) conflict with, or constitute
a default
(or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture
or
instrument to which the Corporation or any of its subsidiaries is
a party
other than any of the foregoing events listed in this clause (ii)
which do
not individually or in the aggregate have a material adverse effect
on the
Corporation; (iii) result in a violation of any law, rule, regulation,
order or judgment (including, without limitation, federal and state
securities laws and regulations and the rules) applicable to the
Corporation or any of its subsidiaries or by which any property or
assets
of the Corporation or any of its subsidiaries is
bound.
|
|
(d)
|
The
Corporation is not required to obtain any consent, authorization
or order
of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it
to
execute, deliver or perform any of its obligations under this
Note.
|
|
(e)
|
This
Note will be binding upon any entity succeeding to the Corporation
by
merger, consolidation or acquisition of all or substantially all
of the
Corporation’s assets.
|
|
(f)
|
All
information that has been provided in writing by the Corporation
or its
representatives to the Lender is true, accurate and not misleading
in all
material respects and no information regarding the Corporation or
its
affairs that would be material to the Lender in deciding whether
to
provide monies to the Corporation on the terms of this Note has been
withheld from the Lender.
|
|
(g)
|
So
long as this Note is outstanding, the Company shall not, without
the prior
approval of the holder of this Note, enter into, amend, modify or
supplement any agreement, transaction, commitment or arrangement
with any
of its officers, directors, persons who were officers or directors
of the
Company at any time during the previous two years, or stockholders
who
beneficially own 10% or more of the Common Stock or any other class
of
equity of the Company, except for any agreement, transaction, commitment
or arrangement that is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is
also an
officer of the Company shall not be a disinterested director with
respect
to any such agreement, transaction, commitment or arrangement with
respect
to which another officer is interested if the Board or a committee
thereof
considered or will be considering a substantially similar agreement,
transaction, commitment or arrangement with respect to which such
director
was, is or will be interested.
|
7.
Financial
Statements and Other Information
.
So long
as this Note remains outstanding the Company will deliver to any holder of
such
outstanding Note:
|
(a)
|
Unaudited
Quarterly Financial Statements
.
As soon as practicable after the end of each quarter of each fiscal
year
and in any event within forty-five (45) days thereafter, a balance
sheet
of the Company as of the end of such period, and statement of operations
of the Company for such period and for the current fiscal year to
date,
subject to changes resulting from immaterial normal year-end audit
adjustments, all in reasonable detail and certified by the principal
financial officer of the Company;
and
|
|
(b)
|
Budget
.
Not less than thirty (30) days prior to the commencement of each
fiscal
year, an annual business plan, including a budget and financial
projections for the Company, for such year (the “Budget”), all in
reasonable detail, together with underlying
assumptions.
|
8.
Amendment
and Waiver
.
Except
as otherwise expressly provided herein, the provisions of this Note may be
amended and Borrower may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if Borrower has obtained
the
written consent of the holder of this Note.
9.
Future
Offering
.
In the
event the Lender has elected to convert this note into other debt or equity
of
the Corporation, other than common stock, the Corporation shall use its best
efforts to provide such newly issued security and such Lender (solely as part
of
the group(s) that are acquiring such newly issued security) with weighted
average anti-dilution protection.
10.
Notices
and Payment to Holder
.
All
notices and all payments of principal and interest are to be delivered to the
holder hereof at the address specified in the first paragraph of this Note,
or
to such other address or to the attention of such other person as specified
by
prior written notice to Borrower.
11.
Miscellaneous
.
This
Note applies, inures to the benefit of, and binds the successors and assigns
of
the parties hereto. This Note is made under and all questions concerning the
construction, validity and interpretation of this Note shall be governed by
the
internal laws, and not the laws of conflict, of the State of Delaware. The
Lender shall not attempt to sell, assign, transfer, mortgage, encumber, convey,
exchange, pledge hypothecate or otherwise dispose of this Note except to a
Permitted Transferee. The Corporation shall not attempt to sell, assign,
transfer, mortgage, encumber, convey, exchange, pledge hypothecate or otherwise
dispose of this Note except with the written consent of the Lender. Ownership
of
an interest in this Note is required to be reflected in a record of ownership
that identifies the owner of an interest in this Note (a “
Book
Entry
”)
maintained by the Company. The right to payment in respect of the principal
of,
and stated interest on, this Note may be transferred only through Book Entry.
Ownership of an interest in this Note may not be transferred in any other manner
and any purported transfer of the Note not in accordance with this Section
11
shall be void ab initio. This Section 11 is intended to qualify this Note as
an
obligation in registered form for purposes of Sections 881(c)(2)(B) and 1442(a)
of the Internal Revenue Code of 1986, as amended (the “
Code
”)
(and
any successor provisions) and shall be interpreted in accordance
therewith.
12.
Lost,
Stolen, Destroyed or Mutilated Warrant
.
In case
any Note shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue a new Note of like date, tenor and denomination and deliver the same
in
exchange and substitution for and upon surrender and cancellation of any
mutilated Note, or in lieu of any Note lost, stolen or destroyed, upon receipt
of evidence satisfactory to the Corporation of the loss, theft or destruction
of
such Note, and upon receipt of indemnity satisfactory to the Corporation
(provided that such holder’s agreement to indemnify shall be deemed satisfactory
to the Corporation without requiring the posting of a bond).
13.
Definitions
.
For the
purposes of this Note, the following terms have the meaning set forth
below:
“Permitted
Transferee” shall mean any corporation, or partnership or limited liability
company in which the Lender is the direct and beneficial owners of all of the
equity interests (provided the Lender agrees in writing to remain the direct
and
beneficial owners of all such equity interests) or which is under common control
with the Lender.
“Person”
shall mean and includes any individual, corporation, partnership, limited
liability partnership, association, limited liability company, trust, estate,
or
other entity.
“Common
Stock” shall mean the Corporation’s Common Stock, $0.005 par value per
share.
“Change
of Control” means:
|
(a)
|
a
sale or transfer of all or substantially all of the assets of the
Corporation on a consolidated basis (computed on the basis of book
value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value, as determined by the
Board of
Directors of the Corporation in its reasonable good faith judgment)
in any
transaction or series of related
transactions;
|
|
(b)
|
any
merger, consolidation or reorganization to which the Corporation
is a
party, except for a merger, consolidation or reorganization in which
after
giving effect to such merger, consolidation or reorganization, the
holders
of the Corporation’s outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization
will own
immediately following such merger, consolidation or reorganization,
a
number of shares of the Company’s outstanding capital stock on a fully
diluted basis) having the ordinary voting power to elect a majority
of the
members of the Board of Directors of the Corporation;
or
|
|
(c)
|
any
sale or transfer of the Corporation’s capital stock that results in any
person acquiring capital stock of the Corporation possessing the
voting
power (other than voting rights accruing only in the event of a default,
breach or event of noncompliance) to elect a majority of the Corporation’s
board of directors;
provided
that the term “Change of Control” shall not include any sale of equity or
debt securities by the Corporation in a private offering to other
investors.
|
“Initial
Public Offering” means the consummation of a public offering of Common Stock
pursuant to a registration statement declared effective by the SEC pursuant
to a
registration statement on Form S-1 or S-2.
[signature
page to follow]
IN
WITNESS WHEREOF
,
Borrower has, through its duly authorized officer, executed and delivered this
Note as of the date first written above.
CLEVELAND
BIOLABS, INC.
By:
/s/
Michael
Fonstein
Name:
Michael
Fonstein
Its:
CEO
THIS
CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF PREFERRED STOCK AND COMMON STOCK
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER.
CONVERTIBLE
PROMISSORY NOTE
November 23, 2004 (the “
Issuance
Date
”)
|
US
[$23,500]
|
Cleveland
BioLabs, Inc., a Delaware corporation, located at 7800 Blackberry Lane, Gates
Mills, Ohio 44040 (“
Borrower
”
or
the
“
Corporation
”),
hereby promises to pay to the order of Paul Haber & Michelle Haber ATF Haber
Family Trust, located at 1/58 Arcadia St., Coogee, NSW 2034 AUSTRALIA (the
“
Lender
”),
the
principal amount of $23,500 together with interest thereon calculated from
the
date hereof in accordance with the provisions of this Convertible Promissory
Note (this “
Note
”).
1.
Principal
Amount
.
The
amount on the face of this Note shall constitute the principal amount of this
Note (the “
Principal
Amount
”).
The
Principal Amount shall accrue interest at an annual rate equal to six percent
(6%), compounded annually. The Principal Amount plus any and all accrued and
unpaid interest through and including any Conversion Date shall constitute
the
Conversion Amount (the “
Conversion
Amount
”).
2.
Maturity
.
If the
Note shall not have previously been converted pursuant to a Mandatory
Conversion, on the Maturity Date the Note shall be surrendered to the
Corporation, and, at the option of the Lender, the Conversion Amount shall
be
(i) converted into Common Stock at the Fixed Conversion Price (as defined below)
or (ii) redeemed by the Corporation. The Lender may elect to convert the
Conversion Amount at the Fixed Conversion Price. If the Lender does not elect
such a conversion, the Corporation shall redeem the entire Conversion Amount
of
the Note and the Lender shall be paid all principal and accrued and unpaid
interest thereon, in accordance with the terms of the Note. “
Maturity
Date
”
means
the earlier to occur of (i) a Change of Control and (ii) the date that is
thirty-six (36) months after the Issuance Date. The Corporation shall give
written notice to the Lender of a Change of Control within five (5) business
days of the occurrence thereof and the Lender will have five (5) business days
after such notice to elect to so convert the Conversion Amount.
3.
Conversion
of Note
.
|
(a)
|
Conversion
of the Conversion Amount
.
This Note may be converted, in whole or in part, into shares of Common
Stock of the Corporation at any time prior to the Maturity Date in
accordance with the terms of this Section 3(a) and Section 3(f).
Upon
surrendering the Note to the Corporation, the Conversion Amount shall
be
converted into Common Stock at the fixed conversion price of $1,500
per
share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Common
Stock Conversion
.”
Upon Common Stock Conversion, the Lender, as a holder of Common Stock,
shall be entitled to the same rights and benefits accorded to the
other
holders of the Common Stock.
|
|
(b)
|
Mandatory
Conversion of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation consummates
an
Initial Public Offering of the Common Stock (the “
Mandatory
Conversion Date
”),
the Note shall be surrendered to the Corporation, and the Conversion
Amount shall be automatically converted into Common Stock at the
fixed
conversion price of $1,500 per share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Mandatory
Conversion
.”
Upon Mandatory Conversion, the Lender, as a holder of Common Stock,
shall
be entitled to the same rights and benefits accorded to the other
holders
of the Common Stock.
|
|
(c)
|
Optional
Conversion of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation shall raise
any
additional funds either through the issuance of additional debt or
equity
(the “
Optional
Conversion Date
”),
at the election of the Leader the Note may be surrendered to the
Corporation, and the Conversion Amount shall then be converted into
the
new equity or new debt as is being sold and issued by the Corporation
(the
“
New
Equity
”
or “
New
Debt
,”
as applicable). The Conversion Amount shall be converted (i) if into
New
Equity, at a price per share equal to the lowest price per share
at which
the New Equity is sold by the Corporation or (ii) if into New Debt,
into
the new debt instrument with a principal amount equal to the Conversion
Amount. Such event shall be referred to as the “
Optional
Conversion
.”
Upon an Optional Conversion, the Lender, as a holder of New Equity
or New
Debt, shall be entitled to the same rights and benefits accorded
to the
other holders of the New Equity or New Debt. This Optional Conversion
shall not apply to (i) any transaction involving the Company’s issuances
of securities (A) as consideration in a merger or consolidation,
(B) in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital) or (C) as consideration
for the acquisition of a business, product, license or other assets
by the
Company, (ii) the issuance of Common Stock in a registered public
offering, (iii) the issuance of securities upon exercise or conversion
of
the Company’s warrants or other convertible securities outstanding on the
Issuance Date, and (iv) the issuance of securities in connection
with any
stock splits or stock dividends of the
Company.
|
|
(d)
|
Computation
of the Number of Conversion Shares
.
Upon conversion into equity, the Lender shall receive a number of
shares
of New Equity or Common Stock, as the case may be, equal to the number
of
shares computed by dividing (1) the Conversion Amount by (2) the
applicable conversion price set forth above in Section 2, 3(a), 3(b)
or
Section 3(c), as the case may be (the “
Conversion
Shares
”).
|
|
(e)
|
Notices
.
If the Corporation shall sell any New Equity or New Debt prior to
October
17, 2007, the Corporation shall give written notice to the Lender
at least
twenty (20) business days prior thereto setting forth the price per
share
and/or rights and benefits of such New Equity or New
Debt.
|
|
(f)
|
Note
Conversion Deliveries
.
The Corporation and the Lender hereby agree to take such actions
as may be
required to ensure that upon conversion of the Note, the following
shall
occur:
|
|
(i)
|
the
Lender shall surrender its originally executed Note to the Corporation
and
such Note shall be deemed
cancelled;
|
|
(ii)
|
the
Corporation shall deliver to the Lender a certificate or certificates
representing the number of Conversion Shares issuable by reason of
such
conversion, or instruments in principal amount of the Conversion
Amount,
in the Lender’s name. Such certificates or other instruments shall bear a
legend which is substantially similar to such legends affixed to
other
certificates or instruments of the same class or series of stock
or
debt.
|
|
(iii)
|
the
Lender hereby agrees to execute and deliver to the Corporation any
documents which other holders of such equity or debt have executed
with
respect to shares issued in the sale of New Equity or New Debt, or
the
Corporation’s Common Stockholders Agreement in the event the Lender
converts this Note into Common
Stock.
|
4.
Triggering
Events
.
|
(a)
|
Definition
.
For purposes of this Note, a Triggering Event shall be deemed to
have
occurred if:
|
|
(i)
|
Borrower
falls to properly convert this Note on the terms and conditions specified
herein;
|
|
(ii)
|
Borrower
fails to properly redeem this Note or pay any accrued and unpaid
interest
upon maturity on the terms and conditions specified
herein;
|
|
(iii)
|
The
institution of a proceeding against Borrower under any state insolvency
laws, federal bankruptcy law, or similar debtor relief laws then
in
effect;
|
|
(b)
|
Consequences
of Triggering Event
.
|
|
(i)
|
If
a Triggering Event has occurred, the holder of this Note may demand
(by
written notice delivered to Borrower) immediate payment of all of
the
outstanding principal amount of this Note, plus any accrued interest
thereon.
|
|
(ii)
|
Any
holder of this Note shall also have any other rights which such holder
may
have been afforded under any contract or agreement at any time or
any
other rights which such holder may have pursuant to applicable
law.
|
5.
Cancellation
.
After
conversion of the entire Conversion Amount or upon redemption and payment of
all
principal and accrued and unpaid interest on the Note at maturity, the Note
shall be surrendered by the holder hereof to the Corporation for cancellation
and shall not be reissued.
6.
Representations,
Warranties and Covenants as to Common Stock
.
The
Corporation hereby represents, warrants, covenants and agrees as
follows:
|
(a)
|
This
Note is, and any Notes issued in substitution for or replacement
of this
Note will upon issuance be, duly authorized and validly issued, and
no
further consent or authorization is required by the Corporation,
its Board
of Directors or its stockholders. The Corporation has the requisite
corporate power and authority to enter into and perform its obligations
under this Note in accordance with the terms hereof. This Note constitutes
the valid and binding obligation of the Corporation, enforceable
against
the Corporation in accordance with its
terms.
|
|
(b)
|
The
Corporation will not, by amendment of its Certificate of Incorporation,
as
amended (the “
Certificate
of Incorporation
”),
or through any reorganization, transfer of assets, consolidation,
merger,
dissolution, issue or sale of securities, or any other voluntary
action,
avoid or seek to avoid the observance or performance of any of the
terms
to be observed or performed by it hereunder, but will at all times
in good
faith assist in the carrying out of all the provisions of this Note
consistent with the tenor, purpose and specific language of this
Note.
|
|
(c)
|
The
execution, delivery and performance of this Note by the Corporation,
the
performance by the Corporation of its obligations hereunder and the
consummation by the Corporation of the transactions contemplated
hereby
will not (i) result in a violation of the Certificate of Incorporation
of
the Corporation or its bylaws; (ii) conflict with, or constitute
a default
(or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture
or
instrument to which the Corporation or any of its subsidiaries is
a party
other than any of the foregoing events listed in this clause (ii)
which do
not individually or in the aggregate have a material adverse effect
on the
Corporation; (iii) result in a violation of any law, rule, regulation,
order or judgment (including, without limitation, federal and state
securities laws and regulations and the rules) applicable to the
Corporation or any of its subsidiaries or by which any property or
assets
of the Corporation or any of its subsidiaries is
bound.
|
|
(d)
|
The
Corporation is not required to obtain any consent, authorization
or order
of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it
to
execute, deliver or perform any of its obligations under this
Note.
|
|
(e)
|
This
Note will be binding upon any entity succeeding to the Corporation
by
merger, consolidation or acquisition of all or substantially all
of the
Corporation’s assets.
|
|
(f)
|
All
information that has been provided in writing by the Corporation
or its
representatives to the Lender is true, accurate and not misleading
in all
material respects and no information regarding the Corporation or
its
affairs that would be material to the Lender in deciding whether
to
provide monies to the Corporation on the terms of this Note has been
withheld from the Lender.
|
|
(g)
|
So
long as this Note is outstanding, the Company shall not, without
the prior
approval of the holder of this Note, enter into, amend, modify or
supplement any agreement, transaction, commitment or arrangement
with any
of its officers, directors, persons who were officers or directors
of the
Company at any time during the previous two years, or stockholders
who
beneficially own 10% or more of the Common Stock or any other class
of
equity of the Company, except for any agreement, transaction, commitment
or arrangement that is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is
also an
officer of the Company shall not be a disinterested director with
respect
to any such agreement, transaction, commitment or arrangement with
respect
to which another officer is interested if the Board or a committee
thereof
considered or will be considering a substantially similar agreement,
transaction, commitment or arrangement with respect to which such
director
was, is or will be interested.
|
7.
Financial
Statements and Other Information
.
So long
as this Note remains outstanding the Company will deliver to any holder of
such
outstanding Note:
|
(a)
|
Unaudited
Quarterly Financial Statements
.
As soon as practicable after the end of each quarter of each fiscal
year
and in any event within forty-five (45) days thereafter, a balance
sheet
of the Company as of the end of such period, and statement of operations
of the Company for such period and for the current fiscal year to
date,
subject to changes resulting from immaterial normal year-end audit
adjustments, all in reasonable detail and certified by the principal
financial officer of the Company;
and
|
|
(b)
|
Budget
.
Not less than thirty (30) days prior to the commencement of each
fiscal
year, an annual business plan, including a budget and financial
projections for the Company, for such year (the “
Budget
”),
all in reasonable detail, together with underlying
assumptions.
|
8.
Amendment
and Waiver
.
Except
as otherwise expressly provided herein, the provisions of this Note may be
amended and Borrower may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if Borrower has obtained
the
written consent of the holder of this Note.
9.
Future
Offering
.
In the
event the Lender has elected to convert this note into other debt or equity
of
the Corporation, other than common stock, the Corporation shall use its best
efforts to provide such newly issued security and such Lender (solely as part
of
the group(s) that are acquiring such newly issued security) with weighted
average anti-dilution protection.
10.
Notices
and Payment to Holder
.
All
notices and all payments of principal and interest are to be delivered to the
holder hereof at the address specified in the first paragraph of this Note,
or
to such other address or to the attention of such other person as specified
by
prior written notice to Borrower.
11.
Miscellaneous
.
This
Note applies, inures to the benefit of, and binds the successors and assigns
of
the parties hereto. This Note is made under and all questions concerning the
construction, validity and interpretation of this Note shall be governed by
the
internal laws, and not the laws of conflict, of the State of Delaware. The
Lender shall not attempt to sell, assign, transfer, mortgage, encumber, convey,
exchange, pledge hypothecate or otherwise dispose of this Note except to a
Permitted Transferee. The Corporation shall not attempt to sell, assign,
transfer, mortgage, encumber, convey, exchange, pledge hypothecate or otherwise
dispose of this Note except with the written consent of the Lender. Ownership
of
an interest in this Note is required to be reflected in a record of ownership
that identifies the owner of an interest in this Note (a “
Book
Entry
”)
maintained by the Company. The right to payment in respect of the principal
of,
and stated interest on, this Note may be transferred only through Book Entry.
Ownership of an interest in this Note may not be transferred in any other manner
and any purported transfer of the Note not in accordance with this Section
11
shall be void ab initio. This Section 11 is intended to qualify this Note as
an
obligation in registered form for purposes of Sections 881(c)(2)(B) and 1442(a)
of the Internal Revenue Code of 1986, as amended (the “
Code
”)
(and
any successor provisions) and shall be interpreted in accordance
therewith.
12.
Lost,
Stolen, Destroyed or Mutilated Warrant
.
In case
any Note shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue a new Note of like date, tenor and denomination and deliver the same
in
exchange and substitution for and upon surrender and cancellation of any
mutilated Note, or in lieu of any Note lost, stolen or destroyed, upon receipt
of evidence satisfactory to the Corporation of the loss, theft or destruction
of
such Note, and upon receipt of indemnity satisfactory to the Corporation
(provided that such holder’s agreement to indemnify shall be deemed satisfactory
to the Corporation without requiring the posting of a bond).
13.
Definitions
.
For the
purposes of this Note, the following terms have the meaning set forth
below:
“Permitted
Transferee” shall mean any corporation, or partnership or limited liability
company in which the Lender is the direct and beneficial owners of all of the
equity interests (provided the Lender agrees in writing to remain the direct
and
beneficial owners of all such equity interests) or which is under common control
with the Lender.
“Person”
shall mean and includes any individual, corporation, partnership, limited
liability partnership, association, limited liability company, trust, estate,
or
other entity.
“Common
Stock” shall mean the Corporation’s Common Stock, $0.005 par value per
share.
“Change
of Control” means:
|
(a)
|
a
sale or transfer of all or substantially all of the assets of the
Corporation on a consolidated basis (computed on the basis of book
value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value, as determined by the
Board of
Directors of the Corporation in its reasonable good faith judgment)
in any
transaction or series of related
transactions;
|
|
(b)
|
any
merger, consolidation or reorganization to which the Corporation
is a
party, except for a merger, consolidation or reorganization in which
after
giving effect to such merger, consolidation or reorganization, the
holders
of the Corporation’s outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization
will own
immediately following such merger, consolidation or reorganization,
a
number of shares of the Company’s outstanding capital stock (on a fully
diluted basis) having the ordinary voting power to elect a majority
of the
members of the Board of Directors of the Corporation;
or
|
|
(c)
|
any
sale or transfer of the Corporation’s capital stock that results in any
person acquiring capital stock of the Corporation possessing the
voting
power (other than voting rights accruing only in the event of a default,
breach or event of noncompliance) to elect a majority of the Corporation’s
board of directors;
provided
that the term “Change of Control” shall not include any sale of equity or
debt securities by the Corporation in a private offering to other
investors.
|
“Initial
Public Offering” means the consummation of a public offering of Common Stock
pursuant to a registration statement declared effective by the SEC pursuant
to a
registration statement on Form S-1 or S-2.
[signature
page to follow]
IN
WITNESS WHEREOF,
Borrower
has, through its duly authorized officer, executed and delivered this Note
as of
the date first written above.
CLEVELAND
BIOLABS, INC.
By:
/s/
Michael
Fonstein
Name:
Michael
Fonstein
Its:
CEO
THIS
CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF PREFERRED STOCK AND COMMON STOCK
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER.
CONVERTIBLE
PROMISSORY NOTE
November
23, 2004 (the “
Issuance
Date
”)
|
[US$151,000]
|
|
|
Cleveland
BioLabs, Inc., a Delaware corporation, located at 7800 Blackberry Lane, Gates
Mills, Ohio 44040 (“
Borrower
”
or
the
“
Corporation
”),
hereby promises to pay to the order of Haber Norris Pty Ltd ATF Haber Norris
Superannuation Fund, located at Bongiorno and Partners (NSW) Pty Ltd, Level
6,
203 New South Head Road, Edgecliff NSW 2027, AUSTRALIA (the “
Lender
”),
the
principal amount of $151,000 together with interest thereon calculated from
the
date hereof in accordance with the provisions of this Convertible Promissory
Note (this “
Note
”).
1.
Principal
Amount
.
The
amount on the face of this Note shall constitute the principal amount of this
Note (the “
Principal
Amount
”).
The
Principal Amount shall accrue interest at an annual rate equal to six percent
(6%), compounded annually. The Principal Amount plus any and all accrued and
unpaid interest through and including any Conversion Date shall constitute
the
Conversion Amount (the “
Conversion
Amount
”).
2.
Maturity
.
If the
Note shall not have previously been converted pursuant to a Mandatory
Conversion, on the Maturity Date the Note shall be surrendered to the
Corporation, and, at the option of the Lender, the Conversion Amount shall
be
(i) converted into Common Stock at the Fixed Conversion Price (as defined below)
or (ii) redeemed by the Corporation. The Lender may elect to convert the
Conversion Amount at the Fixed Conversion Price. If the Lender does not elect
such a conversion, the Corporation shall redeem the entire Conversion Amount
of
the Note and the Lender shall be paid all principal and accrued and unpaid
interest thereon, in accordance with the terms of the Note. “
Maturity
Date
”
means
the earlier to occur of (i) a Change of Control and (ii) the date that is
thirty-six (36) months after the Issuance Date. The Corporation shall give
written notice to the Lender of a Change of Control within five (5) business
days of the occurrence thereof and the Lender will have five (5) business days
after such notice to elect to so convert the Conversion Amount.
3.
Conversion
of Note
.
|
(a)
|
Conversion
of the Conversion Amount
.
This Note may be converted, in whole or in part, into shares of Common
Stock of the Corporation at any time prior to the Maturity Date in
accordance with the terms of this Section 3(a) and Section 3(f).
Upon
surrendering the Note to the Corporation, the Conversion Amount shall
be
converted into Common Stock at the fixed conversion price of $1,500
per
share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Common
Stock Conversion
.”
Upon Common Stock Conversion, the Lender, as a holder of Common Stock,
shall be entitled to the same rights and benefits accorded to the
other
holders of the Common Stock.
|
|
(b)
|
Mandatory
Conversion of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation consummates
an
Initial Public Offering of the Common Stock (the “
Mandatory
Conversion Date
”),
the Note shall be surrendered to the Corporation, and the Conversion
Amount shall be automatically converted into Common Stock at the
fixed
conversion price of $1,500 per share (the “
Fixed
Conversion Price
”)
(as adjusted for stock splits, stock dividends and similar transactions).
Such event shall be referred to as the “
Mandatory
Conversion
.”
Upon Mandatory Conversion, the Lender, as a holder of Common Stock,
shall
be entitled to the same rights and benefits accorded to the other
holders
of the Common Stock.
|
|
(c)
|
Optional
Conversion of the Conversion Amount
.
If at any time prior to the Maturity Date the Corporation shall raise
any
additional funds either through the issuance of additional debt or
equity
(the “
Optional
Conversion Date
”),
at the election of the Lender the Note may be surrendered to the
Corporation, and the Conversion Amount shall then be converted into
the
new equity or new debt as is being sold and issued by the Corporation
(the
“
New
Equity
”
or “
New
Debt
,”
as applicable). The Conversion Amount shall be converted (i) if into
New
Equity, at a price per share equal to the lowest price per share
at which
the New Equity is sold by the Corporation or (ii) if into New Debt,
into
the new debt instrument with a principal amount equal to the Conversion
Amount. Such event shall be referred to as the “
Optional
Conversion
.”
Upon an Optional Conversion, the Lender, as a holder of New Equity
or New
Debt, shall be entitled to the same rights and benefits accorded
to the
other holders of the New Equity or New Debt. This Optional Conversion
shall not apply to (i) any transaction involving the Company’s issuances
of securities (A) as consideration in a merger or consolidation,
(B) in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital) or (C) as consideration
for the acquisition of a business, product, license or other assets
by the
Company, (ii) the issuance of Common Stock in a registered public
offering, (iii) the issuance of securities upon exercise or conversion
of
the Company’s warrants or other convertible securities outstanding on the
Issuance Date, and (iv) the issuance of securities in connection
with any
stock splits or stock dividends of the
Company.
|
|
(d)
|
Computation
of the Number of Conversion Shares
.
Upon conversion into equity, the Lender shall receive a number of
shares
of New Equity or Common Stock, as the case may be, equal to the number
of
shares computed by dividing (1) the Conversion Amount by (2) the
applicable conversion price set forth above in Section 2, 3(a), 3(b)
or
Section 3(c), as the case may be (the “
Conversion
Shares
”).
|
|
(e)
|
Notices
.
If the Corporation shall sell any New Equity or New Debt prior to
October
17, 2007, the Corporation shall give written notice to the Lender
at least
twenty (20) business days prior thereto setting forth the price per
share
and/or rights and benefits of such New Equity or New
Debt.
|
|
(f)
|
Note
Conversion Deliveries
.
The Corporation and the Lender hereby agree to take such actions
as may be
required to ensure that upon conversion of the Note, the following
shall
occur:
|
|
(i)
|
the
Lender shall surrender its originally executed Note to the Corporation
and
such Note shall be deemed
cancelled;
|
|
(ii)
|
the
Corporation shall deliver to the Lender a certificate or certificates
representing the number of Conversion Shares issuable by reason of
such
conversion, or instruments in principal amount of the Conversion
Amount,
in the Lender’s name. Such certificates or other instruments shall bear a
legend which is substantially similar to such legends affixed to
other
certificates or instruments of the same class or series of stock
or
debt.
|
|
(iii)
|
the
Lender hereby agrees to execute and deliver to the Corporation any
documents which other holders of such equity or debt have executed
with
respect to shares issued in the sale of New Equity or New Debt, or
the
Corporation’s Common Stockholders Agreement in the event the Lender
converts this Note into Common
Stock.
|
4.
Triggering
Events
.
|
(a)
|
Definition
.
For purposes of this Note, a Triggering Event shall be deemed to
have
occurred if:
|
|
(i)
|
Borrower
fails to properly convert this Note on the terms and conditions specified
herein;
|
|
(ii)
|
Borrower
fails to properly redeem this Note or pay any accrued and unpaid
interest
upon maturity on the terms and conditions specified
herein;
|
|
(iii)
|
The
institution of a proceeding against Borrower under any state insolvency
laws, federal bankruptcy law, or similar debtor relief laws then
in
effect;
|
|
(b)
|
Consequences
of Triggering Event
.
|
|
(i)
|
If
a Triggering Event has occurred, the holder of this Note may demand
(by
written notice delivered to Borrower) immediate payment of all of
the
outstanding principal amount of this Note, plus any accrued interest
thereon.
|
|
(ii)
|
Any
holder of this Note shall also have any other rights which such holder
may
have been afforded under any contract or agreement at any time or
any
other rights which such holder may have pursuant to applicable
law.
|
5.
Cancellation
.
After
conversion of the entire Conversion Amount or upon redemption and payment of
all
principal and accrued and unpaid interest on the Note at maturity, the Note
shall be surrendered by the holder hereof to the Corporation for cancellation
and shall not be reissued.
6.
Representations,
Warranties and Covenants as to Common Stock
.
The
Corporation hereby represents, warrants, covenants and agrees as
follows:
|
(a)
|
This
Note is, and any Notes issued in substitution for or replacement
of this
Note will upon issuance be, duly authorized and validly issued, and
no
further consent or authorization is required by the Corporation,
its Board
of Directors or its stockholders. The Corporation has the requisite
corporate power and authority to enter into and perform its obligations
under this Note in accordance with the terms hereof. This Note constitutes
the valid and binding obligation of the Corporation, enforceable
against
the Corporation in accordance with its
terms.
|
|
(b)
|
The
Corporation will not, by amendment of its Certificate of Incorporation,
as
amended (the “
Certificate
of Incorporation
”),
or through any reorganization, transfer of assets, consolidation,
merger,
dissolution, issue or sale of securities, or any other voluntary
action,
avoid or seek to avoid the observance or performance of any of the
terms
to be observed or performed by it hereunder, but will at all times
in good
faith assist in the carrying out of all the provisions of this Note
consistent with the tenor, purpose and specific language of this
Note.
|
|
(c)
|
The
execution, delivery and performance of this Note by the Corporation,
the
performance by the Corporation of its obligations hereunder and the
consummation by the Corporation of the transactions contemplated
hereby
will not (i) result in a violation of the Certificate of Incorporation
of
the Corporation or its bylaws; (ii) conflict with, or constitute
a default
(or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture
or
instrument to which the Corporation or any of its subsidiaries is
a party
other than any of the foregoing events listed in this clause (ii)
which do
not individually or in the aggregate have a material adverse effect
on the
Corporation; (iii) result in a violation of any law, rule, regulation,
order or judgment (including, without limitation, federal and state
securities laws and regulations and the rules) applicable to the
Corporation or any of its subsidiaries or by which any property or
assets
of the Corporation or any of its subsidiaries is
bound.
|
|
(d)
|
The
Corporation is not required to obtain any consent, authorization
or order
of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it
to
execute, deliver or perform any of its obligations under this
Note.
|
|
(e)
|
This
Note will be binding upon any entity succeeding to the Corporation
by
merger, consolidation or acquisition of all or substantially all
of the
Corporation’s assets.
|
|
(f)
|
All
information that has been provided in writing by the Corporation
or its
representatives to the Lender is true, accurate and not misleading
in all
material respects and no information regarding the Corporation or
its
affairs that would be material to the Lender in deciding whether
to
provide monies to the Corporation on the terms of this Note has been
withheld from the Lender.
|
|
(g)
|
So
long as this Note is outstanding, the Company shall not, without
the prior
approval of the holder of this Note, enter into, amend, modify or
supplement any agreement, transaction, commitment or arrangement
with any
of its officers, directors, persons who were officers or directors
of the
Company at any time during the previous two years, or stockholders
who
beneficially own 10% or more of the Common Stock or any other class
of
equity of the Company, except for any agreement, transaction, commitment
or arrangement that is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is
also an
officer of the Company shall not be a disinterested director with
respect
to any such agreement, transaction, commitment or arrangement with
respect
to which another officer is interested if the Board or a committee
thereof
considered or will be considering a substantially similar agreement,
transaction, commitment or arrangement with respect to which such
director
was, is or will be interested.
|
7.
Financial
Statements and Other Information
.
So long
as this Note remains outstanding the Company will deliver to any holder of
such
outstanding Note:
|
(a)
|
Unaudited
Quarterly Financial Statements
.
As soon as practicable after the end of each quarter of each fiscal
year
and in any event within forty-five (45) days thereafter, a balance
sheet
of the Company as of the end of such period, and statement of operations
of the Company for such period and for the current fiscal year to
date,
subject to changes resulting from immaterial normal year-end audit
adjustments, all in reasonable detail and certified by the principal
financial officer of the Company;
and
|
|
(b)
|
Budget
.
Not less than thirty (30) days prior to the commencement of each
fiscal
year, an annual business plan, including a budget and financial
projections for the Company, for such year (the “
Budget
”),
all in reasonable detail, together with underlying
assumptions.
|
8.
Amendment
and Waiver
.
Except
as otherwise expressly provided herein, the provisions of this Note may be
amended and Borrower may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if Borrower has obtained
the
written consent of the holder of this Note.
9.
Future
Offering
.
In the
event the Lender has elected to convert this note into other debt or equity
of
the Corporation, other than common stock, the Corporation shall use its best
efforts to provide such newly issued security and such Lender (solely as part
of
the group(s) that are acquiring such newly issued security) with weighted
average anti-dilution protection.
10.
Notices
and Payment to Holder
.
All
notices and all payments of principal and interest are to be delivered to the
holder hereof at the address specified in the first paragraph of this Note,
or
to such other address or to the attention of such other person as specified
by
prior written notice to Borrower.
11.
Miscellaneous
.
This
Note applies, inures to the benefit of, and binds the successors and assigns
of
the parties hereto. This Note is made under and all questions concerning the
construction, validity and interpretation of this Note shall be governed by
the
internal laws, and not the laws of conflict, of the State of Delaware. The
Lender shall not attempt to sell, assign, transfer, mortgage, encumber, convey,
exchange, pledge hypothecate or otherwise dispose of this Note except to a
Permitted Transferee. The Corporation shall not attempt to sell, assign,
transfer, mortgage, encumber, convey, exchange, pledge hypothecate or otherwise
dispose of this Note except with the written consent of the Lender. Ownership
of
an interest in this Note is required to be reflected in a record of ownership
that identifies the owner of an interest in this Note (a “
Book
Entry
”)
maintained by the Company. The right to payment in respect of the principal
of,
and stated interest on, this Note may be transferred only through Book Entry.
Ownership of an interest in this Note may not be transferred in any other manner
and any purported transfer of the Note not in accordance with this Section
11
shall be void ab initio. This Section 11 is intended to qualify this Note as
an
obligation in registered form for purposes of Sections 881(c)(2)(B) and 1442(a)
of the Internal Revenue Code of 1986, as amended (the “
Code
”)
(and
any successor provisions) and shall be interpreted in accordance
therewith.
12.
Lost,
Stolen, Destroyed or Mutilated Warrant
.
In case
any Note shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue a new Note of like date, tenor and denomination and deliver the same
in
exchange and substitution for and upon surrender and cancellation of any
mutilated Note, or in lieu of any Note lost, stolen or destroyed, upon receipt
of evidence satisfactory to the Corporation of the loss, theft or destruction
of
such Note, and upon receipt of indemnity satisfactory to the Corporation
(provided that such holder’s agreement to indemnify shall be deemed satisfactory
to the Corporation without requiring the posting of a bond).
13.
Definitions
.
For the
purposes of this Note, the following terms have the meaning set forth
below:
“Permitted
Transferee” shall mean any corporation, or partnership or limited liability
company in which the Lender is the direct and beneficial owners of all of the
equity interests (provided the Lender agrees in writing to remain the direct
and
beneficial owners of all such equity interests) or which is under common control
with the Lender.
“Person”
shall mean and includes any individual, corporation, partnership, limited
liability partnership, association, limited liability company, trust, estate,
or
other entity.
“Common
Stock” shall mean the Corporation’s Common Stock, $0.005 par value per
share.
“Change
of Control” means:
(a)
a
sale or
transfer of all or substantially all of the assets of the Corporation on a
consolidated basis (computed on the basis of book value, determined in
accordance with generally accepted accounting principles consistently applied,
or fair market value, as determined by the Board of Directors of the Corporation
in its reasonable good faith judgment) in any transaction or series of related
transactions;
(b)
any
merger, consolidation or reorganization to which the Corporation is a party,
except for a merger, consolidation or reorganization in which after giving
effect to such merger, consolidation or reorganization, the holders of the
Corporation’s outstanding capital stock (on a fully-diluted basis) immediately
prior to the merger, consolidation or reorganization will own immediately
following such merger, consolidation or reorganization, a number of shares
of
the Company’s outstanding capital stock a fully diluted basis) having the
ordinary voting power to elect a majority of the members of the Board of
Directors of the Corporation; or
(c)
any
sale
or transfer of the Corporation’s capital stock that results in any person
acquiring capital stock of the Corporation possessing the voting power (other
than voting rights accruing only in the event of a default, breach or event
of
noncompliance) to elect a majority of the Corporation’s board of directors;
provided
that the
term “Change of Control” shall not include any sale of equity or debt securities
by the Corporation in a private offering to other investors.
“Initial
Public Offering” means the consummation of a public offering of Common Stock
pursuant to a registration statement declared effective by the SEC pursuant
to a
registration statement on Form S-1 or S-2.
[signature
page to follow]
IN
WITNESS WHEREOF
,
Borrower has, through its duly authorized officer, executed and delivered this
Note as of the date first written above.
CLEVELAND
BIOLABS, INC.
/s/
Michael
Fonstein
Name:
Michael
Fonstein
Its:
CEO
STOCK
PURCHASE AGREEMENT
DATED
AS OF MARCH 15, 2005 BETWEEN
CLEVELAND
BIOLABS, INC.
AND
THE
PURCHASERS PARTY HERETO
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
Section
1.
|
Authorization
and Closing
|
1
|
1A.
|
Authorization
of the Series A Preferred Stock
|
1
|
1B.
|
Purchase
and Sale of the Series A Preferred Stock
|
1
|
1C.
|
The
Closings
|
1
|
1D.
|
Termination
|
1
|
|
|
|
Section
2.
|
Conditions
of each Purchaser’s Obligation
|
2
|
2A.
|
Certificate
of Designation and Certificate of Incorporation
|
2
|
2B.
|
Representations
and Warranties; Covenants
|
2
|
2C.
|
Qualifications
|
2
|
2D.
|
Rights
Agreement
|
2
|
2E.
|
Opinion
of the Company’s Counsel
|
3
|
2F.
|
Secretary’s
Certificate
|
3
|
2G.
|
Reservation
of Common Stock
|
3
|
2H.
|
No
Material Adverse Change
|
3
|
2I.
|
Minimum
Investment
|
3
|
2J.
|
Stock
Split
|
3
|
2K.
|
No
Litigation
|
3
|
2L.
|
Convertible
Debt
|
3
|
2M.
|
IP
Comfort Letter
|
4
|
2N.
|
Stockholder
Waiver
|
4
|
2O.
|
CCF
Development Plan
|
4
|
2P.
|
Other
Documents
|
4
|
|
|
|
Section
3.
|
Conditions
of the Company’s Obligation
|
4
|
3A.
|
Release
of Escrow
|
4
|
3B.
|
Minimum
Investment
|
4
|
3C.
|
Delivery
of Documents
|
4
|
|
|
|
Section
4.
|
Covenants
|
4
|
4A.
|
Affirmative
Covenants
|
4
|
4B.
|
Current
Public Information
|
5
|
4C.
|
Public
Disclosures
|
6
|
4D.
|
Information
and Inspection Rights
|
6
|
4E.
|
Blue
Sky Filings
|
7
|
4F.
|
Use
of Proceeds
|
7
|
4G.
|
Integration
|
7
|
4H.
|
Reservation
of Shares
|
7
|
4I.
|
Trading
Market
|
8
|
4J.
|
Conduct
of Business by the Company
|
8
|
4K.
|
Notification
|
10
|
4L.
|
Reasonable
Efforts
|
10
|
4M.
|
Additional
Covenants
|
10
|
4N.
|
Transfer
Agent
|
11
|
4O.
|
Insurance
|
11
|
|
|
|
Section
5.
|
Representations
and Warranties of the Company
|
11
|
5A.
|
Organization,
Corporate Power and Licenses
|
11
|
5B.
|
Capital
Stock and Related Matters
|
11
|
5C.
|
Validity
of Shares; Exemption from Registration
|
12
|
5D.
|
Authorization:
No Breach or Violation
|
12
|
5E.
|
Financial
Statements
|
13
|
5F.
|
Absence
of Undisclosed Liabilities
|
13
|
5G.
|
No
Material Adverse Change
|
14
|
5H.
|
Contracts
and Commitments
|
14
|
5I.
|
Litigation,
etc
|
14
|
5J.
|
Brokerage
|
15
|
5K.
|
Governmental
Consent, etc
|
15
|
5L.
|
Employees
Employee Matters
|
15
|
5M.
|
Compliance
with Laws and Constituent Documents
|
16
|
5N.
|
Affiliated
Transactions
|
16
|
5O.
|
Disclosure
|
16
|
5P.
|
Patents,
Copyrights, Trademarks
|
16
|
5Q.
|
No
Other Registration Rights
|
18
|
5R.
|
Title
to Property and Assets
|
18
|
5S.
|
Taxes
|
18
|
5T.
|
Solvency:
Going Concern
|
19
|
5U.
|
Investment
Company
|
19
|
5V.
|
Application
of Takeover Protections
|
19
|
5W.
|
Private
Placement
|
19
|
5X.
|
Foreign
Corrupt Practice
|
20
|
|
|
|
Section
6.
|
Representations
and Warranties of the Purchasers
|
20
|
6A.
|
Authorization
|
20
|
6B.
|
Investment
Purpose
|
20
|
6C.
|
Accredited
Investor Status
|
20
|
6D.
|
Foreign
Investors
|
20
|
6E.
|
Reliance
on Exemptions
|
21
|
6F.
|
Information
|
21
|
6G.
|
No
Governmental Review
|
21
|
6H.
|
Transfer
or Resale
|
21
|
6I.
|
No
Public Market
|
21
|
6J.
|
Legends
|
21
|
6K.
|
Investment
Experience
|
22
|
|
|
|
Section
7.
|
Definitions
|
22
|
|
|
|
Section
8.
|
Miscellaneous
|
26
|
8A.
|
Expenses
|
26
|
8B.
|
Remedies
|
26
|
8C.
|
Consent
to Amendments
|
26
|
8D.
|
Survival
of Representations and Warranties
|
26
|
8E.
|
Successors
and Assigns
|
27
|
8F.
|
Severability
|
27
|
8G.
|
Counterparts
|
27
|
8H.
|
Descriptive
Headings Interpretation
|
27
|
8I.
|
Generally
Accepted Accounting Principles
|
27
|
8J.
|
Governing
Law Jurisdiction
|
28
|
8K.
|
Notices
|
28
|
8L.
|
No
Strict Construction
|
29
|
8M.
|
Indemnification
|
29
|
8N.
|
Understanding
Among the Purchasers
|
30
|
8O.
|
Entire
Agreement
|
30
|
8P.
|
Notice
Rescission and Withdrawal Right
|
30
|
8Q.
|
Replacement
of Securities
|
30
|
8R.
|
Payment
Set Aside
|
31
|
8S.
|
Adjustments
in Share Numbers and Prices
|
31
|
8T.
|
Further
Assurances
|
31
|
8U.
|
Reliance
|
31
|
CLEVELAND
BIOLABS, INC.
STOCK
PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT (this “
Agreement
”)
is
made as of March 15, 2005 between Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
those purchasers signatory hereto (collectively, the “
Purchasers
”
and
each individually, a “
Purchaser
”).
Except as otherwise indicated herein, capitalized terms used herein are defined
in
Section
7
hereof.
The
parties hereto agree as follows:
Section
1.
Authorization
and Closing
.
1A.
Authorization
of the Series A Preferred Stock
.
The
Company shall authorize the issuance and sale to the Purchasers of an aggregate
minimum of 2,500,000 and an aggregate maximum of 3,000,000 shares of its
Series
A Participating Convertible Preferred Stock, par value $.005 per share (the
“
Series
A Preferred Stock
”)
having
the rights and preferences set forth in the Certificate of Designation of
Series
A Participating Convertible Preferred Stock attached as
Exhibit
A
hereto
(the “
Certificate
of Designation
”),
The
Series A Preferred Stock is convertible into shares of the Company’s Common
Stock, par value $0.005 per share (“
Common
Stock
”)
1B.
Purchase
and Sale of the Series A Preferred Stock
.
On each
Funding Date (as defined in
Section
1C
below),
the Company shall sell to those Purchasers participating in such Funding
Date,
and subject to the terms and conditions set forth herein, such Purchasers
shall
purchase from the Company, the number of shares of the Series A Preferred
Stock
set forth on such Purchaser’s counterpart signature page hereto, at a purchase
price of $2.00 per share, for an aggregate maximum purchase price payable
by all
Purchasers collectively of up to $6,000,000, payable in accordance with
Section
1C
.
1C.
The
Closings
.
One or
more closings of the purchases and sales of the Series A Preferred Stock
to the
Purchasers (each such closing, a “
Closing
”)
shall
take place at the offices of Katten Muchin Zavis Rosenman, 525 West Monroe
Street, Chicago, IL 60661 (or remotely via the exchange of executed documents
and other closing deliverables), on such date or dates as may agreed to by
the
Company and the Placement Agent in accordance with the Escrow Agreement (which
date or dates are each designated as a “
Funding
Date
”).
On
each Funding Date, the Company shall simultaneously sell to each Purchaser
participating thereat, and deliver stock certificates evidencing all of the
shares of the Series A Preferred Stock to be purchased by such Purchaser
hereunder, registered in such Purchaser’s name, upon payment of the amount
reflected on such Purchaser’s counterpart signature page as such Purchaser’s
aggregate purchase price therefore.
1D.
Termination
.
This
Agreement may be terminated with respect to a Purchaser at any time prior
to the
consummation of the Closing for such Purchaser under the following described
circumstances:
(i)
upon
the
mutual written consent of the Company and such Purchaser; or
(ii)
by
either
of the Company or such Purchaser if the Closing for such Purchaser shall
not
have been consummated on or before the Termination Date, provided that the
right
to terminate this Agreement under this
subsection
1D(b)
shall
not be available to any party whose willful failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of such Closing to occur on or before such date.
If
the
Agreement is terminated with respect to any Purchaser pursuant to
Section
1D
,
the
funds held in Escrow with respect to such Purchaser shall be released and
delivered to the applicable Purchaser.
Section
2.
Conditions
of each Purchaser’s Obligation
.
With
respect to each Funding Date, the obligation of each Purchaser participating
thereat to purchase and pay for the Series A Preferred Stock is subject to
the
satisfaction or waiver by such Purchaser, at or prior to such Funding Date,
of
the following conditions:
2A.
Certificate
of Designation and Certificate of Incorporation
.
The
Company shall deliver to the Placement Agent, for the benefit of such Purchaser,
evidence that its Certificate of Incorporation, as amended to include the
provisions set forth in the Certificate of Designation (the “
Amended
Certificate
”)
has
been filed with the Secretary of State of Delaware and is in full force and
effect under the laws of the State of Delaware as of the applicable Funding
Date.
2B.
Representations
and
Warranties; Covenants
.
The
representations and warranties contained in Section 5 hereof shall be true
and
correct at and as of the applicable Funding Date as though then made, except
to
the extent of changes caused by the transactions expressly contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the applicable
Funding Date. The Company shall have delivered to the Placement Agent, for
the
benefit of such Purchaser, a certificate, duly executed by a senior executive
officer of the Company, attesting to the satisfaction of the
foregoing.
2C.
Qualifications
.
All
filings with or notices to, and all authorizations, approvals or permits
of, any
governmental authority or regulatory body of the United States or of any
State
that are required in connection with the lawful issuance and sale of the
Series
A Preferred Stock pursuant to this Agreement, including, without limitation,
any
necessary filings or approvals under “blue sky” laws, shall have been obtained
and shall be effective as of the applicable Funding Date.
2D.
Rights
Agreement
.
The
Company and each person or entity who or which holds Common Stock of the
Company
as of the applicable Funding Date (other than other Purchasers, the Placement
Agent or Affiliates of the Placement Agent) shall have executed and delivered
to
the Placement Agent, for the benefit of the Purchaser, a rights agreement
in
form and substance as set forth in
Exhibit
B
attached
hereto (as may be amended, restated and supplemented from time to time in
accordance with its terms, the “
Rights
Agreement
”)
and
the Rights Agreement shall be in full force and effect as of the applicable
Funding Date.
2E.
Opinion
of the Company’s Counsel
.
Katten
Muchin Zavis Rosenman, counsel for the Company, shall deliver to the Placement
Agent, for the benefit of the Placement Agent and such Purchaser, an opinion,
in
form and substance as set forth in
Exhibit
C
attached
hereto.
2F.
Secretary’s
Certificate
.
The
Placement Agent shall have received, for the benefit of such Purchaser, from
the
Company’s Secretary a certificate having attached thereto: (i) the Amended
Certificate as in effect at the applicable Funding Date, (ii) the Bylaws
as in
effect at the applicable Funding Date, (iii) resolutions approved by the
Board
of Directors of the Company (the “
Board
”)
authorizing the transactions contemplated hereby, (iv) resolutions approved
by
the Company’s stockholders authorizing the filing of the Amended Certificate,
and (v) a good standing certificate with respect to the Company from the
State
of Delaware and each other state in which the Company does business or holds
assets or property, dated as of a recent date before the applicable Funding
Date.
2G.
Reservation
of Common Stock
.
The
Common Stock issuable upon conversion of the Series A Preferred Stock shall
have
been duly authorized and reserved for issuance upon such
conversion.
2H.
No
Material Adverse Change
.
From
the date of this Agreement to the applicable Funding Date, there shall have
been
no material adverse change in the business, operations or financial condition
of
the Company.
2I.
Minimum
Investment
.
The
aggregate purchase price paid, or to be paid, collectively by the Purchasers
signatory to this Agreement shall be at least $5,000,000.
2J.
Stock
Split
.
On or
prior to the initial Funding Date, the Company shall have effected a 596
for 1
stock split, effected in the form of a dividend (the “
Stock
Split
”).
2K.
No
Litigation
.
No
suit, action or other proceeding, or injunction, order, decree or judgment
relating thereto, shall be threatened or shall be pending in which it is
sought
to restrain or prohibit or to obtain damages or other relief in connection
with
the transactions contemplated by this Agreement or the other Transaction
Documents that would reasonably be expected to have a material adverse effect
on
the Company, its business, properties, assets, results of operation, prospects,
condition (financial or otherwise) or liabilities (a “
Material
Adverse Effect
”)
and no
injunction, judgment, order, decree or ruling with respect thereto shall
be in
effect.
2L.
Convertible
Debt
.
As of
the initial Funding Date, (a) the Convertible Debt shall be cancelled, (b)
such
cancellation of indebtedness shall be accepted by the Company as payment
of the
purchase price for shares of Series A Preferred Stock at $2.00 per share,
(c)
the Company shall be released and forever discharged from all of its obligations
pursuant to the Convertible Debt, and (d) the Company shall have delivered
to
the Placement Agent, for the benefit of such Purchaser, satisfactory evidence
of
the foregoing.
2M.
IP
Comfort Letter
.
Howrey,
Simon, Arnold & White, LLP, counsel to the Company for Intellectual Property
matters, shall deliver to the Placement Agent, for the benefit of the Placement
Agent and such Purchaser, a letter, in form and substance as set forth in
Exhibit
D
attached
hereto.
2N.
Stockholder
Waiver
.
Each
person or entity who or which holds Common Stock of the Company as of the
applicable Funding Date (other than other Purchasers, the Placement Agent
or
Affiliates of the Placement Agent) shall have waived any and all breaches,
violations, conflicts, defaults and events of default, any and all notice
requirements and any and all preemptive rights, antidilution rights, adjustment
rights and rights for issuance of additional securities caused by, arising
out
of, or resulting from the Company’s execution, delivery and performance of this
Agreement and the other Transaction Documents, and satisfactory evidence
of such
waiver shall have been delivered to the Placement Agent, for the benefit
of such
Purchaser.
2O.
CCF
Development Plan
.
The
Placement Agent shall have received, for the benefit of such Purchaser,
satisfactory evidence of the agreement between the Company and The Cleveland
Clinic Foundation (“
CCF
”)
regarding the extension of time allotted to prepare and submit a “development
plan” as required by that certain Exclusive License Agreement, dated July 1,
2004, between the Company and CCF.
2P.
Other
Documents
.
All
other documents, instruments and writings reasonably required by the Placement
Agent or such Purchaser in connection with the transactions contemplated
hereby
shall have been delivered to the Placement Agent, for the benefit of such
Purchaser.
Section
3.
Conditions
of the Company’s Obligation
.
With
respect to each Funding Date, the obligation of the Company to issue and
sell
the shares of Series A Preferred Stock to each Purchaser participating thereat
is subject to the satisfaction or waiver by the Company, at or prior to such
Funding Date, of the following conditions:
3A.
Release
of Escrow
.
On such
Funding Date, the purchase price payable by such Purchaser participating
in such
Funding Date shall be released from Escrow and delivered to the
Company.
3B.
Minimum
Investment
.
The
aggregate purchase price paid, or to be paid, collectively by the Purchasers
signatory to this Agreement shall be at least $5,000,000.
3C.
Delivery
of Documents
.
Each
Purchaser shall have executed and delivered to the Company, a Purchaser
Questionnaire, attached hereto in the form of
Exhibit
E
,
this
Agreement, the Rights Agreement and the other documents required to be delivered
by the Purchasers as set forth in the PPM.
Section
4.
Covenants
.
4A.
Affirmative
Covenants
.
The
Company shall:
(i)
within
one business day following each Funding Date, deliver or cause to be delivered
to each Purchaser participating in such Funding Date, one or more stock
certificates evidencing the shares of Series A Preferred Stock purchased
by such
Purchaser at such Funding Date;
(ii)
at
all
times cause to be done all things necessary to maintain, preserve and renew
its
corporate existence and all material licenses, authorizations and permits
necessary to the conduct of its businesses;
(iii)
pay
and
discharge when payable all Taxes and all other material assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all material claims for labor, materials or supplies
which
if unpaid would by law become an Encumbrance upon any of its property, unless
and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with
GAAP) have been established on its books with respect thereto;
(iv)
promptly
pay, or cause to be paid, when due, in conformance with customary trade terms,
all other material indebtedness incident to the operations of the
Company;
(v)
comply
in
all material respects with all applicable laws, rules and regulations of
all
governmental authorities;
(vi)
apply
for
and continue in force with good and responsible insurance companies adequate
insurance covering risks of such types and in such amounts as are customary
for
corporations of similar size engaged in similar lines of business;
(vii)
maintain
proper books of record and account which present fairly in all material respects
its financial condition and results of operations and make provisions on
its
financial statements for all such proper reserves as in each case are required
in accordance with GAAP;
(viii)
enter
into and maintain nondisclosure and nonsolicitation agreements with all of
its
key employees;
(ix)
duly
observe and comply with the Amended Certificate and Bylaws of the Company;
and
(x)
use
reasonable best efforts to facilitate the transfer or surrender of stock
in the
Company, and to replace certificates of stock if lost or damaged.
4B.
Current
Public Information
.
At all
times after the Company has filed a registration statement with the Securities
and Exchange Commission pursuant to the requirements of either the Securities
Act or the Securities Exchange Act, or following a Triggering Event, the
Company
shall use reasonable best efforts to file all reports required to be filed
by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder
and
shall take such further action as any holder or holders of Underlying Common
Stock may reasonably request, all to the extent required to enable such holders
to sell Underlying Common Stock pursuant to an effective registration statement
and/or Rule 144 adopted by the Securities and Exchange Commission under the
Securities Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission.
Upon request, the Company shall deliver to any holder of Series A Preferred
Stock or Underlying Common Stock a written statement as to whether it has
complied with such requirements.
4C.
Public
Disclosures
.
Except
in connection with a registration statement filed pursuant to, and to the
limited extent permitted by, the Rights Agreement, the Company shall not
disclose any Purchaser’s (or any of its Affiliate’s) name or identity as an
investor in the Company in any press release or other public announcement
or in
any document or material filed with any governmental entity, without the
prior
written consent of such Purchaser, unless such disclosure is required by
applicable law or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to making such disclosure the Company shall
give written notice to such Purchaser, describing in reasonable detail the
proposed content of such disclosure and shall permit such Purchaser to review
and comment upon the form and substance of such disclosure.
4D.
Information
and Inspection Rights
.
(i)
Following
the initial Funding Date, the Company will (a) maintain a standard system
of
accounting, established and administered in accordance with GAAP, (b) prepare
all of its financial statements in accordance with GAAP, except that interim
financial statements may lack footnotes normally contained therein and will
be
subject to normal year-end audit adjustments, and (c) furnish to each Purchaser
and each such Purchaser’s successors, assigns and transferees if and for so long
as such person or entity holds shares of Series A Preferred Stock and/or
Underlying Common Stock:
(a)
|
within
90 days alter the end of each fiscal year of the Company, an audited
balance sheet of the Company as of the end of such fiscal year
and the
related audited statements of income, stockholders’ equity and cash flows
for the fiscal year then ended, prepared in accordance with GAAP
and
certified by a firm of independent public accountants selected
by the
Board;
|
(b)
|
within
45 days alter the end of each fiscal quarter of the Company, an
unaudited
balance sheet of the Company as of the end of such fiscal quarter
and the
related unaudited statements of income, and cash flows for the
fiscal
quarter then ended, prepared in accordance with GAAP and certified
by the
Chief Financial Officer of the
Company;
|
(c)
|
promptly,
following its receipt, delivery or other notice thereof, as the
case may
be (A) copies of pleadings or other written notice of any claim
or
litigation, pending or threatened, by or against the Company, (B)
notice
of any breach of or default under any material contract or commitment
of
the Company’s, or (C) the occurrence of an event which may reasonably be
expected to cause a Material Adverse
Effect;
|
(d)
|
with
reasonable promptness, such other notices, information and data
(A) as the
Company delivers to the holders of its Common Stock, or (B) as
the
Company’s Board in its reasonable good faith judgment, deems material to
its business or operations; and
|
(e)
|
any
other information reasonably requested by any such
holder.
|
(ii)
The
Company will permit any holder of Series A Preferred Stock and/or Underlying
Common Stock, its employees, counsel and other authorized representatives,
to
visit and inspect any of the properties of the Company, including their
respective books of account and other records (and make copies thereof and
take
extracts therefrom), and to discuss the Company’s affairs, finances and accounts
with the Company’s officers, key employees and independent public accountants,
all at such reasonable times during normal business hours and as often as
such
Person may reasonably request, upon reasonable prior notice to the
Company.
(iii)
The
rights of holders of Series A Preferred Stock and/or Underlying Common Stock
set
forth in Sections 4D(a) and (b) above shall be suspended during any period
that
the Company is subject to and in compliance with the reporting requirements
of
Section 13(a) or 15(d) of the Securities Exchange Act.
4E.
Blue
Sky Filings
.
The
Company shall file all applicable federal and state securities laws filings
required in connection with the sale of the Series A Preferred Stock to the
Purchasers pursuant to this Agreement.
4F.
Use
of
Proceeds
.
The
Company shall use the net proceeds from the sale of the shares of Series
A
Preferred Stock hereunder as set forth in the PPM.
4G.
Integration
.
The
Company shall not, and shall use reasonable best efforts to ensure that no
Affiliate of the Company shall sell, offer for sale or solicit offers to
buy or
otherwise negotiate in respect of any security of the Company that would
be
integrated with the offer or sale of the Series A Preferred Stock in a manner
that would require the registration under the Securities Act of the sale
of the
Series A Preferred Stock to the Purchasers pursuant to this
Agreement.
4H.
Reservation
of Shares
.
The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may
be
required to fulfill its obligations in full under the Transaction Documents.
In
the event that at any time the then authorized shares of Common Stock are
insufficient for the Company to satisfy its obligations in full under the
Transaction Documents, the Company shall promptly take such actions as may
be
required to increase the number of authorized shares.
4I.
Trading
Market
.
As soon
as practicable following a Triggering Event, the Company shall use reasonable
best efforts to apply to have the Common Stock (including, without limitation,
the Common Underlying Common Stock) listed upon the American Stock Exchange
or
included for quotation on the Nasdaq National Stock Market.
4J.
Conduct
of Business by the Company
.
The
Company covenants and agrees that, between the date hereof and the Termination
Date, or if later, the Final Funding Date, if any, except as expressly required
or permitted by this Agreement or the other Transaction Documents or as
disclosed in the PPM, the Company shall not conduct any business or take
any
action other than in the ordinary course of its business (as described in
the
PPM) or in connection with the maintenance and preservation of its corporate
existence or the compliance with applicable laws (including federal and state
securities laws) unless a Majority of the Purchasers shall otherwise agree
by
written consent or by telephonic conference call. By way of amplification
and
not limitation, except as expressly required or permitted by this Agreement
or
the other Transaction Documents, or as disclosed in the PPM, the Company
shall
not, between the date hereof and the Termination Date, or if later, the Final
Funding Date, if any, directly or indirectly do, or propose to do, any of
the
following without the prior written consent of a Majority of the
Purchasers:
(i)
amend
or
otherwise change the Certificate of Incorporation or By-laws or alter through
merger, liquidation, reorganization, restructuring or in any other fashion
the
corporate structure or ownership of the Company;
(ii)
issue,
sell, transfer, pledge, dispose of or encumber, or authorize the issuance,
sale,
transfer, pledge, disposition or encumbrance of, any shares of capital stock
of
any class, or any options, warrants, convertible securities or other rights
of
any kind to acquire any shares of capital stock, or any other ownership interest
of the Company; or sell, transfer, pledge, dispose of or encumber, or authorize
the sale, transfer, pledge, disposition or encumbrance of any assets of the
Company other than in the ordinary course of business (as described in the
PPM)
or redeem, purchase or otherwise acquire, directly or indirectly, any of
the
capital stock of the Company;
(iii)
declare,
set aside or pay any dividend or other distribution (whether in cash, stock
or
other securities or property or any combination thereof) in respect of any
of
its capital stock or other equity interests, split, combine or reclassify
any of
its capital stock or other securities or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or amend the terms of, repurchase, redeem
or
otherwise acquire any of its securities, or propose to do any of the
foregoing;
(iv)
sell,
transfer, lease, license, sublicense, mortgage, pledge, dispose of, encumber,
grant or otherwise dispose of any material properties or assets other than
in
the ordinary course of business (as described in the PPM), or amend or modify
in
any way any existing agreements with respect to any material properties or
assets other than in the ordinary course of business;
(v)
purchase,
acquire (by merger, consolidation, acquisition of stock or other securities
or
assets or otherwise), lease, license, sublicense or otherwise obtain any
interest in any properties or assets other than in the ordinary course of
business and consistent with past practice; incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse or otherwise
as an accommodation become responsible for, the obligations of any Person,
or
make any loans, advances or enter into any financial commitments, in each
case
other than in the ordinary course of business and consistent with past
practice;
(vi)
change
any accounting policies or procedures (including procedures with respect
to
reserves, revenue recognition, payments of accounts payable and collection
of
accounts receivable) unless required by statutory accounting principles or
GAAP;
(vii)
create,
incur, suffer to exist or assume any liability or obligation (absolute, accrued,
contingent or otherwise) or any lien on any of its material assets other
than in
the ordinary course of business and consistent with past practice;
(viii)
engage
in
any transaction, or enter into any agreement, arrangement, or understanding
with, directly or indirectly, any related party, other than those existing
as of
the date hereof;
(ix)
fail
to
maintain in full force and effect all self-insurance and insurance, as the
case
may be, currently in effect;
(x)
hire
or
terminate any senior level or key employee or consultant; increase the
compensation (including, without limitation, bonus) payable or to become
payable
to its officers or employees, or grant any severance or termination pay or
stock
options to, or enter into any employment or severance agreement with any
director, officer or other senior level or key employee of the Company, or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock or other equity option, restricted stock
or
other restricted security, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy
or arrangement for the benefit of any current or former directors, officers
or
employees;
(xi)
(A)
enter
into any material agreement, contract or commitment of any kind or nature
whatsoever other than in the ordinary course of business (as described in
the
PPM), or (B) modify, amend or transfer or terminate any material agreement
to
which the Company is a party or waive, release or assign any material rights
or
claims thereunder other than in the ordinary course of business (as described
in
the PPM);
(xii)
pay,
discharge, satisfy or settle any litigation or waive, assign or release any
rights or claims, or pay, discharge or satisfy any liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) other
than
in the ordinary course of business (as described in the PPM);
(xiii)
issue
any
press release or make any public announcement which has not been approved
by the
Placement Agent; or
(xiv)
authorize,
recommend, propose or announce an intention to do any of the foregoing, or
agree
or enter into anjy agreement, contract commitment or arrangement to do any
of
the foregoing.
4K.
Notification
.
Between
the date of this Agreement and the Termination Date, or if later, the Final
Funding Date, if any, the Company will promptly notify the Purchasers in
writing
of the following:
(i)
any
fact
or any condition that causes any of the Company’s representations and warranties
in this Agreement to be materially inaccurate as of the date of this Agreement,
or if the Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would cause any such representation
or
warranty to be materially inaccurate had such representation and warranty
been
made as of the time of the occurrence or discovery of such fact or condition;
or
(ii)
any
fact
or circumstance which might reasonably be expected to delay or prevent the
closing of the transactions contemplated by this Agreement.
4L.
Reasonable
Efforts
.
Between
the date of this Agreement and the Termination Date, or if later, the Final
Funding Date, if any, the Company will use reasonable best efforts to comply
with the provisions hereof and to consummate the transactions contemplated
hereby and to cause the conditions in Section 2 to be satisfied.
4M.
Additional
Covenants
.
After
the initial Funding Date and until the date which is 90 days following the
date
of a Triggering Event:
(i)
the
Company shall not directly or indirectly do, or propose to take any action
which
could have or reasonably be expected to result in a Material Adverse
Effect;
(ii)
unless
otherwise approved by a Majority of Purchasers, the Company shall not cause
or
permit (i) the sale, transfer, lease, license, sublicense, mortgage, pledge,
disposition or encumbrance of any of the Company’s assets, other than in the
ordinary course of the business consistent with past practice or as otherwise
disclosed in the PPM, or (ii) a merger, consolidation or similar transaction
involving the Company unless it shall constitute a Public Merger;
(iii)
the
Company shall comply in all material respects with all applicable laws,
including, without limitation, federal and state securities laws;
and
(iv)
the
Company shall not acquire any capital stock or other equity interests of
any
corporation, partnership, limited liability company or other business
association or entity unless the Company shall hold 100% of the outstanding
capital stock or other equity interests of such corporation, partnership,
limited liability company or other business association or entity.
4N.
Transfer
Agent
.
Prior
to a Triggering Event, the Company shall engage Continental Stock Transfer
&
Trust (or such other agent as the Company and the Placement Agent may agree)
as
the Company’s transfer agent.
4O.
Insurance
.
Within
60 days following the initial Funding Date, the Company shall obtain from,
and
shall thereafter maintain with, insurers of recognized financial responsibility
such general liability and other insurance policies of the kinds and in the
amounts as are prudent and customary in the businesses in which the Company
is
engaged.
Section
5.
Representations
and Warranties of the Company
.
As a
material inducement to each Purchaser to enter into this Agreement and purchase
the Series A Preferred Stock hereunder, the Company hereby represents and
warrants as of the date hereof that:
5A.
Organization,
Corporate Power and Licenses
.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is qualified to do business in
every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company possesses all requisite corporate power and authority
and all material licenses, permits and authorizations (collectively,
“
Permits
”)
used
or necessary to own and operate its properties, to carry on its businesses
as
now conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement and the other Transaction Documents.
No proceeding is pending or, to the Company’s knowledge, threatened, seeking the
revocation or limitation of any such Permit. The Company does not have any
subsidiaries
5B.
Capital
Stock and Related Matters
.
Immediately prior to the initial Funding Date, but following the consummation
of
the Stock Split, the authorized capital of the Company consists of 12,000,000
shares of Common Stock, of which 5,960,000 shares shall be issued and
outstanding, and 4,000,000 shares of preferred stock, of which 3,750,000
have
been designated as Series A Preferred Stock, none of which shall be issued
and
outstanding. The rights, privileges and preferences of the Series A Preferred
Stock will be as stated in the Certificate of Designation. Except for (i)
such
warrants as will be issued to the Placement Agent (as referenced in the PPM)
(the “
Fee
Warrants
”)
(ii)
the Convertible Debt, (iii) warrants to acquire 29,800 shares of Common Stock
issued to the Placement Agent in connection with the engagement of the Placement
Agent, (iv) warrants to acquire 264,624 shares of Common Stock issued to
ChemBridge Corporation, (v) $333,500 principal amount of debt convertible
into
shares of Common Stock at a conversion rate of $2.517 per share at any time
until maturity and payment of the debt or until mandatory conversion of such
debt upon consummation of an initial public offering or, at the option of
the
holder thereof, into Series A Preferred Stock at a conversion rate of $2.00
per
share upon the initial funding hereunder, (vi) any shares of Series A Preferred
Stock issued to any Purchaser, and (vii) rights under the Restricted Stock
and
Investor Rights Agreement between the Company and ChemBridge Corporation
(the
“
ChemBridge
Agreement
”),
there
are, and following the final Funding Date hereunder, will be, no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of
any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound
to
issue additional shares of Common Stock, or securities or rights convertible
or
exchangeable into shares of Common Stock (collectively, “
Equity
Rights
”).
The
Company has reserved a sufficient number of shares of its equity securities
for
conversion or exercise in full of all such Equity Rights, including, without
limitation, the Series A Preferred Stock. Except as set forth in the ChemBridge
Agreement (which rights will be waived prior to the initial Funding Date),
there
are no securities of the Company which are entitled to preemptive or similar
rights, and no Person has any right of first refusal, preemptive right, right
of
participation, or any similar right to participate in the transactions
contemplated by this Agreement or the other Transaction Documents. Except
for
anti-dilution provisions provided for in the outstanding Equity Rights, the
Certificate of Designation and the ChemBridge Agreement (which rights will
be
waived prior to the initial Funding Date), there are no anti-dilution or
price
adjustment provisions contained in any security issued by the Company or
other
agreement and the issue and sale of the Series A Preferred Stock and the
Underlying Common Stock will not, immediately or with the passage of time,
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Placement Agent, the Purchasers and the holder of
the
Convertible Debt) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. Except as disclosed in the PPM under the heading “Principal and
Management Stockholders,” to the knowledge of the Company, no Person or group of
related Persons beneficially owns (as determined pursuant to Rule 13d-3 under
the Securities Exchange Act) or has the right to acquire, by agreement with
or
by obligation binding upon the Company, beneficial ownership of in excess
of 5%
of the outstanding Common Stock, ignoring for such purposes any limitation
on
the number of shares that may be owned at any one time. Immediately following
the final Funding Date (assuming that a minimum of 2,500,000 shares of Series
A
Preferred Stock is issued and sold and that a maximum of 3,000,000 shares
of
Series A Preferred Stock is issued and sold), the Company’s issued and
outstanding shares of capital stock, on a fully diluted basis, shall be
allocated as set forth on the attached “
Capitalization
Schedule
.”
5C.
Validity
of Shares; Exemption from Registration
.
Upon
issuance in accordance with the terms hereof, the Series A Preferred Stock
will
be duly and validly issued (including, without limitation, issued in compliance
with applicable federal and state securities laws), fully paid and
non-assessable, free of all mortgages, pledges, liens, security interests,
encumbrances, leases, and charges (“
Encumbrances
”)
other
than those granted or created by a Purchaser, and will not be subject to
any
preemptive rights, rights of first refusal, redemption rights or other
restrictions on transfer, other than as imposed by applicable federal and
state
securities laws and other than those granted or created by a Purchaser. The
Underlying Common Stock issuable upon conversion of the Series A Preferred
Stock
have been duly and validly reserved and, when issued in accordance with the
terms thereof, will be validly issued (including, without limitation, issued
in
compliance with applicable federal and state securities laws), fully paid
and
nonassessable, free of all Encumbrances other than those granted or created
by a
Purchaser, and will not be subject to any preemptive rights, rights of first
refusal, redemption rights or other restrictions on transfer, other than
as
imposed by applicable federal and state securities laws and other than those
granted or created by a Purchaser.
5D.
Authorization;
No Breach or Violation
.
(i)
The
execution, delivery and performance of this Agreement, the Rights Agreement
and
the other documents and instruments executed and delivered pursuant hereto
and
thereto (collectively, the “
Transaction
Documents
”)
and
the filing of the Certificate of Designation, have been duly authorized by
the
Company. This Agreement, each of the other Transaction Documents and the
Amended
Certificate each constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms.
(ii)
The
execution and delivery by the Company of this Agreement and each of the other
Transaction Documents, the offering, sale and issuance of the Series A Preferred
Stock hereunder, the issuance of the Underlying Common Stock upon conversion
of
the Series A Preferred Stock, the adoption of the Certificate of Designation
and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Company, do not and shall not (i) conflict with or result in a breach
of
the terms, conditions or provisions of, (ii) constitute a default under,
(iii)
result in the creation of any Encumbrance upon the Company’s capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate
or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice
or
declaration to, or filing with, any court or administrative or governmental
body
or agency pursuant to, the Amended Certificate or the Bylaws, any Permit,
or any
law, statute, rule or regulation to which the Company is subject, or any
agreement, instrument, order, judgment or decree to which the Company is
party
or to which its properties or assets are subject.
5E.
Financial
Statements
.
Attached hereto as the “
Financial
Statements Schedule
”
is
the
audited balance sheet of the Company as of December 31, 2004 (the “
Latest
Balance Sheet
”
and
the
audited income statement of the Company for the year ended December 31, 2004
(the “
Latest
Income Statement
”)
which
Latest Balance Sheet and Latest Income Statement are accurate and complete
in
all material respects, are consistent with the books and records of the Company
(which, in turn, are accurate and complete in all material respects) and
have
been prepared in accordance with GAAP and present fairly the financial condition
of the Company as of the date set forth therein and the results of operations
of
the Company for the period set forth therein, respectively.
5F.
Absence
of Undisclosed Liabilities
.
Except
as set forth on the attached “
Liabilities
Schedule
,”
the
Company does not have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to
the
Company, whether due or to become due and regardless of when asserted) arising
out of transactions entered into at or prior to the date hereof, or any action
or inaction at or prior to the date hereof, or any state of facts existing
at or
prior to the date hereof other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), and (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet
in the
ordinary course of business, consistent in nature and amount with past practice
and which shall not exceed $350,000 in the aggregate (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit). Except as set forth in the Liabilities
Schedule, since December 31, 2004, the Company has paid all liabilities,
debts
and lease obligations in accordance with the applicable contractual agreement
with such third party creditors. Except as disclosed in the Liabilities
Schedule, the Company is not a guarantor or indemnitor of any indebtedness
of
any other person, firm or corporation.
5G.
No
Material Adverse Change
.
Since
December 31, 2004, the Company has conducted its business in the ordinary
course
and there has been no material adverse change in the financial condition,
operating results, assets, operations, employee relations or customer or
supplier relations of the Company. Since December 31, 2004, (a) the Company
has
not altered its method of accounting or the identity of its auditors, (b)
the
Company has not declared or made any dividend or distribution of cash or
other
property to its stockholders, other than the Stock Split, or purchased, redeemed
or made any agreements to purchase or redeem any shares of its capital stock,
and (c) other than in connection with the Stock Split, the Company has not
issued any equity securities to any officer, director or Affiliate.
5H.
Contracts
and Commitments
.
(i)
Except
as
expressly contemplated by this Agreement or as set forth on the attached
“
Contracts
Schedule
,”
the
Company is not a party to or bound by any written or oral contract or agreement,
except for those contracts or agreements which can be terminated by the Company
on no more than 30 days’ notice without penalty or further expense and which do
not exceed $50,000 in the aggregate.
(ii)
All
of
the contracts, agreements and instruments set forth on the
Contracts
Schedule
are
valid, binding and enforceable in accordance with their respective terms.
The
Company has performed all material obligations required to be performed by
it
and is not in default under or in breach of nor in receipt of any claim of
default or breach under any contract, agreement or instrument identified
on the
Contracts
Schedule
.
No
event has occurred which with the passage of time or the giving of notice
or
both would result in a default, breach or event of noncompliance by the Company
under any material contract; the Company does not have any present expectation
or intention of not fully performing all such obligations; the Company does
not
have knowledge of any breach or anticipated breach by the other parties to
any
contract; and the Company is not a party to any materially adverse contract
or
commitment.
(iii)
The
Placement Agent’s special counsel has been supplied with a true and correct copy
of each of the written instruments, plans, contracts and agreements and an
accurate description of each of the oral arrangements, contracts and agreements
which are referred to on the
Contracts
Schedule
together
with all amendments, waivers or other changes thereto.
(iv)
The
Company does not have any agreement or understanding with any Purchaser or
any
Affiliate of any Purchaser other than as contemplated by this Agreement and
the
other Transaction Documents.
5I.
Litigation,
etc
.
There
are no actions, suits, proceedings or orders pending or, to the best of the
Company’s knowledge, threatened against or affecting the Company or any of its
properties or assets, or pending or threatened by the Company against any
third
party, at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality (including, without
limitation, any actions, suit, proceedings or investigations with respect
to the
transactions contemplated by this Agreement); and there is no basis for any
of
the foregoing. There is no action, suit or proceeding which the Company intends
to initiate. The Company is not subject to any judgment, order or decree
of any
court or other governmental agency. Neither the Company nor to the best of
the
Company’s knowledge, any director or officer thereof, is or has been the subject
of any action, suit, proceeding or order involving a claim of violation of
or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been and there is no currently pending
investigation by the Securities and Exchange Commission involving the Company,
or to the Company’s best knowledge, any current or former director or officer of
the Company, and to the Company’s best knowledge, there is no such threatened
investigation.
5J.
Brokerage
.
Except
for fees and commissions payable to the Placement Agent and/or its designees,
which fees and commissions are set forth in the PPM, (a) the Company has
not
retained a finder or broker in connection with the transactions contemplated
by
this Agreement, (b) there are no claims for brokerage commissions, finders’ fees
or similar compensation in connection with the transactions contemplated
by this
Agreement, and (c) the Purchasers shall have no obligation with respect to
and
the Company shall indemnify and save them harmless from, any fees or with
respect to any claims (other than such fees or commissions owed by a Purchaser
pursuant to written agreements executed by such Purchaser which fees or
commissions shall be the sole responsibility of such Purchaser) made by or
on
behalf of other Persons engaged by the Company for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
5K.
Governmental
Consent, etc
.
No
permit, consent, approval or authorization of, or declaration to or filing
with,
any governmental or regulatory authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other Transaction Documents, or the consummation by the Company of any other
transactions contemplated hereby or thereby, other than (a) the filing with
the
Securities and Exchange Commission of (i) one or more registration statements
in
accordance with the requirements of the Rights Agreement and (ii) a Notice
of
Sale of Securities on Form D within 15 days following each Funding Date,
(b)
filings required by state securities laws, which the Company will promptly,
and
in any event prior to the due date prescribed by applicable law make (at
the
sole expense of the Company) in order to permit the holders of the shares
of
Series A Preferred Stock and/or Underlying Common Stock to resell such shares
to
Persons in any State in the U.S., and (c) those that have been made or obtained
prior to the date of this Agreement.
5L.
Employees
Employee Matters
.
The
Company has complied in all material respects with all laws relating to the
employment of labor (including, without limitation, provisions thereof relating
to wages, hours, equal opportunity, collective bargaining and the payment
of
social security and other taxes), and the Company is not aware that it has
any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). The Company nor, to the best of the Company’s knowledge,
any of its employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities
of the
Company, except for agreements between the Company and its present and former
employees all of which are described on the
Contracts
Schedule
.
Except
as set forth on the
Contracts
Schedule
,
the
Company has no employment contracts with any of its employees not expressly
terminable at will and no collective bargaining agreements covering any of
its
employees. Further, the Company has no policies, procedures or handbooks
providing for other than at-will employment. The Company is not aware that
any
employee of the Company has plans to terminate his or her employment
relationship with the Company, nor does the Company have a present intention
to
terminate the employment of any employee. To the Company’s knowledge, none of
the current or former officers or other key employees of the Company have
been
arrested or convicted of any felony and no such person has declared bankruptcy
nor has any such person been an officer or director of any company or other
organization that has declared bankruptcy. Except as set forth in the
Liabilities Schedule, the Company has no liabilities to employees arising
from
deferred compensation. The Company does not contribute to or participate
in any
employee benefit plan subject to the Employee Retirement Income Security
Act of
1974, as amended other than a medical benefit plan with respect to which
the
Company has made all required contributions and has complied with all applicable
laws]. To the Company’s best knowledge, none of its current or former officers,
directors, consultants or employees is currently, has in the past, or has
plans
in the future, to engage in a line of business which is competitive with
the
Company.
5M.
Compliance
with Laws and Constituent Documents
.
The
Company is in compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees. The Company is not in violation
of
any of the provisions of its Certificate of Incorporation or
Bylaws.
5N.
Affiliated
Transactions
.
Except
as set forth on the attached “
Affiliated
Transactions Schedule
,”
no
executive officer, or, to the Company’s knowledge, no director, employee,
shareholder or Affiliate of the Company or any individual related by blood,
marriage or adoption to any such individual or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company (other than for services
as
employees, officers and directors) or has any material interest in any material
property used by the Company.
5O.
Disclosure
.
Neither
this Agreement nor any of the exhibits, schedules, attachments, written
statements, documents, certificates or other items supplied to the Purchasers
by
or on behalf of the Company (including, without limitation, the Confidential
Offering Memorandum dated February 18, 2005 relating to the offering and
sale of
the Series A Preferred Stock (the “
PPM
”)
with
respect to the transactions contemplated hereby contain any untrue statement
of
a material fact or omit a material fact necessary to make each statement
contained herein or therein not misleading.
5P.
Patents,
Copyrights, Trademarks
.
(i)
The
PPM
accurately describes (a) all issued Patents and registrations and applications
for all Patents, Trademarks and Copyrights owned by or licensed to the Company
relating to Intellectual Property, and (b) all material contracts, agreements
and arrangements relating to Intellectual Property (whether in writing or
oral)
to which the Company is a party, by which any of its respective assets or
properties are bound or which are used or necessary in the business of the
Company as currently conducted or as proposed to be conducted. As used herein,
the term “
Intellectual
Property
”
means
(1) all Compounds and/or uses thereof and inventions (whether patentable
or
unpatentable and whether or not reduced to practice) and all improvements
thereon, (ii) all patents, patent applications and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions and reexaminations thereof (collectively, “
Patents
”),
(iii)
all trademarks, service marks, trade dress, logos, trade names and corporate
names (collectively, “
Trademarks
”)
including all goodwill associated therewith, and all applications, registrations
and renewals in connection therewith, (iv) all copyrightable works, all
copyrights and all applications, registrations and renewals in connection
therewith (collectively, “
Copyrights
”),
(v)
all mask works and all applications, registrations and renewals in connection
therewith, (vi) all trade secrets and confidential business information
(including, without limitation, ideas, research and development, data, results,
know-how, formulas, compositions, manufacturing and production processes
and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (vii) all computer software (including data and related
documentation) and (viii) all other proprietary tights.
(ii)
The
Company owns, is licensed to use, or otherwise has the right to use all Company
Intellectual Property and all such Company Intellectual Property will be
owned
or available for use by the Company following each Funding Date and for the
foreseeable future. The Company has taken all necessary and reasonable best
actions to maintain and protect its material owned or licensed Company
Intellectual Property. To the best of the Company’s knowledge, there is
patentable subject matter relating to the Company’s currently contemplated
aminoacridine and flagellin products disclosed in the patent applications
prosecuted by the Company. As used herein, “
Company
Intellectual Property
”
means
all Intellectual Property used or held for use by the Company in the conduct
of
its business as currently conducted or as proposed to be conducted.
(iii)
To
the
best knowledge of the Company, the Company has not infringed upon or
misappropriated any Intellectual Property rights of third parties related
to the
products set forth on the
Products
Schedule
and/or
the uses thereof, and the continued operation of the Company as currently
conducted and as proposed to be conducted related to the products set forth
on
the
Products
Schedule
does not
infringe upon or misappropriate or otherwise violate any Intellectual Property
rights of third parties. To the Company’s best knowledge, no Person has
infringed upon or misappropriated or otherwise violated any Company Intellectual
Property.
(iv)
Except
as
disclosed in the PPM, with respect to each item of Company Intellectual
Property: (i) the Company possesses all right, title (if owned) and interest
in
and to the item, free and clear of any Encumbrance (other than, in the case
of
licensed Intellectual Property, restrictions created by the licenses
themselves); (ii) the item of Company Intellectual Property is not subject
to
any outstanding order, injunction, judgment, decree or ruling of any Regulatory
Authority (other than the applicable patent and trademark prosecution protection
proceedings themselves); and (iii) none of the Patents disclosed in the PPM
have
been abandoned. As used herein, the term “
Regulatory
Authority
”
means
any applicable government regulatory authority, domestic or foreign, involved
in
granting approvals for the manufacturing, marketing, reimbursement and/or
pricing of any Product of the Company; the term “
Product
”
means
preparations in final form for sale by prescription, over-the-counter or
any
other method that contains Compound or one or more active ingredients; the
term
“
Compound
”
means
compound or compounds or uses thereof described in the PPM as belonging or
licensed to the Company or claimed by the Company in one or more of Patents
or
applications therefor.
(v)
The
rights to all inventions of any of the Company’s employees or consultants,
former employees or consultants made while employed or retained by the Company,
or prior to their employment with or retention by the Company, which are
utilized by the Company in the conduct of the Company’s business as presently
conducted or as proposed to be conducted have been fully assigned or licensed
to
the Company.
(vi)
Except
as
set forth on the
Contracts
Schedule
and
described in the PPM, there are no outstanding options, licenses or agreements
of any kind relating to the Company Intellectual Property, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect thereto (other than such licenses or agreements arising from the
purchase of “off the shelf” or standard products).
5Q.
No
Other Registration Rights
.
Except
as provided under the Rights Agreement or as described in the PPM, the Company
is not under any obligation to register any of its presently outstanding
securities or any of its securities that may hereafter be issued pursuant
to
this or any other existing agreement.
5R.
Title
to Property and Assets
.
Except
as provided in Section 5P with respect to Intellectual Property, the Company
has
good and valid title or valid leasehold interest in and to all of the properties
and assets used by the Company, in each case subject to no Encumbrance other
than Permitted Encumbrances. All material assets and properties used or
necessary by the Company in its business are in good operating condition
and
repair (except for normal wear and tear), are suitable for the purposes used
and
are adequate and sufficient for the operations of the Company as currently
conducted and as proposed to be conducted. Any personal or real property
held
under lease or license by the Company are held by it under valid, subsisting
and
enforceable leases or licenses of which the Company is in compliance.
“
Permitted
Encumbrances
”
shall
mean (i) any lien for taxes not yet due or delinquent or (ii) any statutory
lien
arising in the ordinary course of business by operation of law with respect
to a
liability that is not yet due or delinquent.
5S.
Taxes
.
The
Company has accurately prepared and timely filed all income and other tax
returns, if any, that are required to be filed by or on behalf of the Company,
its business or assets, and has paid, or made provision for the payment of,
all
taxes that have become due and owing, including any assessment that has been
or
may be received from any taxing authority for the period through the date
of
this Agreement. There are no outstanding agreements by the Company for the
extension of time for the assessment of any tax. None of the Company’s tax
returns has been or, to the Company’s knowledge, is now under audit or
investigation by any tax authority. No deficiency assessment or proposed
adjustment of the Company’s taxes (if any) is pending, and the Company has no
knowledge of any proposed liability for any tax to be imposed upon the Company’s
properties or assets for which there is not an adequate reserve reflected
on
Latest Balance Sheet.
5T.
Solvency;
Going Concern
.
(i)
Following
the consummation of the transactions contemplated hereby, (i) the Company’s fair
saleable value of its assets in an orderly l
iquidation
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; (iii) the current cash flow of the Company, together
with
the proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its debt when such amounts are required
to be paid; and (iv) the Company’s total indebtedness shall not exceed $800,000
in the aggregate (exclusive of the Convertible Debt). The Company does not
intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in
respect of its debt).
(ii)
Following
consummation of the transactions contemplated hereby (after taking into account
the proceeds received by the Company from the sale of the Series A Preferred
Stock) the Company has no knowledge or reason to believe that the Company’s
independent public accountants will issue an audit letter containing a “going
concern” opinion with respect to the Company.
5U.
Investment
Company
.
The
Company is not, and is not an Affiliate of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.
5V.
Application
of Takeover Protections
.
There
is no control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s Certificate of Incorporation or the laws of its
state of incorporation that is or could become applicable to the Purchasers
as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company’s issuance of the Series A Preferred Stock and/or
Underlying Common Stock and the Purchasers’ ownership thereof.
5W.
Private
Placement
.
Based
in part on the representations made by each of the Purchasers in Section
6 of
this Agreement, the offer and sale of the Series A Preferred Stock to each
of
the Purchasers will be exempt from the registration requirements of Section
5 of
the Securities Act. The acquisition by the Purchasers of the Series A Preferred
Stock will not be “integrated” with any other offering or sale of securities of
the Company required to be registered under the Securities Act, or the rules
and
regulations promulgated thereunder. Neither the Company nor any Person acting
on
the Company’s behalf has sold or offered to sell or solicited any offer to buy
the Securities by means of any form of general solicitation or
advertising.
5X.
Foreign
Corrupt Practice
.
Neither
the Company nor any director, officer, agent, employee or other person acting
on
behalf of the Company has, in the course of his actions for, or on behalf
of,
the Company used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate find; violated or is in violation of
any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
bribe,
rebate, payoff; influence payment, kickback or other unlawful payment to
any
foreign or domestic government official or employee.
Section
6.
Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby represents and warrants (as to itself only) to the Company
that:
6A.
Authorization
.
If such
Purchaser is an entity, it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, such Purchaser
has
full power and authority to enter into this Agreement and the other
Transaction
Documents
and has
duly authorized, executed and delivered the same. If such Purchaser is an
individual, he or she has reached the age of majority in the jurisdiction
in
which he or she resides and has executed and delivered this agreement and
the
other Transaction Documents. This Agreement and the Transaction Documents,
when
executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of
general
application affecting enforcement of creditors’ rights generally, or (b) as
limited by laws relating to the availability of a specific performance,
injunctive relief, or other equitable remedies, or (c) to the extent the
indemnification provisions contained in this Agreement and the other Transaction
Documents may be limited by applicable Federal or state securities laws,
public
policy and other equitable considerations.
6B.
Investment
Purpose
.
Such
Purchaser (i) is acquiring the Series A Preferred Stock and (ii) upon conversion
of the Series A Preferred Stock, will acquire the Underlying Common Stock
then
issuable (the Series A Preferred Stock and the Underlying Common Stock
collectively are referred to herein as the “
Securities
”),
for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant
to
sales registered or exempted under the Securities Act.
6C.
Accredited
Investor Status
.
Such
Purchaser is an “accredited investor” as that term is defined in Rule 501(a)(3)
of Regulation D promulgated under the Securities Act and as described in
the
PPM.
6D.
Foreign
Investors
.
If the
Purchaser is not a United States person (as defined by Section 7701(a)(30)
of
the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents
that it has satisfied itself as to the full observance of the laws of its
jurisdiction in connection with any invitation to subscribe for the Securities
or any use of this Agreement, including (i) the legal requirements within
its
jurisdiction for the purchase of the Securities, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other
tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Securities. Such Purchaser’s subscription and payment
for and continued beneficial ownership of the Securities, will not violate
any
applicable securities or other laws of the Purchaser’s
jurisdiction.
6E.
Reliance
on Exemptions
.
Such
Purchaser understands that the Securities are being offered and sold to it
in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying
in part
upon the truth and accuracy of, and such Purchaser’s compliance with, the
representations, warranties and agreements of such Purchaser set forth herein
in
order to determine the availability of such exemptions and the eligibility
of
such Purchaser to acquire such securities.
6F.
Information
.
Such
Purchaser has been furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the offer
and
sale of the Securities which have been requested by such Purchaser. Such
Purchaser has been afforded the opportunity to ask questions of the Company.
Such Purchaser understands that its investment in the Securities involves
a high
degree of risk. Such Purchaser has sought such accounting, legal and tax
advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities. Notwithstanding the foregoing,
in
entering into this Agreement, such Purchaser represents that it is relying
solely on the representations, warranties, covenants and agreements set forth
in
this Agreement, the other Transaction Documents and the PPM, which documents
supersede and replace any other written or oral information communicated
to such
Purchaser, whether by email, power-point presentation or otherwise.
6G.
No
Governmental Review
.
Such
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
6H.
Transfer
or Resale
.
Such
Purchaser understands that except as provided in the Rights Agreement: (i)
the
Securities have not been and are not being registered under the Securities
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder or (B) sold in
reliance on an exemption therefrom; and (ii) neither the Company nor any
other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions
of
any exemption thereunder. Such Purchaser is able to bear the economic risk
of
its investment in the Securities for an indefinite period of time.
6I.
No
Public Market
.
Such
Purchaser understands that no public market now exists for any of the Securities
issued by the Company, and that, subject to the provisions of the Rights
Agreement, the Company has made no assurances that a public market will ever
exist for the Securities.
6J.
Legends
.
Such
Purchaser understands that the certificates representing the Securities and
any
securities issued in respect of or exchange or conversion for the Securities,
may bear one or all of the following legends:
(i)
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. ANY SUCH
SALE
OR DISTRIBUTION MAY BE EFFECTED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR
IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING
THE
FOREGOING, THE SHARES REPRESENTED HEREBY MAY BE PLEDGED IN CONNECTION WITH
A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
SUCH
SHARES.”
(ii)
Any
legend required by the Transaction Documents.
(iii)
Any
legend required by the Blue Sky laws of any state to the extent such laws
are
applicable to the shares represented by the certificate so
legended.
6K.
Investment
Experience
.
Such
Purchaser understands that the purchase of Securities involves substantial
risk
including the possibility of complete loss of investment. Such Purchaser:
(i)
has experience as an investor in securities of companies in the development
stage and acknowledges that such Purchaser is able to fend for itself, can
bear
the economic risk of such Purchaser’s investment in the Securities and has such
knowledge and experience in financial or business matters that such Purchaser
is
capable of evaluating the merits and risks of this investment in the Securities
and protecting its own interests in connection with this investment and/or
(ii)
has a preexisting personal or business relationship with the Company and
certain
of its officers, directors or controlling persons of a nature and duration
that
enables such Purchaser to be aware of the character, business acumen and
financial circumstances of such person. Further, such Purchaser is aware
of no
publication of any advertisement in connection with the transactions
contemplated by this Agreement.
Section
7.
Definitions
.
For the
purposes of this Agreement, the following terms have the meanings set forth
below:
“
Affiliate
”
of
any
particular Person means any other Person controlling, controlled by or under
common control with such particular Person, where “control” means the
possession, directly or indirectly, of the power to direct the management
and
policies of a Person whether through the ownership of voting securities,
contract or otherwise. In addition, “
Affiliates
”
of
a
Person include any Affiliate of a Person or its Affiliates’ partners, members or
shareholders who received shares of the Series A Preferred Stock or Underlying
Common Stock pursuant to a distribution from or a liquidation of such Person
or
such Affiliate.
“
Affiliated
Transactions Schedule
”
shall
have the meaning specified in
Section
5N
hereof.
“
Agreement
”
shall
have the meaning specified in the Preamble hereto.
“
Amended
Certificate
”
shall
have the meaning specified in
Section
2A
.
“
Board
”
shall
have the meaning specified in
Section
2F
hereof.
“
Bylaws
”
shall
mean the Company’s bylaws, as amended, restated or supplemented.
“
CCF
”
shall
have the meaning specified in
Section
20
hereof.
“
Certificate
of Designation
”
shall
have the meaning specified in
Section
1A
hereof.
“
ChemBridge
Agreement
”
shall
have the meaning specified in
Section
5B
hereof.
“
Closing
”
shall
have the meaning specified in
Section
1C
hereof.
“
Common
Stock
”
shall
have the meaning specified in
Section
1A
hereof.
“
Company
”
shall
have the meaning specified in the Preamble hereto and, subject to Section
8E
hereof, shall include any successor entity.
“
Company
Intellectual Property
”
shall
have the meaning specified in
Section
5P
hereof.
“
Compound
”
shall
have the meaning specified in
Section
5P
hereof.
“
Convertible
Debt
”
shall
mean an aggregate of $50,000 in principal amount of 5% convertible notes,
dated
as of May 11, 2004, made by the Company to George R. Stark, which principal
amount is convertible into 25,000 shares of the Series A Preferred
Stock.
“
Contracts
Schedule
”
shall
have the meaning specified in
Section
5H
hereof.
“
Copyrights
”
shall
have the meaning specified in
Section
5P
hereof.
“
Encumbrances
”
has
the
meaning set forth in
Section
5C
hereof.
“
Equity
Rights
”
has
the
meaning set forth in
Section
5B
hereof.
“
Escrow
”
means
the escrow account established and maintained pursuant to the Escrow
Agreement.
“
Escrow
Agreement
”
means
the escrow agreement, dated as of February 16, 2005, by and among the Company,
the Placement Agent and Continental Stock Transfer and Trust
Company.
“
Financial
Statements Schedule
”
shall
have the meaning specified in
Section
5E
hereof.
“
Fee
Warrants
”
shall
have the meaning specified in
Section
5B
hereof.
“
Funding
Date
”
shall
have the meaning specified in
Section
1C
hereof.
“
GAAP
”
means
generally accepted United States accounting principles, consistently
applied.
“
Indemnified
Liabilities
”
shall
have the meaning specified in
Section
8M
hereof.
“
Indemnitees
”
shall
have the meaning specified in
Section
8M
hereof.
“
Intellectual
Property
”
shall
have the meaning specified in
Section
5P
hereof.
“
Investment
Data
”
shall
have the meaning specified in
Section
8N
hereof.
“
Investment
Banking Agreement
”
shall
mean that certain Investment Banking Agreement, dated as of September 30,
2004,
by and between the Company and the Placement Agent, as the same may be
amended.
“
Latest
Balance Sheet
”
shall
have the meaning specified in
Section
5E
hereof.
“
Latest
Income Statement
”
shall
have the meaning specified in
Section
5E
hereof.
“
Liabilities
Schedule
”
shall
have the meaning specified in
Section
5F
hereof.
“
Majority
of Purchasers
”
means,
at the time of determination, Purchasers who have subscribed for or purchased
at
least 50.1% of the shares of Series A Preferred Stock which have, at such
time,
been subscribed for and/or purchased, pursuant to this Agreement.
“
Material
Adverse Effect
”
shall
have the meaning specified in
Section
2K
hereof.
“
New
York Courts
”
shall
have the meaning specified in
Section
8J
hereof.
“
Patents
”
shall
have the meaning specified in
Section
5P
hereof.
“
Person
”
means
an individual, a partnership, a corporation, a limited liability company,
an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
“
Permits
”
shall
have the meaning set forth in
Section
5A
hereof.
“
Permitted
Encumbrance
”
shall
have the meaning set forth in
Section
5S
hereof.
“
Placement
Agent
”
means
Sunrise Securities Corp.
“
PPM
”
shall
have the meaning set forth in
Section
5O
hereof.
“
Product
”
shall
have the meaning specified in
Section
5P
hereof.
“
Products
Schedule
”
shall
have the meaning specified in
Section
5P
hereof.
“
Public
Merger
”
shall
have the meaning specified in the Certificate of Designation.
“
Purchaser
”
shall
have the meaning specified in the Preamble hereto.
“
Proceeding
”
shall
have the meaning specified in
Section
8J
hereof.
“
Qualified
IPO
”
shall
have the meaning specified in the Certificate of Designation.
“
Regulatory
Authority
”
shall
have the meaning specified in
Section
5P
hereof.
“
Resale
Registration
”
shall
have the meaning specified in the Certificate of Designation.
“
Rights
Agreement
”
shall
have the meaning specified in
Section
2D
hereof.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, or any similar federal law then in
force.
“
Securities
and Exchange Commission
”
includes any governmental body or agency succeeding to the functions
thereof.
“
Securities
Exchange Act
”
means
the Securities Exchange Act of 1934, as amended, or any similar federal law
then
in force.
“
Series
A Preferred Stock
”
shall
have the meaning specified in
Section
lA
hereof.
“
Stock
Split
”
shall
have the meaning set forth in
Section
2J
hereof.
“
Tax
”
or
“
Taxes
”
means
federal, state, county, local, foreign or other income, gross receipts, ad
valorem, franchise, profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated and
other
taxes of any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether disputed
or not.
“
Termination
Date
”
means
March 31, 2005, or such later date as may be mutually agreed to in writing
by
the Company and the Placement Agent.
“
Trademarks
”
shall
have the meaning specified in
Section
5P
hereof.
“
Transaction
Documents
”
has
the
meaning set forth in
Section
5D
hereof.
“
Triggering
Event
”
shall
mean the first to occur of a Qualified IPO, Public Merger and Resale
Registration.
“
Underlying
Common Stock
”
means
(i) the Common Stock issued or issuable upon conversion of the Series A
Preferred Stock and (ii) any Common Stock issued or issuable with respect
to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds any shares of Series A Preferred Stock shall be deemed to
be
the holder of the Underlying Common Stock obtainable upon conversion of the
Series A Preferred Stock in connection with the transfer thereof or otherwise
regardless of any restriction or limitation on the conversion of the Series
A
Preferred Stock, such Underlying Common Stock shall be deemed to be in
existence, and such Person shall be entitled to exercise the rights of a
holder
of Underlying Common Stock hereunder.
Section
8.
Section
8. Miscellaneous
.
8A.
Expenses
.
The
Company shall pay the fees and expenses of its own advisors, counsel,
accountants and other experts, and, to the extent provided in the Investment
Banking Agreement, the fees and expenses of the Placement Agent’s advisors,
counsel, accountants and other experts, and all other expenses incurred by
the
Company incident to the negotiation, preparation, execution, delivery and
performance of this Agreement and the other Transaction Documents. The Company
shall pay all stamp and other taxes and duties levied in connection with
the
issuance of the Securities under this Agreement. The Company shall pay, and
hold
each Purchaser and all holders of Series A Preferred Stock and Underlying
Common
Stock harmless against liability for the payment of the fees and expenses
incurred with respect to the enforcement of the rights (in connection with
a
breach or threatened breach by the Company) granted under this Agreement,
the
other Transaction Documents, the Amended Certificate or the Certificate of
Designation.
8B.
Remedies
.
Each
holder of the Series A Preferred Stock and Underlying Common Stock shall
have
all rights and remedies set forth in this Agreement, the other Transaction
Documents, the Amended Certificate and the Certificate of Designation (or
as may
be amended) and all rights and remedies which such holders have been granted
at
any time under any other agreement or contract and all of the rights which
such
holders have under any law. Any Person having any tights under any provision
of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach
of
any provision of this Agreement, the other Transaction Documents, the Amended
Certificate and the Certificate of Designation and to exercise all other
tights
granted by law. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action
for
specific performance of any such obligation the defense that a remedy at
law
would be adequate.
8C.
Consent
to Amendments
.
Except
as otherwise expressly provided herein, the provisions of this Agreement
may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company
has
obtained the written consent of a Majority of the Purchasers. No other course
of
dealing between the Company and any Purchaser or other holder of Securities
or
any delay in exercising any rights hereunder or under the Amended Certificate
or
the Certificate of Designation (as may be amended) shall operate as a waiver
of
any rights of any such Purchasers or holders.
8D.
Survival
of Representations and Warranties
.
All
representations and warranties contained herein or made in writing by any
party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Purchaser or on its behalf; provided
that all of the representations and warranties contained herein, other than
those contained in Sections 5A, 5B, 5C, 5D, 5J and 5P (each of which shall
survive indefinitely), shall survive until the date which is the later of
(a) 90
days following a Triggering Event, and (b) the first year anniversary of
the
date of this Agreement.
8E.
Successors
and Assigns
.
Except
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not; provided, that the Company may not assign
its rights or obligations hereunder without the consent of a Majority of
the
Purchasers. In addition, and whether or not any express assignment has been
made, the provisions of this Agreement which are for any Purchaser’s benefit as
a purchaser or holder of shares of the Series A Preferred Stock or Underlying
Common Stock are also for the benefit of, and enforceable by, any subsequent
holder of such Series A Preferred Stock or such Underlying Common Stock.
The
rights and obligations of each Purchaser under this Agreement and the agreements
contemplated hereby may be assigned by such Purchaser at any time, in whole
or
in part, to any investment fund managed by such Purchaser, or any successor
thereto.
8F.
Severability
.
Whenever possible, each provision of this Agreement shall be interpreted
in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable
law,
such provision shall be ineffective only to the extent of such prohibition
or
invalidity, without invalidating the remainder of this Agreement.
8G.
Counterparts
.
This
Agreement may be executed simultaneously in two or more counterparts, any
one of
which need not contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same Agreement.
Facsimile signatures shall be deemed originals for all purposes
hereunder.
8H.
Descriptive
Headings; Interpretation
.
The
descriptive headings of this Agreement are inserted for convenience only
and do
not constitute a substantive part of this Agreement. The use of the word
“including” in this Agreement shall be by way of example rather than by
limitation. Any reference to any federal, state, local or foreign statute
or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder and any applicable common law, unless the context requires otherwise.
Terms used with initial capital letters will have the meanings specified,
applicable to singular and plural forms, for all purposes of this Agreement.
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice
versa.
8I.
Generally
Accepted Accounting Principles
.
Where
any accounting determination or calculation is required to be made under
this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with GAAP, consistently applied,
except that if because of a change in GAAP the Company would have to alter
a
previously utilized accounting method or policy in order to remain in compliance
with GAAP, such determination or calculation shall continue to be made in
accordance with the Company’s previous accounting methods and
policies.
8J.
Governing
Law; Jurisdiction
.
The
corporate law of the State of Delaware shall govern all issues and questions
concerning the relative rights and obligations of the Company and its
stockholders. All other issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the exhibits
and
schedules hereto shall be governed by, and construed in accordance with,
the
laws of the State of New York, without giving effect to any choice of law
or
conflict of law rules or provisions (whether of the State of New York or
any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York shall control the interpretation
and
construction of this Agreement (and all schedules and exhibits hereto), even
if,
under that jurisdiction’s choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply. Each party
agrees that any and all actions, claims, suits investigations or proceedings
(including, without limitation, an investigation or partial proceeding, such
as
a deposition), whether commenced or threatened (each a “
Proceeding
”),
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective Affiliates, employees or
agents) may be commenced non-exclusively in the state and federal courts
sitting
in the City of New York, Borough of Manhattan (the “
New
York Courts
”).
Each
party hereto hereby irrevocably submits to the non-exclusive jurisdiction
of the
New York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction
of
any such New York Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Agreement and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL
BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE
TRANSACTIONS CONTEMPLATED HEREBY. IF ANY PARTY SHALL COMMENCE A PROCEEDING
TO
ENFORCE ANY PROVISIONS OF A TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY
IN
SUCH PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEY’S FEES
AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION
AND
PROSECUTION OF SUCH PROCEEDING.
8K.
Notices
.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall
be
deemed to have been given (a) upon delivery, when delivered personally to
the
recipient, (b) on the next business day, if sent to the recipient by reputable
overnight courier service (charges prepaid), (c) on the third business day
after
the date of mailing, if mailed to the recipient by certified or registered
mail,
return receipt requested and postage prepaid, or (d) on the date sent, if
sent
by confirmed facsimile transmission if during the normal business hours of
the
recipient, and, if not, on the next business day, provided, that such facsimile
transmission is followed by delivery via another method permitted hereby.
Such
notices, demands and other communications shall be sent to each Purchaser
at the
address indicated for such Purchaser on such Purchaser’s counterpart signature
page hereto and to the Company at the address indicated below:
Cleveland
BioLabs, Inc.
10265
Carnegie Ave.
Cleveland,
OH 44106
Attention:
Michael Fonstein
With
a
copy to:
Katten
Muchin Rosenman LLP
525
W.
Monroe Street
Chicago,
Illinois 60661-3693
Attention:
Kurt W. Florian, Esq.
or
to
such other address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party.
8L.
No
Strict Construction
.
The
parties hereto have participated jointly in the negotiation and drafting
of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions
of
this Agreement.
8M.
Indemnification
.
In
consideration of each Purchaser’s execution and delivery of this Agreement and
acquiring the Series A Preferred Stock hereunder and in addition to all of
the
Company’s other obligations under this Agreement and the other Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
each
such Purchaser and each such Purchaser’s officers, directors, managers,
partners, stockholders, members, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated
by
this Agreement) (collectively, the “
Indemnities
”)
from
and against any and all actions, causes of action, suits, claims, losses,
costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for
which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements and costs of investigation (the “
Indemnified
Liabilities
”)
incurred by the Indemnitees or any of them as a result of, or arising out
of, or
relating to any misrepresentation in or breach of any of the representations
and
warranties or any nonfulfillment or breach of any covenant or agreement on
the
part of the Company under this Agreement or any other Transaction Document,
provided that the Company shall not be liable to an Indemnitee under this
Section 8M for any liability if such liability is caused solely by such
Indemnitee’s fraud, willful misconduct or gross negligence or default or breach
under this Agreement. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
8N.
Understanding
Among the Purchasers
.
The
obligations of each Purchaser under this Agreement and any other Transaction
Document are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under this Agreement or any other Transaction
Document. Each Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in
any
proceeding for such purpose. Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of a Purchaser arising
directly or indirectly, under this Agreement or any other Transaction Document
of any and every nature whatsoever shall be satisfied solely out of the assets
of such Purchaser, and that no trustee, officer, other investment vehicle
or any
other Affiliate of such Purchaser or any investor, shareholder or holder
of
shares of beneficial interest of such a Purchaser shall be personally liable
for
any liabilities of such Purchaser. The determination of each Purchaser to
purchase shares of the Series A Preferred Stock pursuant to this Agreement
has
been made by such Purchaser independent of any other Purchaser and independent
of any statements or opinions as to the advisability of such purchase or
as to
the properties, business, prospects or condition (financial or otherwise)
of the
Company which may have been made or given to such Purchaser by any other
Purchaser or by any agent or employee of any other Purchaser. Each Purchaser
acknowledges and agrees that no other Purchaser shall be responsible in any
way
or held liable or accountable to any extent for any information, documents,
materials, analysis, projections, plans or other data (or compilations thereof)
relating to the Company or the transactions contemplated hereby (collectively,
“
Investment
Data
”)
provided to such Purchaser by any other Purchaser, and each Purchaser agrees
to
hold harmless and not make any claims against any other Purchaser with respect
to any Investment Data provided to such Purchaser by such other
Purchaser.
8O.
Entire
Agreement
.
This
Agreement, together with the other Transaction Documents, the PPM and the
Exhibits and Schedules hereto and thereto, contain the entire understanding
of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and
schedules.
8P.
Notice
Rescission and Withdrawal Right
.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) this Agreement or any other Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option hereunder
or thereunder and the Company does not timely perform its related obligations
within the periods therein provided, then such Purchaser may rescind or
withdraw, in its sole discretion from time to time upon written notice to
the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
8Q.
Replacement
of Securities
.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or
destruction.
8R.
Payment
Set Aside
.
To the
extent that the Company makes a payment or payments to any Purchaser pursuant
to
this Agreement or any other Transaction Document or a Purchaser enforces
or
exercises its rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set
aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any
law
(including, without limitation, any bankruptcy law, state or federal law,
common
law or equitable cause of action), then to the extent of any such restoration,
the obligation or part thereof originally intended to be satisfied shall
be
revived and continued in full force and effect as if such payment had not
been
made or such enforcement or setoff had not occurred.
8S.
Adjustments
in Share Numbers and Prices
.
In the
event of any stock split (other than the Stock Split), subdivision, dividend
or
distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof but prior to the
initial Funding Date, each reference in this Agreement and each other
Transaction Document to a number of shares or a price per share shall be
amended
to appropriately account for such event.
8T.
Further
Assurances
.
Each
party agrees to execute such other documents, instruments, agreements and
consents, and take such other actions as may be reasonably requested by the
other parties hereto to effectuate the purposes of this Agreement.
8U.
Reliance
.
The
Company acknowledges and agrees that, in accepting shares of the Company’s
Common Stock and/or Fee Warrants as partial consideration for services rendered
to the Company in connection with the transactions contemplated hereby, the
Placement Agent and/or its designees are entitled to rely on and enforce
the
Company’s representations and warranties, covenants and agreements and as if a
party hereto.
(The
remainder of this page is left intentionally blank.)
(Counterpart
signature pages to follow.)
COMPANY
COUNTERPART TO
STOCK
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first set forth above.
|
|
|
|
CLEVELAND
BIOLABS,
INC.
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
Michael
Fonstein,
President
and Chief Executive Officer
|
|
|
PURCHASER
COUNTERPART TO
STOCK
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first set forth above.
|
|
INDIVIDUAL
:
|
|
|
|
Number
of Shares of Series A
Preferred
Stock Subscribed for
|
|
Print
Name
|
Aggregate
Purchase Price
(i.e.,
Number of Shares x $2.00)
|
|
Signature
|
ADDRESS
FOR NOTICES
:*
|
|
Social
Security Number
|
|
|
|
|
|
ENTITY
:
|
Attention:
|
|
|
Telephone:
|
|
Print
Entity Name
|
Facsimile:
|
|
|
*Individuals
should list their primary residence; Entities should list their
principal
place of business
|
|
Signature
|
|
|
Name
and Title of Signatory
|
|
|
Tax
ID Number
|
LIST
OF EXHIBITS
|
|
|
Exhibit
A
|
-
|
Certificate
of Designation
|
Exhibit
B
|
-
|
Rights
Agreement
|
Exhibit
C
|
-
|
Opinion
of Company Counsel
|
Exhibit
D
|
-
|
IP
Comfort Letter of Company Counsel
|
Exhibit
E
|
-
|
Purchaser
Questionnaire
|
LIST
OF DISCLOSURE SCHEDULES
Capitalization
Schedule
|
Financial
Statements Schedule
|
Liabilities
Schedule
|
Contracts
Schedule
|
Affiliated
Transactions Schedule
|
Products
Schedule
|
SERIES
A RIGHTS AGREEMENT
This
Series A Rights Agreement (this “
Agreement
”)
is
made as of March 15, 2005, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Corporation
”),
each
Person who holds Common Stock (as defined below) as of the date hereof (each
such person to be listed on the
Common
Stockholders Schedule
attached
hereto and to execute a counterpart of this Agreement) (collectively, the
“
Common
Stockholders
”
and
each individually a “
Common
Stockholder
”),
and
the purchasers identified on the
Schedule
of Purchasers
(as may
be amended from time to time up until the Final Closing (as defined below))
(each such person to execute a counterpart to this Agreement) (collectively
the
“
Purchasers
”
and
each individually a “
Purchaser
”).
Pursuant
to that Stock Purchase Agreement, dated as of the date hereof, by and between
the Purchasers and the Corporation (as amended and modified from time to time,
the “P
urchase
Agreement
”),
the
other documents and instruments referred to therein and consummation of the
transactions contemplated thereby, the Purchasers are acquiring shares of the
Corporation’s Series A Participating Convertible Preferred Stock, $0.005 par
value per share (collectively, the “
Series
A Preferred Shares
”).
Except as otherwise indicated herein, capitalized terms used herein shall have
the meanings set forth in
Section
1
hereof,
or if not defined herein, the meanings for such capitalized terms set forth
in
the Purchase Agreement.
As
partial consideration for services rendered to the Corporation in connection
with the sale of Series A Preferred Shares under the Purchase Agreement and
pursuant to that Investment Banking Agreement, dated September 30, 2004, between
the Corporation and Sunrise Securities Corp. (“
Sunrise
”),
the
Corporation has and/or will issue to Sunrise and/or its designees shares of
Common Stock (“
Fee
Shares
”)
and
warrants to acquire shares of Common Stock (the “
Fee
Warrants
”
and
together with the Fee Shares and the shares of Common Stock issued or issuable
upon exercise of the Fee Warrants, the “
Fee
Securities
”).
In
order
to induce the Purchasers to enter into the Purchase Agreement and the other
agreements contemplated thereby and to purchase the Series A Preferred Shares
in
the manner contemplated thereby, and in order to induce Sunrise and/or its
designees to accept as consideration for services rendered, the Fee Shares
and
the Fee Warrants, the Corporation and the Common Stockholders have agreed to
the
terms and conditions herein.
AGREEMENTS
In
consideration of the recitals and the mutual promises, covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as
follows:
1.
Definitions.
In
addition to the capitalized terms defined elsewhere in this Agreement, the
following capitalized terms shall have the following meanings when used in
this
Agreement:
“
Agreement
”
means
this Series A Rights Agreement, as may be amended.
“
Board
”
means
the Board of Directors of the Corporation.
“
Commission
”
means
the United States Securities and Exchange Commission or any successor
thereto.
“
Common
Stock
”
means
the common stock, par value $0.005 per share, of the Corporation.
“
Common
Stockholder
”
has
the
meaning specified in the Preamble hereto.
“
Corporation
”
shall
mean Cleveland BioLabs, Inc., a Delaware corporation, and its successors and
permitted assigns.
“
Effectiveness
Deadline
”
has
the
meaning specified in Section 4 hereof.
“
Effective
Period
”
shall
mean the period commencing on the date as of which the subject registration
statement is declared effective and ending on the eighteen-month anniversary
thereof, or such earlier date as of which all of the Registrable Securities
registered for resale thereunder have been sold; provided, that, (a) the
Effective Period shall be extended, as necessary to comply with the Securities
Act, and (b) with respect to an underwritten offering, the Effective Period
shall be extended as requested by the underwriter(s) or as otherwise necessary
to allow the underwriter(s) to complete the distribution of all securities
registered thereunder.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
Fee
Securities
”
has
the
meaning specified in the Recitals hereto.
“
Fee
Shares
”
has
the
meaning specified in the Recitals hereto.
“
Fee
Warrants
”
has
the
meaning specified in the Recitals hereto.
“
Final
Closing
”
means
the final closing of the purchase and sale of Series A Preferred Shares pursuant
to the Purchase Agreement.
“
Filing
Deadline
”
has
the
meaning specified in Section 4 hereof.
“
Indemnified
Party
”
has
the
meaning specified in Section 9(c) hereof.
“
Indemnifying
Party
”
has
the
meaning specified in Section 9(c) hereof.
“
IPO
”
means
the Corporation’s first underwritten offering of its Common Stock to the public
pursuant to an effective registration statement on Form S-1 (or other
appropriate form) under the Securities Act.
“
Common
Stockholder Shares
”
means
the Securities originally issued to Common Stockholders or any Securities
acquired by any Common Stockholder after the date hereof (after which time
such
shares shall be deemed to be “
Common
Stockholder Shares
”
hereunder). For all purposes of this Agreement, Common Stockholder Shares will
continue to be Common Stockholder Shares in the hands of any holder (except
for
the Corporation or any Purchaser hereunder, and purchasers pursuant to an
offering registered under the Securities Act or purchasers pursuant to a Rule
144 transaction), and each such other holder of Common Stockholder Shares will
succeed to all rights and obligations attributable to any Common Stockholder,
as
a holder of Common Stockholder Shares hereunder. Common Stockholder Shares
will
also include shares of the Corporation’s capital stock issued with respect to
any Common Stockholder Shares by way of a stock split, stock dividend or other
recapitalization.
“
Liabilities
”
has
the
meaning specified in Section 9(a) hereof.
“
Merger
”
means
a
merger of the Corporation with a United States fully reporting and trading
public company whether or not such company has any ongoing active business
operations.
“
New
York Courts
”
has
the
meaning specified in Section 22 hereof.
“
Person
”
means
an individual, corporation, partnership, limited liability company, limited
partnership, syndicate, person (including, without limitation, a “Person” as
defined in Section 13(d)(3) of the Exchange), trust, association or entity
or
government, political subdivision, agency or instrumentality of a
government.
“
Penalty
Shares
”
means
Series A Preferred Shares and shares of Common Stock which are issued pursuant
to Section 5 hereof.
“
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.
“
Public
Trigger Date
”
has
the
meaning specified in Section 3 hereof.
“
Purchase
Agreement
”
has
the
meaning specified in the Recitals hereto.
“
Purchaser
”
has
the
meaning specified in the Preamble hereto.
“
Registrable
Securities
”
means
at any time (i) any shares of Common Stock then outstanding which were issued
upon conversion of Series A Preferred Shares (including Series A Preferred
Shares issued as Penalty Shares); (ii) any shares of Common Stock then issuable
upon conversion of then outstanding Series A Preferred Shares originally issued
to the Purchasers (including Series A Preferred Shares issued as Penalty
Shares); (iii) Fee Securities; (iv) any shares of Common Stock then outstanding
which were issued as Penalty Shares or upon conversion of Series A Preferred
Shares which were issued as Penalty Shares and any shares of Common Stock then
issuable upon conversion of Series A Preferred Shares which were issued as
Penalty Shares; (v) any shares of Common Stock then outstanding which were
issued as, or were issued directly or indirectly upon the conversion or exercise
of other securities issued as, a dividend or other distribution with respect
to
or in replacement of any shares referred to in (i), (ii), (iii) or (iv); and
(vi) any shares of Common Stock then issuable directly or indirectly upon the
conversion or exercise of other securities which were issued as a dividend
or
other distribution with respect to or in replacement of any shares referred
to
in (i), (ii), (iii), (iv) or (v); provided, however, that Registrable Securities
shall cease to be Registrable Securities when such Registrable Securities have
been (a) disposed of pursuant to an effective registration statement under
the
Securities Act, (b) sold or otherwise transferred in a transaction in which
the
rights under the provisions of this Agreement have not been properly assigned,
or (c) sold pursuant to Rule 144. For purposes of this Agreement, a Person
will
be deemed to be a holder of Registrable Securities whenever such Person has
the
then-existing right to acquire such Registrable Securities (by conversion or
otherwise), whether or not such acquisition actually has been effected. Subject
to the foregoing, Registrable Securities shall continue to constitute
Registrable Securities in the hands of any permitted transferee of a
Purchaser.
“
Registration
Expenses
”
has
the
meaning specified in Section 8(a) hereof.
“
Required
Transaction
”
has
the
meaning specified in Section 3 hereof.
“
Resale
Registration
”
means
the registration by the Corporation pursuant to an effective resale registration
statement on Form S-1, SB-2, S-3 or other applicable form under the Securities
Act, of the Registrable Securities.
“
Resale
Registration Statement
”
has
the
meaning specified in Section 4 hereof.
“
Rule
144
”
means
Rule 144 (including Rule 144(k)) of the Commission under the Securities Act
or
any similar provision then in force under the Securities Act.
“
Securities
”
means
shares of Common Stock or shares of capital stock or other securities directly
or indirectly exercisable for, or convertible into, shares of Common Stock;
provided, however, that Securities shall not include any securities which have
been sold to the public pursuant to a registration statement declared effective
by the Commission or, after a “public offering” pursuant to Rule
144.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, or any similar federal statute, as
the
same shall be in effect from time to time.
“
Sellers’
Counsel
”
has
the
meaning specified in Section 6(a) hereof.
“
Series
A Majority
”
means
holders of at least a majority of the then outstanding Series A Preferred
Shares.
“
Series
A Preferred Shares
”
has
the
meaning specified in the Recitals hereto.
“
Sunrise
”
has
the
meaning specified in the Recitals hereto.
“
Trading
Market
”
means
whichever of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ National Market, the NASDAQ SmallCap Market, the Over-The-Counter
Bulletin Board or the “Pink Sheets” published by the National Quotation Bureau
Incorporated Sheets on which the Common Stock is listed or quoted for trading
on
the date in question.
2.
Board
of Directors
.
(a)
In
General.
So long
as any Series A Preferred Shares remain outstanding, the Corporation, the Common
Stockholders and the Purchasers shall take all actions to cause the Board to
consist of up to seven directors, comprised as follows:
(i)
Up
to two
individuals, designated by a Series A Majority (each, a
“
Series
A Designee
”
and,
together, the “
Series
A Designees
”);
and
(ii)
Up
to
five individuals, to be designated by holders of a plurality of the Common
Stock.
Notwithstanding
the foregoing, or any other provision of this Section 2, the holders of Series
A
Preferred Shares shall be under no obligation to designate and elect any Series
A Designee. Any matter presented to the Board shall be approved and be deemed
to
be the act of the Board only upon the affirmative vote of a majority of all
of
the members of the Board then serving. Quorum of the Board and of any Committee
(as defined below) shall be a majority in number of the members thereof,
provided, that, at any time that there is a Series A Designee then serving
as a
member of the Board or a Committee, quorum shall require the presence (by phone
or in person) of at least one Series A Designee. No action by the Board or
a
Committee by written consent in lieu of a meeting shall be effective unless
executed by each Series A Designee then serving on the Board or such
Committee.
(b)
Committees
.
Upon
request by a Series A Majority or otherwise with the approval of the Board,
the
Board shall establish one or more committees of the Board, which may include,
among others, an audit committee and/or compensation committee (each such
committee, a “
Committee
”).
Each
Committee shall be comprised of (i) so long as there is a Series A Designee
then
serving, at the option of a Series A Majority, one Series A Designee, and (ii)
such other members of the Board as a majority in number of the Board shall
agree.
(c)
Board
Observer
.
At the
option of a Series A Majority, in lieu of designating a Series A Designee,
a
Series A Majority shall have the right to designate an individual to serve
as
observer to attend any meeting of the Board or any Committee. Any such observer
shall be designated by a Series A Majority at or in advance of such meeting
by
written notice to the Corporation. Such observer(s) shall be entitled to receive
all notices, minutes, consents and other materials as the Corporation provides
to its Board or any Committee members, at the time such materials are
distributed to the directors or members, as applicable. If no observer has
been
designated at the time notice of a meeting or any other documentation is
distributed, such notice and documentation shall be sent to the Series A
Representatives, if any have been designated. Notwithstanding the foregoing,
the
Corporation reserves the right to exclude any observer from access to any
material or meeting or portion thereof if (i) the Corporation believes, upon
written advice of counsel, that such exclusion is reasonably necessary to
preserve the attorney-client privilege, (ii) the Board is addressing any rights
of the Corporation vis-à-vis the Purchasers or the Corporation’s financial
relationship with the Purchasers or (iii) the Board determines in its good
faith
reasonable judgment that such observer otherwise has a conflict of interest,
contrary to the best interest of the Corporation, with respect to the matters
being addressed by the Board.
(d)
Voting
Agreement
.
So long
as any Series A Preferred Shares remain outstanding, each holder of Common
Stockholder Shares shall vote all of the Common Stockholder Shares, and each
Purchaser shall vote all Series A Preferred Shares, in each case which are
voting securities of the Corporation, and in each case, any other voting
securities of the Corporation over which such holder has voting control, and
shall take all other necessary or desirable actions within such holder’s control
(whether in such Person’s capacity as a stockholder, director, member of a Board
committee or officer of the Corporation or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings),
and
the Corporation shall take all necessary or desirable actions within its control
(including, without limitation, calling special Board and stockholder meetings),
so that:
(i)
Board
Composition
.
The
Board shall consist of up to seven members and a Series A Majority shall have
the right to elect the Series A Designee(s).
(ii)
Removal
.
A
Series A Majority may, by written consent or at a special meeting of the holders
of Series A Preferred Shares, remove any Series A Designee or observer appointed
in lieu thereof, with or without cause. No Series A Designee or observer
appointed in lieu thereof shall be subject to removal except in accordance
with
the immediately preceding sentence.
(iii)
Vacancies
.
If a
Series A Designee or observer appointed in lieu thereof shall cease to serve
as
a director or observer for any reason before his or her term expires, a Series
A
Majority may, by written consent or at a special meeting of the holders of
Series A Preferred Shares, elect a successor director or observer, as the case
may and, in the case of a Series A Designee, to hold office for the unexpired
term of the director whose place shall be vacant.
(e)
Director
Fees and Expenses; Indemnification
.
The
Corporation shall pay the reasonable out-of-pocket expenses incurred by the
Series A Designee(s) in connection with attending the meetings of the Board
and
any Committee. If, at any time, any Board representative receives any
compensation (whether in cash, securities or otherwise) for serving on the
Board
or any Committee, then all directors having similar responsibilities in their
capacity as Series A Designee shall be entitled to receive the same
compensation.
(f)
D&O
Insurance; Indemnification
.
If
requested by a Series A Majority, the Corporation shall obtain and maintain
directors’ and officers’ indemnity insurance covering all members of the Board
and each Committee, which insurance shall be satisfactory in all respects to
a
Series A Majority as they shall determined from time to time. Further,
commensurate with the election of any Series A Designee, the Corporation shall
enter into an indemnification agreement, in form and substance satisfactory
to
such Series A Designee, which indemnification agreement shall provide for
indemnification and exculpation of such Series A Designee to the fullest extent
permitted under applicable law.
(g)
Termination
.
Notwithstanding anything contained herein to the contrary, the provisions of
Section 2(d) shall terminate and become null and void effective upon the
registration of any equity security of the Corporation pursuant to Section
12 of
the Exchange Act, whether by reason of an IPO, a Merger, a Resale Registration
or otherwise, whether or not all Registrable Securities are included in the
registration statements relating thereto.
(h)
Series
A Representatives
.
The
holders of Series A Preferred Shares shall have the right, but shall not be
required to, designate up to two individuals as representatives of such holders,
which individuals shall serve as the “Series A Representatives” as such term is
used in the Certificate of Designation of the Series A Preferred Shares. To
be
effective, the designation of any individual as a Series A Representative,
or
the removal of any individual as a Series A Representative, must be in writing,
signed by holders of Series A Preferred Shares constituting a Series A Majority
and delivered to the Corporation. The Purchasers agree, on behalf of themselves
and their respective successors and permitted assigns, that no Series A
Representative shall be responsible for any loss, liability, claim, damage
or
expense of any kind suffered by any holder of Series A Preferred Shares in
connection with or by reason of such Series A Representative’s acceptance of
such designation or performance of his or her duties under the Certificate
of
Designation, unless and to the extent such loss, liability, claim, damage or
expense arises from such Series A Representative’s gross negligence or willful
misconduct.
3.
Obligation
to Become Public
.
The
Corporation and Common Stockholders acknowledge and agree that to induce the
Purchasers to enter into the Purchase Agreement and to consummate the
transactions contemplated thereby, and to induce Sunrise and/or its designees
to
accept the Fee Shares and Fee Warrants as partial consideration for services
rendered to the Corporation, not later than six months following the earlier
of
(a) the date as of which at least $6,000,000 or more of Series A Preferred
Shares are purchased by the Purchasers, and (b) the Termination Date (as such
term is defined in the Purchase Agreement) and, if later, the Final Closing
(as
defined below) of the purchase and sale of Series A Preferred Shares under
the
Purchase Agreement (the “
Public
Trigger Date
”),
the
Corporation shall have either (x) received a declaration of effectiveness from
the Commission with respect to a registration statement on Form S-1 (or other
appropriate form) filed with the Commission for an IPO of the Corporation’s
Common Stock (at a $2.00 price per share or greater) which, to the extent
acceptable to the Corporation’s underwriters, shall include all Registrable
Securities, (y) completed a Merger and received a declaration of effectiveness
from the Commission with respect to a resale registration statement on Form
S-1,
SB-2, S-3 or other applicable form with the Commission to register for resale
all Registrable Securities, or (z) received a declaration of effectiveness
from
the Commission with respect to a Resale Registration covering the resale of
Registrable Securities (collectively, a “
Required
Transaction
”).
If an
underwritten registration is consummated pursuant to this
Section
3
and the
managing underwriters advise the Corporation in writing that in their opinion
the number of shares of Common Stock requested to be included in such
registration exceeds the number which can be marketed (i) within a price range
acceptable to the Corporation, and (ii) without materially and adversely
affecting the entire offering, the Corporation will include in such registration
only up to the amount of Common Stock determined advisable by the underwriters;
provided, however, that Registrable Securities shall be included in such
registration prior to the inclusion of Common Stock owned by any Common
Stockholders.
4.
Registration
of Shares
.
In the
event that the Corporation has not registered all of the Registrable Securities
as part of a Required Transaction, the Corporation shall, within 30 days
following the consummation of a Required Transaction (the “
Filing
Deadline
”),
file
a registration statement (a “
Resale
Registration Statement
”)
including all (or the remaining) Registable Securities, and will use its best
efforts to have the registration declared effective as soon as possible, but
in
any event prior to the 60th day after the Filing Deadline (or 90th day after
Filing Deadline in the event that the Registration Statement is reviewed and
commented upon by the Commission, collectively, the “
Effectiveness
Deadline
”).
5.
Penalty
Shares
.
(a)
In
the
event that that Corporation has not consummated one of the Required Transactions
on or before the Public Trigger Date, the Corporation shall issue to each holder
of Registrable Securities, such number of additional Series A Preferred Shares
as shall equal 2% of the Series A Preferred Shares held by such holder (not
including any previously issued Penalty Shares), plus such number of additional
shares of Common Stock as shall equal 2% of the shares of Common Stock held
by
such holder (not including any previously issued Penalty Shares or shares of
Common Stock issuable upon conversion of Series A Preferred Stock, but including
Fee Securities and shares of Common Stock previously issued upon conversion
of
Series A Shares) for each thirty (30) day period beyond the Public Trigger
Date
that a Required Transaction has not been consummated; provided, however, that,
in the event that effectiveness of any registration statement is delayed due
to
Commission comments on the filed registration statement, the Public Trigger
Date
shall be extended (only once) for an additional forty-five (45) days, so long
as
the Corporation is in good faith responding to such comments in a timely manner
and such comments do not preclude the Corporation from going effective on such
registration statement entirely.
(b)
In
the
event that the Corporation is required pursuant to Section 4 above to effect
a
Resale Registration Statement, and a Resale Registration Statement is not
declared effective by the Commission by the Effectiveness Deadline, the
Corporation shall issue to each holder of Registrable Securities, such number
of
additional Series A Preferred Shares as shall equal 2% of the Series A Preferred
Shares held by such holder (not including any previously issued Penalty Shares),
plus such number of additional shares of Common Stock as shall equal 2% of
the
shares of Common Stock held by such holder (not including any previously issued
Penalty Shares or shares of Common Stock issuable upon conversion of Series
A
Preferred Stock, but including Fee Securities and shares of Common Stock
previously issued upon conversion of Series A Shares) for each thirty (30)
day
period beyond the Effectiveness Deadline that the Resale Registration Statement
has not been declared effective.
(c)
As
of the
date of this Agreement, the Corporation has authorized the issuance of 3,750,000
Series A Preferred Shares and the Purchase Agreement contemplates the sale
of up
to 3,000,000 Series A Preferred Shares. While it is expected that the excess
720,000 authorized Series A Preferred Shares will be more than sufficient to
issue any Penalty Shares which the Corporation may become obligated to issue,
the Corporation represents and warrants that it has obtained such Board
authorization and approval as is necessary to, in the future, increase the
number of authorized Series A Preferred Shares and to file an amendment to
the
Certificate of Designation of the Series A Preferred Shares so as to permit
the
valid issuance of Penalty Shares even if the Company becomes obligated to issue
in excess of 720,000 of Series A Preferred Shares as Penalty Shares. The
Corporation and each holder of Common Stockholder Shares further agree to take
such actions as may be necessary to permit the Corporation to validly issue
Series A Preferred Shares as Penalty Shares if required to do so by this Section
5.
6.
Registration
Procedures
.
Upon
the Corporation being required to register the Registrable Securities pursuant
to this Agreement, the Corporation will use its reasonable best efforts to
effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof, and, pursuant thereto, the Corporation
will as expeditiously as reasonably possible:
(a)
prepare
and file with the Commission
a
registration statement with respect to such Registrable Securities and
thereafter use its reasonable best efforts to cause such registration statement
to become and remain effective for the Effective Period; provided, that, before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Corporation will furnish to the counsel selected by the holders
of
a majority of the Registrable Securities or, if no such counsel is selected,
counsel to Sunrise (in either such case, “
Sellers’
Counsel
”),
copies of all such documents proposed to be filed, which documents will be
subject to review of such counsel);
(b)
notify
each holder of Registrable Securities of the effectiveness of each registration
statement filed hereunder and prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the Securities
Act; and as may be necessary to keep such registration statement effective
for
the Effective Period, and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c)
furnish
to each seller of Registrable Securities such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d)
notify
in
writing each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event (including the passage of time) as a result
of which the prospectus included in such registration statement, as then in
effect, contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and the Corporation will as soon
as
possible and, in any event, within four (4) business days of the happening
of
such event, prepare and file with the Commission a supplement or amendment
to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement
of
a material fact or omit to state any fact necessary to make the statements
therein not misleading in light of the circumstances under which they were
made;
(e)
use
its
reasonable best efforts to cause all such Registrable Securities to be
registered or qualified with or approved by such other governmental agencies
or
authorities in such jurisdictions as may be necessary to consummate the
disposition of such Registrable Securities;
(f)
provide
a
transfer agent and registrar (which shall be Continental Stock Transfer and
Trust Company or such other transfer agent as may be acceptable to holders
of a
majority of the Registrable Securities) for all such Registrable Securities
not
later than the effective date of such registration statement;
(g)
enter
into such customary agreements (including underwriting agreements in customary
form) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable
Securities;
(h)
make
available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation’s
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller or underwriter, attorney,
accountant or agent in connection with such registration statement;
(i)
otherwise
use its commercially reasonable efforts to comply with all applicable rules
and
regulations of the Commission, and make available to its security holders,
as
soon as reasonably practicable, an earnings statement covering the period of
at
least twelve months beginning with the first day of the Corporation’s first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(j)
advise
in
writing each seller of such Registrable Securities, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by
the Commission suspending the effectiveness of such registration statement
or
the initiation or threatening of any proceeding for such purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order or
to
obtain its withdrawal if any such stop order shall be issued;
(k)
at
the
request of the managing underwriters in connection with an underwritten
offering, furnish on the date or dates provided for in the underwriting
agreement (i) an opinion of counsel, addressed to the underwriters and, if
permitted by applicable professional standards, to the sellers of Registrable
Securities, covering such matters as such underwriters and sellers may
reasonably request, including such matters as are customarily furnished in
connection with an underwritten offering; and (ii) a letter or letters from
the
independent certified public accountants of the Corporation addressed to the
underwriters and, if permitted by applicable professional standards, to the
sellers of Registrable Securities, covering such matters as such underwriters
or
sellers may reasonably request, in which letter(s) such accountants shall state,
without limiting the generality of the foregoing, that they are independent
certified public accountants within the meaning of the Securities Act and that
in their opinion the financial statements and other financial data of the
Corporation included in the registration statement, the prospectus(es), or
any
amendment or supplement thereto, comply in all material respects with the
applicable accounting requirements of the Securities Act;
(l)
include
in any registration statement covering the resale of Registrable Securities
the
“Plan of Distribution” attached hereto as
Annex
A
(subject
only to modification to expressly comply with comments made by the Commission
or
as otherwise requested by holders of at least a majority of the Registrable
Securities included in such registration statement or by Sellers’
Counsel);
(m)
respond
as promptly as reasonably possible to any comments received from the Commission
with respect to each registration statement or any amendment thereto and, as
promptly as reasonably possible provide Sellers’ Counsel true and complete
copies of all correspondence from and to the Commission relating to such
Registration Statement that would not result in the disclosure to the holders
of
material and non-public information concerning the Corporation;
(n)
comply
in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the registration statements and the disposition of all
Registrable Securities covered by each registration statement;
(o)
as
soon
as practicable, and in any event within two business days, after obtaining
knowledge that the Commission and the Commission staff have no comments (or
no
further comments) concerning a registration statement, request acceleration
of
effectiveness of such registration statement;
(p)
notify
the holders of Registrable Securities as promptly as reasonably possible (and,
in the case of (i)(A) below, not less than three business days prior to such
filing) and (if requested by any such holder) confirm such notice in writing
no
later than one business day following the day: (i)(A) when a prospectus or
any
prospectus supplement or post-effective amendment to a registration statement
is
proposed to be filed; (B) when the Commission notifies the Corporation whether
there will be a “review” of such registration statement and whenever the
Commission comments in writing on such registration statement (the Corporation
shall provide true and complete copies thereof and all written responses thereto
to each of the holders that pertain to the holders as a selling stockholder
or
to the Plan of Distribution, but not information which the Corporation believes
would constitute material and non-public information); and (C) with respect
to
each registration statement or any post-effective amendment, when the same
has
become effective; (ii) of any request by the Commission or any other Federal
or
state governmental authority for amendments or supplements to a registration
statement or prospectus or for additional information; and (iii) of the receipt
by the Corporation of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any
proceeding for such purpose;
(q)
cooperate
with the holders of Registrable Securities to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to the registration statement, which certificates
shall
be free of all restrictive legends, and to enable such Registrable Securities
to
be in such denominations and registered in such names as any such holders may
request;
(r)
in
the
time and manner required by each Trading Market, use reasonable best efforts
to
(i) prepare and file with such Trading Market an additional shares listing
application covering all the Registrable Securities, (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter, (iii) if requested by any
holder of Registrable Securities, provide to such holder evidence of such
listing and (iv) maintain the listing of all such Registrable Securities on
each
such Trading Market; and
(s)
hold
in
confidence and not make any disclosure of non-public information concerning
any
holder of Registrable Securities, except as approved by the subject holder
for
inclusion in a registration statement.
Notwithstanding
any provision of this
Section
6
to the
contrary, the Corporation shall not be required to amend or supplement a
prospectus if (a) such amendment of supplement would require the Corporation
to
disclose a material financing, acquisition or other transaction then being
pursued by the Corporation, (b) the Board shall determine in good faith that
such disclosure is not in the best interests of the Corporation or would
materially interfere with such transaction and (c) such required amendment
or
supplement is filed with the Commission as soon as possible after such time
as
the disclosure would not contravene the best interests of the Corporation and
materially interfere with such transaction; provided, that the Corporation
shall
give immediate notice thereof to all holders of Registrable Securities included
in such Registration Statement.
7.
Other
Provisions Regarding Registration
.
(a)
The
Corporation shall not, prior to the declaration by the Commission of
effectiveness of a registration statement covering all of the Registrable
Securities, prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others (other
than
as contemplated by Section 3 of this Agreement) of any of its equity
securities.
(b)
Unless
otherwise agreed to by holders of no less than a majority of the Registrable
Securities, neither the Corporation nor any of its securities holders (other
than the holders) may include securities of the Corporation in any Resale
Registration Statement filed pursuant to Section 4 other than the Registrable
Securities, and that Corporation shall not after the date hereof enter into
any
agreement in contravention of the foregoing.
(c)
If
at any
time during which there are outstanding Registrable Securities, there is not
one
or more registration statements covering the resale of all Registrable
Securities and the Corporation shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than of Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to
be
issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Corporation shall send to each holder of Registrable
Securities written notice of such determination and if, within 15 business
days
after receipt of such notice any such holder shall so request in writing, the
Corporation shall include in such registration statement the Registrable
Securities requested by the holders to be so included.
8.
Registration
Expenses
.
(a)
Corporation’s
Expenses
.
All
expenses incident to the Corporation’s performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, listing fees,
printing expenses, messenger, telephone and delivery expenses, fees of Security
Act liability insurance if the Corporation desires to obtain such insurance,
and
fees and disbursements of counsel for the Corporation and all independent
certified public accountants, underwriters (excluding discounts and commissions)
and other Persons retained by the Corporation (all such expenses being herein
called “
Registration
Expenses
”)
shall
be borne by the Corporation. In addition, the Corporation shall be responsible
for all of its internal expenses incurred in connection with the consummation
of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b)
Reimbursement
.
The
Corporation will reimburse the holders of Registrable Securities covered by
registration for the reasonable fees and disbursements of one counsel chosen
by
the holders of a majority of the Registrable Securities. The Corporation shall
reimburse the holders of Registrable Securities included in such registration
for the reasonable fees and disbursements of each additional counsel retained
by
any holder of Registrable Securities for the purpose of rendering any legal
opinion required by the Corporation or the managing underwriter(s) to be
rendered on behalf of such holder in connection with any underwritten
registration.
(c)
Holder’s
Expenses
.
Notwithstanding anything to the contrary contained herein, each holder of
Registrable Securities shall bear and pay all underwriting discounts and
commissions and transfer taxes applicable to the Registrable Securities sold
for
such holder’s account.
9.
Indemnification
.
(a)
By
the
Corporation
.
Notwithstanding any termination of this Agreement, the Corporation agrees to
indemnify and hold harmless, to the extent permitted by law, each holder of
Registrable Securities, the officers, directors, agents, partners, members,
managers, stockholders, trustees and employees and each Person who controls
such
holder (within the meaning of the Securities Act or the Exchange Act) and the
officers, directors, agents, partners, members, managers, stockholders, trustees
and employees of each such controlling Person, against all losses, claims,
damages, liabilities and expenses (including without limitation, attorneys’
fees) (“
Liabilities
”)
as
incurred, arising out of or relating to (i) any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus, or any amendment thereof or supplement thereto,
or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any
violation or alleged violation by the Corporation of the Securities Act, the
Exchange Act, state (“blue sky”) securities laws or any rule or regulation
promulgated thereunder and relating to action or inaction required of the
Corporation in connection with any such registration statement, except insofar
as the same are caused by or contained in any information furnished in writing
to the Corporation by such holder expressly for use therein or by such holder’s
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Corporation has furnished such
holder with a sufficient number of copies of the same. In connection with an
underwritten offering, the Corporation shall indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities. The
payments required by this
Section
9(a)
will be
made periodically during the course of the investigation or defense, as and
when
bills are received or expenses incurred. The Corporation shall notify the
holders of Registrable Securities promptly of the institution, threat or
assertion of any Proceeding of which the Corporation is aware in connection
with
the transactions contemplated by this Agreement.
(b)
By
Each Holder
.
In
connection with any registration statement in which a holder of Registable
Securities is participating, each such holder shall furnish to the Corporation
in writing such information and affidavits as the Corporation reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Corporation,
its directors and officers and each Person who controls the Corporation (within
the meaning of the Securities Act) against any Liabilities resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus, or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission
is
contained in any information or affidavit so furnished in writing by such holder
expressly for use in such registration statement or prospectus; provided that
the obligation to indemnify under this
Section
9(b)
or to
contribute under
Section
9(d)
below
will be several, not joint and several, among such holders of Registrable
Securities, and the liability of each such holder of Registrable Securities
under this
Section
9(b)
and
under
Section
9(c)
shall be
limited to the net amount received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c)
Procedures
.
(i)
If
any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “
Indemnified
Party
”),
such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “
Indemnifying
Party
”)
in
writing, and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party
and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which determination
is
not subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying
Party.
(ii)
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (A) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (B) the Indemnifying Party shall have failed to promptly assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding; or (C) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing
that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of
the
Indemnified Party, effect any settlement of any pending Proceeding in respect
of
which any Indemnified Party is a party, unless such settlement requires only
the
payment of cash or other consideration by the Indemnifying Party on behalf
of
the Indemnified Party and includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
(iii)
All
fees
and expenses of the Indemnified Party (including reasonable fees and expenses
to
the extent incurred in connection with investigating or preparing to defend
such
Proceeding in a manner not inconsistent with this Section) shall be paid to
the
Indemnified Party, as incurred, within ten business days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it
is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d)
Contribution
.
To the
extent any indemnification by an Indemnifying Party provided for in this
Section
9
is
prohibited or limited by law, the Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the statements or omissions which resulted
in such Liabilities, as well as any other relevant equitable considerations.
The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including an untrue or alleged untrue statement of material fact or omission
or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and
the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by
a
party as a result of any Liabilities shall be deemed to include, subject to
the
limitations set forth in
Section
9(c)
,
any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this
Section
9(d)
were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
paragraph; provided that the limits in the final proviso of
Section
9(b)
shall
apply to this
Section
9(d)
.
(e)
Other
Indemnification Provisions
.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties. No Person guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any
Person who was not guilty of such fraudulent misrepresentation. The
indemnification and contribution provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf
of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
10.
Compliance
with Rule 144
.
In the
event that the Corporation (a) closes on the sale of the Corporation’s equity
securities pursuant to a registration statement or registers a class of
securities under Section 12 of the Exchange Act, (b) issues an offering circular
meeting the requirements of Regulation A under the Securities Act, or (c)
commences to file reports under Section 13 or 15(d) of the Exchange Act, then
the Corporation shall immediately following such event and
thereafter:
(i)
use
its
reasonable best efforts to comply with the requirements of Rule 144(c) under
the
Securities Act with respect to making and keeping available current public
information about the Corporation;
(ii)
use
its
reasonable best efforts to file with the Commission in a timely manner all
reports and other documents required of the Corporation under the Securities
Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements and for so long as it remains subject to such reporting
requirements); and
(iii)
at
the
request of any holder of Registrable Securities, forthwith furnish to such
holder, a written statement of compliance with the requirements of said Rule
144(c) (as such rule may be amended from time to time), and the reporting
requirements of the Securities Act and the Exchange Act (at any time after
it
has become subject to such reporting requirements and for so long as it remains
subject to such reporting requirements), (B) a copy of the most recent annual
or
quarterly report of the Corporation, and (C) such other reports and documents
of
the Corporation as such holder may reasonably request to avail itself of any
similar rule or regulation of the SEC allowing it to sell any such securities
without registration, including, without limitation, Rule 144A.
11.
Participation
in Underwritten Registrations
.
No
Person may participate in any registration hereunder which is underwritten
unless such Person (a) agrees to sell its shares of Common Stock on the basis
provided in any underwriting arrangements approved by the Corporation or any
other Person or Persons entitled to approve such arrangements, and (b) completes
and executes all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements. In addition, any underwriter
of Registrable Securities shall be selected by holders of at least a majority
of
the Registrable Securities and shall be reasonably acceptable to the
Corporation.
12.
Discontinued
Disposition
.
Each
Person that is participating in any registration hereunder agrees that, upon
receipt of written notice from the Corporation of the happening of any event
of
the kind described in
Section
6(d)
above or
the issuance of a stop order by the Commission, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person’s receipt of the copies of a
supplemented or amended prospectus as contemplated by such
Section
6(d)
or the
withdrawal of the stop order as contemplated by
Section
6(j)
.
In the
event the Corporation shall give any such written notice, the Effective Period
shall be extended by the number of days during the period from and including
the
date of the giving of such written notice pursuant to this
Section
12
to and
including the date when each seller of Registrable Securities covered by such
registration statement shall have received from the Corporation the copies
of
the supplemented or amended prospectus contemplated by
Section
6(d)
or
written notice of the withdrawal of the stop order, as applicable.
13.
Standstill
.
Each
Common Stockholder agrees not to effect any sale, transfer or distribution
of
his, her or its equity securities in the Corporation, or any securities
convertible into or exchangeable or exercisable for such securities, during
the
period from the date of this Agreement until the date that is 90 days following
the date as of which a registration statement covering the resale of all
Registrable Securities has been filed with and declared effective by the
Commission unless (a) such sale, transfer or distribution is approved in writing
by holders of at least a majority of the Registrable Securities, and (b) the
transferee of such sold, transferred or distributed securities agrees in writing
to be bound by the terms of this Agreement to the same extent as if they had
originally been a party hereto.
14.
Restrictions
on Transfer
.
(a)
Legends
.
The
certificates representing the Series A Preferred Shares and the Registrable
Securities will bear the following legend:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. ANY SUCH
SALE
OR DISTRIBUTION MAY BE EFFECTED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE
FOREGOING, THE SHARES REPRESENTED HEREBY MAY BE PLEDGED IN CONNECTION WITH
A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
SUCH
SHARES.”
“THESE
SECURITIES ARE SUBJECT TO CERTAIN AGREEMENTS SET FORTH IN A SERIES A RIGHTS
AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICE
OF
THE CORPORATION. ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR DISPOSITION IN
CONFLICT WITH, OR IN DEROGATION OF, THE SERIES A STOCKHOLDERS AGREEMENT IS
VOID
AND OF NO LEGAL FORCE, EFFECT OR VALIDITY WHATSOEVER.”
(b)
Securities
Act.
No
holder of Series A Preferred Shares or Registrable Securities may sell,
transfer, or dispose of any of such Series A Preferred Shares or Registrable
Securities except pursuant to an effective registration statement under the
Securities Act or an exemption therefrom.
15.
Assignment
of Rights
.
The
rights of any Purchaser under this Agreement with respect to any Series A
Preferred Shares and the rights of any holder of Registrable Securities under
this Agreement with respect to any Registrable Securities may be assigned to
any
Person who acquires such Series A Preferred Shares or Registrable Securities;
provided
that (a)
the assigning Purchaser or other holders, as applicable, shall give the
Corporation written notice at or prior to the time of such assignment stating
the name and address of the assignee and identifying the shares with respect
to
which the rights under this Agreement are being assigned; (b) such assignee
shall agree in writing, in form and substance reasonably satisfactory to the
Corporation, to be bound by the provisions of this Agreement; and (c)
immediately following such assignment the further disposition of such securities
by such assignee is restricted under the Securities Act.
16.
Execution;
Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed and delivered will be deemed an original, and such counterparts
together will constitute one instrument. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
17.
Remedies
.
Each of
the parties to this Agreement will be entitled to enforce its rights granted
by
law or under this Agreement specifically (without the necessity of a bond),
to
recover damages by reason of any breach of any provision of this Agreement
and
to exercise all other rights existing in its favor. The parties hereto agree
and
acknowledge that money damages may not be an adequate remedy for any breach
of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance or injunctive relief (without the necessity of a bond) in order
to
enforce or prevent any violations of the provisions of this Agreement. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
18.
Notices
.
Any
notices desired, required or permitted to be given hereunder shall be delivered
personally or mailed, certified or registered mail, return receipt requested,
or
delivered by overnight courier service, or confirmed facsimile transmission
to
the following addresses, or such other addresses as shall be given by notice
delivered hereunder, and shall be deemed to have been given (a) upon delivery,
if delivered personally, (b) three days after mailing, if mailed, (c) one
business day after delivery to the overnight courier service, if delivered
by
overnight courier service, or (d) on the date sent, if sent by confirmed
facsimile transmission during the normal business hours of the recipient, and
if
not during normal business hours, then on the following business day (provided,
that any notice sent by facsimile transmission be followed by delivery via
another method permitted hereby):
If
to the
Corporation, to:
Cleveland
BioLabs, Inc.
10265
Carnegie Ave.
Cleveland,
Ohio 44106
Attention:
Michael Fonstein
With
a
copy to:
Katten
Muchin Rosenman LLP
525
West
Monroe Street
Chicago,
Illinois 60661-3693
Attention:
Kurt W. Florian, Esq.
If
to any
Purchaser or other holder of Registrable Securities, to the addresses set forth
on the stock record books of the Corporation.
19.
Amendments
and Waivers
.
The
provisions of this Agreement may be amended upon the written agreement of the
Corporation and the holder or holders of (a) at least a majority of the
outstanding Registrable Securities, and (b) the holder or holders of a majority
of the outstanding Common Stockholder Shares. Any waiver, permit, consent or
approval of any kind or character on the part of any holders of any provision
or
condition of this Agreement must be made in writing and shall be effective
only
to the extent specifically set forth in writing. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed
as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
20.
Severability
.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any
other
jurisdiction, but this Agreement shall be reformed, construed, and enforced
in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
21.
Complete
Agreement
.
This
Agreement and the Purchase Agreement, together with the Exhibits, Annexes and
Schedules hereto and thereto, supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
22.
Successors
and Assigns
.
All
covenants and agreements in this Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of the respective successors and
assigns of the parties hereto, and each transferee of all or any portion of
the
Securities held by the parties hereto, whether so expressed or not; provided,
that, the Corporation may not assign its rights or obligations hereunder without
the prior written consent of holders of at least a majority of the Registrable
Securities.
23.
Headings
.
The
captions set forth in this Agreement are for convenience only and shall not
be
considered as part of this Agreement or as in any way limiting the terms and
provisions hereof.
24.
Entire
Agreement
.
This
Agreement represents the full and complete understanding and agreement of the
parties hereto with respect to the subject matter contained herein and
supersedes all prior oral or written agreements between the parties which may
conflict with the agreements contained herein, including, but not limited to,
those certain Common Stockholders Agreements and the Restricted Stock Agreements
(including, without limitation, the ChemBridge Agreement (as such term is
defined in the Purchase Agreement)) entered into between the Common Stockholders
and the Company. If any provision contained herein conflicts with a provision
contained in the Common Stockholder Agreements, the provisions of this Agreement
shall govern. Other than as set forth in this Section 24, the Common Stockholder
Agreements shall remain in full force and effect.
25.
Governing
Law
.
This
Agreement shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Agreement shall be governed by, the laws of the State of Delaware, without
giving effect to provisions thereof regarding conflict of laws. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, employees or agents) may
be
commenced non-exclusively in the state and federal courts sitting in the City
of
New York, Borough of Manhattan, (the “
New
York Courts
”).
Each
party hereto hereby irrevocably submits to the non-exclusive jurisdiction of
the
New York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any
claim
that it is not personally subject to the jurisdiction of any New York Court,
or
that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence
of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING
OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF
EITHER PARTY SHALL COMMENCE A PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS
AGREEMENT, THEN THE PREVAILING PARTY IN SUCH PROCEEDING SHALL BE REIMBURSED
BY
THE OTHER PARTY FOR ITS ATTORNEY’S FEES AND OTHER COSTS AND EXPENSES INCURRED
WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH
PROCEEDING.
26.
Further
Assurances
.
Each
party agrees to execute such other documents, instruments, agreements and
consents, and take such other actions as may be reasonably requested by the
other parties hereto to effectuate the purposes of this Agreement.
27.
Reliance
.
The
Corporation acknowledges and agrees that, in accepting the Fee Shares and/or
Fee
Warrants as partial consideration for services rendered to the Corporation
in
connection with the transactions contemplated hereby, Sunrise and/or its
designees (and their respective successors and permitted assigns) are entitled
to rely on and enforce the Corporation’s representations and warranties,
covenants and agreements and as if a party hereto.
28.
Additional
Common Stockholders
.
The
Corporation agrees that, so long as there are outstanding Series A Preferred
Shares and/or Registrable Securities, (a) it will cause each Person who acquires
shares of Common Stock or shares of capital stock or other securities directly
or indirectly exercisable for, or convertible into, shares of Common Stock
that
represent at least 2% of then issued and outstanding shares of Common Stock
(on
a fully-diluted, as converted basis) to enter into this Agreement and thereby
to
be bound by the terms hereof as a Common Stockholder, all by execution of a
Stockholder Counterpart signature page to this Agreement, and (b) it will amend
the
Common
Stockholder Schedule
to
include such additional Person.
{The
remainder of this page is left intentionally blank.}
{Counterpart
signature pages to follow.}
CORPORATION
COUNTERPART TO
SERIES
A
RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first set forth above.
|
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CLEVELAND
BIOLABS,
INC.
|
|
|
|
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By:
|
/s/ Michael
Fonstein
|
|
Michael
Fonstein\
P
resident
and Chief Executive Officer
|
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COMMON
STOCKHOLDER COUNTERPART TO
SERIES
A
RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first set forth above.
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INDIVIDUAL
:
Print
Name
|
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Signature
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ENTITY
:
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Print
Entity Name
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Signature
|
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Name
and Title of Signatory
|
PURCHASER
COUNTERPART FO
SERIES
A
RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first set forth above.
|
INDIVIDUAL
:
|
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Print
Name
|
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Signature
|
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ENTITY
:
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Print
Entity Name
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Signature
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Name
and Title of Signatory
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ANNEX A
PLAN
OF
DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, assignees and
successors-in interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
•
ordinary
brokerage transactions and transactions in which the broker-dealer solicits
Investors;
•
block
trades in which the broker-dealer will attempt to sell the shares as agent
but
may position and resell a portion of the block as principal to facilitate the
transaction;
•
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
•
an
exchange distribution in accordance with the rules of the applicable
exchange;
•
privately
negotiated transactions;
•
short
sales (other than short sales established prior to the effectiveness of the
Registration Statement to which this Prospectus is a part)
•
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
•
a
combination of any such methods of sale; and
•
any
other
method permitted pursuant to applicable law.
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the Registrable Securities owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list
of
selling stockholders to include the pledgee, transferee or other successors
in
interest as selling stockholders under this prospectus.
Upon
the
Corporation being notified in writing by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Common
Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to
this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder and
of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of Common Stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference
in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon the Corporation being notified in writing by a selling stockholder that
a
donee or pledge intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance
with
applicable securities law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has represented
and
warranted to the Corporation that it does not have any agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock.
The
Corporation is required to pay all fees and expenses incident to the
registration of the shares. The Corporation has agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Common
Stockholders Schedule
Michael
Fonstein
|
Yakov
Kogan
|
Lena
Feinstein
|
George
Stark
|
Mike
Chernov
|
Katia
Gurova
|
Vadim
Krivosenko
|
Andrei
Gudkov
|
ChemBridge
Corporation
|
The
Cleveland Clinic Foundation
|
Schedule
of Purchasers
Smithfield
Fiduciary LLC
Helen
Goodfriend
JGB
Capital L.P.
Yehuda
Harats
Richard
B. Stone
FCC
Ltd
New
Bank
Ltd.
DCOFI
Master LDC
Marcia
Kucher
Yael
Lustmann
Robert
H.
Cohen
Stuart
Schapiro IRA
Sunrise
Equity Partners, LP
Marilyn
Adler
F
Berdon
Co LP
John
L.
Gallagher
Derek
L.
Caldwell
Danny
Gabay
Jay
Lefkowitz
Philip
and Maxine Patt
Bear
Stearns as Custodian for Nathan A. Low Roth IRA
Crestview
Capital Master, LLC
Yossi
Shasha
Amnon
Mandelbaum
David
Goodfriend
Sem-Tov
Yosef
Judith
Green Berger
CLEVELAND
BIOLABS, INC.
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “
Agreement
”),
made
as of this 1st day of June, 2005, is entered into by Cleveland Biolabs,
Inc., a Delaware corporation with its principal place of business at
____________ (and together with its subsidiaries, affiliates, successors or
assigns the “
Company
”),
and
Dr. Feinstein, (the “
Executive
”).
PRELIMINARY
RECITALS
A.
The
Company, among other things, is engaged in the business of conducting research
and development of new pharmaceuticals in the field of cancer treatment and
that
provide protection for cells against harmful radiation (the “
Business
”).
B.
The
Company and Executive desire to formally state the terms of employment with
the
Company in this Agreement as
Vice-President
of Research & Development
.
NOW,
THEREFORE
,
in
consideration of the premises, the mutual covenants of the parties hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.
Employment
.
1.1
Engagement
Duties and Powers
.
The
Company agrees to employ Executive, and Executive agrees to accept employment
with the Company and in accordance with the terms and conditions of this
Agreement. During the Term, Executive shall serve as the Company’s
Vice-President
of Research & Development
and
shall have such responsibilities, duties and authorities, and shall render
such
services of an executive and administrative character or act in such other
capacity for the Company and its affiliates, as Chief Executive Officer shall
from time to time lawfully direct. Executive shall perform the duties and carry
out the responsibilities assigned to him, to the best of his ability, in a
trustworthy, businesslike and efficient manner for the purpose of advancing
the
business of the Company. Executive acknowledges that his duties and
responsibilities hereunder will require his full business time and effort and
agrees that, during the Term, he will not engage in any other business activity
or have any business pursuits or interests which materially interfere or
conflict with the performance of his duties hereunder, provided, that nothing
in
this
Section 1.1
shall be
deemed to prohibit Executive from making Permitted Investments. Executive may
accept positions on grant panels, boards of Directors, act as a consultant
for
compensation with the permission of the Board
(For
a transition period which will not exceed 12 months, part time work for QBI,
the
former employer of Dr. Feinstein will not constitute a violation of the
agreement. Dr. Feinstein can also consult QBI from time to time outside of
this 12 months period)
.
1.2
Term
.
The
engagement of Executive under this Agreement shall begin on the date hereof
and
shall continue through and until December 31, 2008 (the “
Initial
Period
”)
unless
extended as provided in this
Section 1.2
.
Thereafter, the term of this Agreement shall automatically renew and extend
for
additional consecutive one-year periods (“
Renewal
Periods
”)
unless
one of the parties shall deliver a written notice of termination to the other
party at least sixty (60) days prior to the expiration of the Initial Period
or
any Renewal Period. The Initial Period through the then current Renewal Period,
if any, is hereinafter referred to as the “
Term
.”
Notwithstanding anything to the contrary contained herein, the Term is subject
to termination pursuant to
Section 1.3
.
1.3
Termination
.
(a)
If
Executive dies during the Term, this Agreement shall automatically terminate
on
the date of Executive’s death.
(b)
The
Company may terminate Executive’s employment hereunder upon written notice to
Executive at any time (i) due to the Permanent Disability of Executive or
(ii) for Cause or without Cause, for any or no reason. Such termination
shall be effective upon the date of service of such notice pursuant to
Section 14.6
.
For
purposes of this Agreement, “
Cause
”
means
the occurrence of any of the following events, as determined in the reasonable
good faith judgment of the Board:
(i)
the
failure of Executive to perform his duties hereunder or comply with reasonable
directions of the Board which continues for ten (10) days after the Board has
given written notice to Executive, specifying in reasonable detail the manner
in
which Executive has failed to perform such duties or comply with such
directions;
(ii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act or acts constituting (a) a felony,
(b) dishonesty or disloyalty with respect to the Company or
(c) fraud;
(iii)
the
determination by the Board in the exercise of its reasonable judgment that
Executive has committed an act, or has failed to take action, which act or
failure to take action (a) adversely affects the Company’s business or
reputation or (b) indicates alcohol abuse or drug use by Executive that
adversely affects his performance of the essential job functions
hereunder;
(iv)
the
breach, non-performance or non-observance of any of the terms of this Agreement
(other than as described in clause (i) above) or any other agreement to
which Executive and the Company are parties, by Executive, if such breach,
non-performance or non-observance shall continue beyond a period of ten (10)
business days immediately after written notice thereof by the Company to
Executive; or
(v)
notwithstanding
clause (iv) above, any breach of the Restrictive Covenants.
(c)
Executive
may terminate and resign from his Employment hereunder upon not less than sixty
(60) days prior written notice to the Company.
Executive
shall be deemed to have a “
Permanent
Disability
”
for
purposes of this Agreement if he suffers a physical or mental illness, injury
or
infirmity that prevents him from performing, with or without reasonable
accommodations, his essential job functions under this Agreement, for a total
period of 120 days in any 360-day period. The Board shall determine, according
to the facts then available, whether and when the Permanent Disability of
Executive has occurred. Such determination shall not be arbitrary or
unreasonable, and the Board may, but shall not be required to, take into
consideration the opinion of Executive’s personal physician, if reasonably
available, and such determination by the Board shall be final and binding on
the
parties hereto.
2.
Compensation
and Benefits
.
2.1
Base
Salary
.
As
consideration for the services of Executive hereunder, the Company shall pay
Executive an annual base salary of $120,000 (the “
Base
Salary
”),
payable in accordance with the Company’s customary payroll practices as in
effect from time to time
(For
the transition period which covers part time work at QBI, executive will receive
70% of the base salary)
.
Notwithstanding the foregoing, during the period beginning on and including
January 1, 2006 and for each year during the Term thereafter, the Board, in
its sole discretion, may elect to cause the Company to adjust the Executive’s
Base Salary by an amount to be determined by the Board in its sole judgment
based upon Executive’s and the Company’s performance and the achievement of the
other goals and objectives approved by the Board for such year.
2.2
Discretionary
Bonus
.
Following the end of each fiscal year the Board, in its sole discretion, may
elect to cause the Company to award to Executive a bonus (the “
Discretionary
Bonus
”)
for
such year, in an amount to be determined by the Board in its sole judgment
based
upon Executive’s and the Company’s performance and the achievement of the other
goals and objectives approved by the Board for such year. Such Discretionary
Bonus shall be payable as determined by the Board and only if Executive is
employed by the Company as of the date such Discretionary Bonus is
paid.
2.3
Compensation
After Termination
.
(a)
If
Executive’s employment is terminated by the Company for Cause or resigns, then
the Company shall have no further obligations hereunder or otherwise with
respect to Executive’s employment hereunder from and after the date of said
termination (except payment of the Base Salary and other amounts owed to
Executive for reimbursable business expenses accrued through the date of said
termination), and the Company shall continue to have all other rights available
hereunder (including, without limitation, all rights under the Restrictive
Covenants at law or in equity).
(b)
If
Executive’s employment is terminated by the Company without Cause, Executive
shall be entitled to receive as severance pay an amount equal to the Base Salary
that would otherwise have been payable if Executive continued his employment
hereunder, for
a
6 month period
,
payable
in accordance with the Company’s payroll policies. The Company shall have no
other obligations hereunder or otherwise with respect to Executive’s employment
from and after the termination date, and the Company shall continue to have
all
other rights available hereunder (including, without limitation, all rights
under the Restrictive Covenants at law or in equity).
(c)
If
Executive’s employment is terminated due to Permanent Disability or death,
Executive or Executive’s estate, as the case may be, shall be entitled to
receive as severance pay an amount equal to the Base Salary that would otherwise
have been payable if Executive continued his employment hereunder for the period
that otherwise would be remaining in the Term (without any further adjustment
as
described in Section 2.1), payable in accordance with the Company’s payroll
policies. Notwithstanding the foregoing, in the event Executive is Permanently
Disabled or dies as a result of, or in the conduct of, his employment activities
hereunder, then Executive or Executive’s estate, as the case may be, shall be
entitled to receive severance pay in an amount equal to the Base Salary that
would otherwise have been payable if Executive continued his employment
hereunder (without any further adjustment as described in
Section 2.1
)
for a
period of not less than eighteen (18) months, payable in accordance with the
Company’s payroll policies. The Company shall have no other obligations
hereunder or otherwise with respect to Executive’s employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including, without limitation, all rights under the
Restrictive Covenants at law or in equity).
2.4
Profit
Sharing, Pension and Salary Deferral Benefits
.
It is
understood by the parties to this Agreement that, during the Term, Executive
shall be entitled to participate in or accrue benefits under any pension, salary
deferral or profit sharing plan now existing or hereafter created for employees
of the Company upon terms and conditions equivalent to those which the Company
may provide for other key management employees.
2.5
Fringe
Benefits and Expenses During the Term
.
(a)
Executive
shall be eligible to participate in any benefit plans maintained by the Company
for its key management employees from time to time, including, without
limitation, group life, disability and medical insurance in accordance with
such
plans as from time to time in effect and applicable to key management employees
of the Company.
(b)
Executive
shall be entitled to three weeks paid vacation per year for the first year,
and
four weeks paid vacation per year thereafter, earned pro rata during his
employment, to be taken at such times as may be approved by the Board or its
authorized designees. The maximum vacation pay that may accrue is four weeks
(“
Vacation
Cap
”).
When
Executive accrues four weeks of vacation, no further vacation will accrue until
he uses vacation time and reduces the accrued vacation time below the vacation
cap. He will then accrue vacation time until the vacation cap of four weeks
is
reached.
(c)
The
Company shall reimburse Executive for all ordinary, necessary and reasonable
travel and other business expenses incurred by him in connection with the
performance of his duties hereunder, in accordance with the Company’s policy.
Such reimbursement shall be made upon presentation of itemized expense
statements and such other supporting documentation as the Company may reasonably
require.
2.6
Taxes,
etc
.
All
compensation payable to Executive hereunder is stated in gross amount and shall
be subject to all applicable withholding taxes, other normal payroll and any
other amounts required by law to be withheld.
3.
Confidentiality
.
3.1
Company
Information Executive
.
Executive agrees at all times during the term of my employment and thereafter,
to hold in strictest confidence, and not to use, except for the benefit of
the
Company, or to disclose to any person, firm or corporation without written
authorization of the Board of Directors of the Company, any Confidential
Information of the Company, except under a non-disclosure agreement duly
authorized and executed by the Company. Executive understands that “
Confidential
Information
”
means
any non-public information that relates to the actual or anticipated business
or
research and development of the Company, technical data, trade secrets or
know-how, including, but not limited to, research, product plans or other
information regarding Company’s products or services and markets therefor,
customer lists and customers software, developments, inventions, processes,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, finances or other business information. Executive
further understands that Confidential Information does not include any of the
foregoing items which have become publicly known and made generally available
through no wrongful act of mine or of others who were under confidentiality
obligations as to the item or items involved or improvements or new versions
thereof.
3.2
Former
Employer Information
.
Executive agrees that he will not, during employment with the Company,
improperly use or disclose any proprietary information or trade secrets of
any
former or concurrent employer or other person or entity and that Executive
will
not bring onto the premises of the Company any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
3.3
Third
Party Information
.
Executive recognizes that the Company has received and in the future will
receive from third parties their confidential or proprietary information subject
to a duty on the Company’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes Executive agrees
to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to
use
it except as necessary in carrying out my work for the Company consistent with
the Company’s agreement with such third party.
4.
Inventions
.
4.1
Inventions
Retained and Licensed
.
Executive has attached hereto, as
Exhibit A
,
a list
describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made prior to his employment with
the
Company (collectively referred to as “
Prior
Inventions
”),
which
belong to Executive, which relate to the Company’s proposed business, products
or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, Executive represents that there
are
no such Prior Inventions. If in the course of Executive’s employment with the
Company, Executive incorporates into a Company product, process or service
a
Prior Invention owned by Executive or in which Executive has an interest,
Executive hereby grants to the Company a nonexclusive, royalty-free, fully
paid-up, irrevocable, perpetual, worldwide license to make, have made, modify,
use and sell such Prior Invention as part of or in connection with such product,
process or service, and to practice any method related thereto.
4.2
Assignment
of Inventions
.
Executive agrees that he will promptly make full written disclosure to the
Company, will hold in trust for the sole right and benefit of the Company,
and
hereby assign to the Company, or its designee, all my right, title, and interest
in and to any and all inventions, original works of authorship, developments,
concepts, improvements, designs, discoveries, ideas, trademarks or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which Executive may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived or developed or reduced to practice, during
the period of time Executive am in the employ of the Company (collectively
referred to as “
Inventions
”).
Executive further acknowledges that all original works of authorship which
are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are “works made for hire,” as that term is defined in the United States
Copyright Act. Executive understands and agrees that the decision whether or
not
to commercialize or market any invention developed by me solely or jointly
with
others is within the Company’s sole discretion and for the Company’s sole
benefit and that no royalty will be due to him as a result of the Company’s
efforts to commercialize or market any such invention.
4.3
Inventions
Assigned to the United States
.
Executive agrees to assign to the United States government all right, title,
and
interest in and to any and all Inventions whenever such full title is required
to be in the United States by a contract between the Company and the United
States or any of its agencies.
4.4
Inventions
Made During Transition Period
.
Inventions made during transition period in the context of the Executive’s work
for QBI are not the subject of the limitations of the current
contract.
4.5
Maintenance
of Records
.
Executive agrees to keep and maintain adequate and current written records
of
all Inventions made by me (solely or jointly with others) during the term of
my
employment with the Company. The records will be in the form of notes, sketches,
drawings, and any other format that may be specified by the Company. The records
will be available to and remain the sole property of the Company at all
times.
4.6
Patent
and Copyright Registrations
.
Executive agrees to assist the Company, or its designee, at the Company’s
expense, in every proper way to secure the Company’s rights in the Inventions
and any copyrights, patents, mask work rights or other intellectual property
rights relating thereto in any and all countries, including the disclosure
to
the Company of all pertinent information and data with respect thereto, the
execution of all applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary in order to apply for and
obtain such rights and in order to assign and convey to the Company, its
successors, assigns, and nominees the sole and exclusive rights, title and
interest in and to such Inventions, and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto. Executive further
agree that his obligation to execute or cause to be executed, when it is in
his
power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If the Company is unable because of his mental
or
physical incapacity or for any other reason to secure his signature to apply
for
or to pursue any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of authorship
assigned to the Company as above, then Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as his
agent and attorney in fact, to act for and in his behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts
to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
him.
5.
Conflicting
Employment
.
Executive agrees that, during the term of his employment with the Company,
Executive will not engage in any other employment, occupation or consulting
directly related to the business in which the Company is now involved or becomes
involved during the term of his employment, nor will Executive engage in any
other activities that conflict with his obligations to the Company, unless
written consent is given by the Board of Directors of the Company.
6.
Returning
Company Documents
.
Executive agrees that, at the time of leaving the employ of the Company, he
will
deliver to the Company (and will not keep in his possession, recreate or deliver
to anyone else) any and all devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings, blueprints, sketches,
materials, equipment, other documents or property, or reproductions of any
aforementioned items developed by Executive pursuant to his employment with
the
Company or otherwise belonging to the Company, its successors or assigns,
including, without limitation, those records maintained pursuant to
paragraph 4.4. In the event of the termination of Executive’s employment,
Executive agrees to sign and deliver the “Termination Certification” attached
hereto as
Exhibit B
.
7.
Notification
of New Employer
.
In the
event that Executive leaves the employ of the Company, Executive hereby grant
consent to notification by the Company to his new employer about his rights
and
obligations under this Agreement.
8.
Solicitation
of Employees
.
Executive agrees that for a period of twelve (12) months immediately following
the termination of his relationship with the Company for any reason, whether
with or without cause, Executive shall not either directly or indirectly
solicit, induce, recruit or encourage any of the Company’s employees to leave
their employment, or take away such employees, or attempt to solicit, induce,
recruit, encourage or take away employees of the Company, either for himself
or
for any other person or entity.
9.
Non-Competition
.
Executive agrees that during the period of employment and for a period of two
(2) years immediately following the termination of his relationship with the
Company for any reason, whether with or without cause, Executive shall not
directly or indirectly own, manage, operate, consult or to be employed in a
business substantially similar to
(as
defined by the Company’s therapeutic area and core
technology)
,
or
competitive with, the present business of the Company and its successors and
assigns or such other business activity in which the Company and its successors
and assigns may substantially engage during the term of employment.
10.
Conflict
of Interest Guidelines
.
Executive agrees to diligently adhere to the Conflict of Interest Guidelines
attached as
Exhibit D
hereto.
11.
Representations
.
Executive agrees to execute any proper oath or verify any proper document
required to carry out the terms of this Agreement. Executive represent that
his
performance of all the terms of this Agreement will not breach any agreement
to
keep in confidence proprietary information acquired by Executive in confidence
or in trust prior to Executive’s employment by the Company. Executive hereby
represent and warrant that Executive have not entered into, and Executive will
not enter into, any oral or written agreement in conflict herewith.
12.
Policy
Manual
.
Executive agrees that he is responsible for knowing the contents of the
Company’s Policy Manual, the contents of which may be modified or eliminated at
any time.
13.
Arbitration
and Equitable Relief
.
13.1
Arbitration
.
IN
CONSIDERATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY, ITS PROMISE TO ARBITRATE
ALL EMPLOYMENT-RELATED DISPUTES AND EXECUTIVE RECEIPT OF THE COMPENSATION,
PAY
RAISES AND OTHER BENEFITS PAID TO EXECUTIVE BY THE COMPANY, AT PRESENT AND
IN
THE FUTURE, EXECUTIVE AGREES THAT ANY AND ALL CONTROVERSIES, CLAIMS OR DISPUTES
WITH ANYONE (INCLUDING THE COMPANY AND ANY EMPLOYEE, OFFICER, DIRECTOR,
SHAREHOLDER OR BENEFIT PLAN OF THE COMPANY IN THEIR CAPACITY AS SUCH OR
OTHERWISE) ARISING OUT OF, RELATING TO, OR RESULTING FROM EXECUTIVE EMPLOYMENT
WITH THE COMPANY OR THE TERMINATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY,
INCLUDING ANY BREACH OF THIS AGREEMENT, SHALL BE SUBJECT TO BINDING ARBITRATION
UNDER THE RULES AMERICAN ARBITRATION ASSOCIATION. DISPUTES WHICH EXECUTIVE
AGREE
TO ARBITRATE, AND THEREBY AGREE TO WAIVE ANY RIGHT TO A TRIAL BY JURY, INCLUDE
ANY STATUTORY CLAIMS UNDER STATE OR FEDERAL LAW, INCLUDING, BUT NOT LIMITED
TO,
CLAIMS UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
OR
THE OLDER WORKERS BENEFIT PROTECTION ACT. EXECUTIVE FURTHER UNDERSTANDS THAT
THIS AGREEMENT TO ARBITRATE ALSO APPLIES TO ANY DISPUTES THAT THE COMPANY MAY
HAVE WITH EXECUTIVE.
13.2
Procedure
.
EXECUTIVE AGREES THAT ANY ARBITRATION WILL BE ADMINISTERED BY THE AMERICAN
ARBITRATION ASSOCIATION (“
AAA
”)
AND
THAT THE NEUTRAL ARBITRATOR WILL BE SELECTED IN A MANNER CONSISTENT WITH ITS
NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES. EXECUTIVE AGREES
THAT
THE ARBITRATOR SHALL HAVE THE POWER TO DECIDE ANY MOTIONS BROUGHT BY ANY PARTY
TO THE ARBITRATION, INCLUDING MOTIONS FOR SUMMARY JUDGMENT AND/OR ADJUDICATION
AND MOTIONS TO DISMISS AND DEMURRERS, PRIOR TO ANY ARBITRATION HEARING.
EXECUTIVE ALSO AGREES THAT THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY
REMEDIES, INCLUDING ATTORNEYS’ FEES AND COSTS, AVAILABLE UNDER APPLICABLE LAW.
EXECUTIVE UNDERSTANDS THE COMPANY WILL PAY FOR ANY ADMINISTRATIVE OR HEARING
FEES CHARGED BY THE ARBITRATOR OR AAA EXCEPT THAT EXECUTIVE SHALL PAY THE FIRST
$125.00 OF ANY FILING FEES ASSOCIATED WITH ANY ARBITRATION EXECUTIVE INITIATES.
EXECUTIVE AGREES THAT THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY
ARBITRATION IN A MANNER CONSISTENT WITH THE RULES AND THAT TO THE EXTENT THAT
THE AAA’S NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES CONFLICT WITH
THE RULES, THE RULES SHALL TAKE PRECEDENCE. EXECUTIVE AGREES THAT THE DECISION
OF THE ARBITRATOR SHALL BE IN WRITING.
13.3
Remedy
EXCEPT
AS PROVIDED BY THE RULES AND THIS AGREEMENT, ARBITRATION SHALL BE THE SOLE
EXCLUSIVE AND FINAL REMEDY FOR ANY DISPUTE BETWEEN ME AND THE COMPANY.
ACCORDINGLY, EXCEPT AS PROVIDED FOR BY THE RULES AND THIS AGREEMENT, NEITHER
EXECUTIVE NOR THE COMPANY WILL BE PERMITTED TO PURSUE COURT ACTION REGARDING
CLAIMS THAT ARE SUBJECT TO ARBITRATION. NOTWITHSTANDING, THE ARBITRATOR WILL
NOT
HAVE THE AUTHORITY TO DISREGARD OR REFUSE TO ENFORCE ANY LAWFUL COMPANY POLICY
AND THE ARBITRATOR SHALL NOT ORDER OR REQUIRE THE COMPANY TO ADOPT A POLICY
NOT
OTHERWISE REQUIRED BY LAW WHICH THE COMPANY HAS NOT ADOPTED.
13.4
Availability
of Injunctive Relief
.
IN
ADDITION TO THE RIGHT UNDER THE RULES TO PETITION THE COURT FOR PROVISIONAL
RELIEF, EXECUTIVE AGREES THAT ANY PARTY MAY ALSO PETITION THE COURT FOR
INJUNCTIVE RELIEF WHERE EITHER PARTY ALLEGES OR CLAIMS A VIOLATION OF THIS
EMPLOYMENT AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY OR ANY OTHER AGREEMENT
REGARDING TRADE SECRETS, CONFIDENTIAL INFORMATION OR NONSOLICITATION. EXECUTIVE
UNDERSTANDS THAT ANY BREACH OR THREATENED BREACH OF SUCH AN AGREEMENT WILL
CAUSE
IRREPARABLE INJURY AND THAT MONEY DAMAGES WILL NOT PROVIDE AN ADEQUATE REMEDY
THEREFOR AND BOTH PARTIES HEREBY CONSENT TO THE ISSUANCE OF AN INJUNCTION.
IN
THE EVENT EITHER PARTY SEEKS INJUNCTIVE RELIEF, THE PREVAILING PARTY SHALL
BE
ENTITLED TO RECOVER REASONABLE COSTS AND ATTORNEYS FEES.
13.5
Administrative
Relief
.
EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT DOES NOT PROHIBIT HIM FROM PURSUING
AN
ADMINISTRATIVE CLAIM WITH A LOCAL, STATE OR FEDERAL ADMINISTRATIVE BODY SUCH
AS
THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING, THE EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION OR THE WORKERS’ COMPENSATION BOARD. THIS AGREEMENT DOES, HOWEVER,
PRECLUDE EXECUTIVE FROM PURSUING COURT ACTION REGARDING ANY SUCH
CLAIM.
13.6
Voluntary
Nature of Agreement
.
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE IS EXECUTING THIS AGREEMENT
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE
ELSE. EXECUTIVE FURTHER ACKNOWLEDGES AND AGREES THAT HE HAS CAREFULLY READ
THIS
AGREEMENT AND THAT HE HAS ASKED ANY QUESTIONS NEEDED FOR HIM TO UNDERSTAND
THE
TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND
IT, INCLUDING THAT EXECUTIVE
IS
WAIVING HIS RIGHT TO A JURY TRIAL
.
FINALLY, EXECUTIVE AGREES THAT HE HAS BEEN PROVIDED AN OPPORTUNITY TO SEEK
THE
ADVICE OF AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
14.
Miscellaneous
.
14.1
Income
Tax Treatment
.
Executive and the Company acknowledge that it is the intention of the Company
to
deduct all amounts paid under
Section 2
hereof
as ordinary and necessary business expenses for income tax purposes. Executive
agrees and represents that he will treat all amounts paid hereunder as ordinary
income (except for expense reimbursement) for income tax purposes.
14.2
Assignment
.
Executive may not assign any of his rights or obligations hereunder without
the
written consent of the Company. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or
not.
14.3
Severability
.
Whenever possible, each provision of this Agreement shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition
or
invalidity, without invalidating the remainder of this Agreement.
14.4
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the
same Agreement.
14.5
Descriptive
Headings; Interpretation
.
The
descriptive headings in this Agreement are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. The use of the word “including” in this
Agreement shall be by way of example rather than by limitation.
14.6
Notices
.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given if (i) delivered personally to the
recipient, (ii) sent to the recipient by reputable express courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or (iii) transmitted by
telecopy to the recipient with a confirmation copy to follow the next day to
be
delivered by overnight carrier. Such notices, demands and other communications
shall be sent to the addresses indicated below:
|
To
the Company:
|
Cleveland
BioLabs, Inc.
|
|
|
_____________________________
|
|
|
_____________________________
|
|
|
Attention:
Chief Executive Officer
|
|
|
Facsimile:
_____________________
|
|
with
a copy to:
|
Katten
Muchin Zavis Rosenman LLP
|
|
|
Attention:
Kurt W. Florian, Esq.
|
|
|
Facsimile:
(312) 902-1061
|
|
To
Executive:
|
_____________________________
|
|
|
_____________________________
|
|
|
Facsimile:
(____) ________________
|
|
with
a copy to:
|
_____________________________
|
|
|
_____________________________
|
|
|
_____________________________
|
|
|
Attention:_____________________
|
|
|
Facsimile: __________________
|
or
to
such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Date
of
service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) one day after the date of delivery to the overnight
courier if sent by overnight courier or (z) the next business day after the
date of transmittal by telecopy.
14.7
Preamble;
Preliminary Recitals
.
The
Preliminary Recitals set forth in the Preamble hereto are hereby incorporated
and made part of this Agreement.
14.8
Entire
Agreement
.
Except
as otherwise expressly set forth herein, this Agreement sets forth the entire
understanding of the parties, and supersedes and preempts all prior oral or
written understandings and agreements with respect to the subject matter
hereof.
14.9
Governing
Law
.
This
Agreement shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Agreement shall be governed by, the laws of the State of Ohio without giving
effect to provisions thereof regarding conflict of laws.
14.10
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.
14.11
Amendment
and Waivers
.
Any
provisions of the Agreement may be amended or waived only with the prior written
consent of the Company and Executive.
Date:
May
26, 2005
|
|
|
Signature
|
|
|
|
/s/ Elena
Feinstein
|
|
|
|
By: Elena Feinstein
|
|
|
|
Its: Executive
|
|
|
|
|
|
|
|
/s/ Michael
Fonstein
|
|
|
|
By: Michael Fonstein
|
|
|
|
Its: CEO
|
Exhibit
A
LIST
OF PRIOR INVENTIONS
AND
ORIGINAL WORKS OF AUTHORSHIP
Title
|
|
Date
|
|
Identifying
Number
or
Brief Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____
No
inventions or improvements
____
Additional
Sheets Attached
Signature
of Executive: ________________________
Print
Name of Executive: ________________________
Date:
_____________________________________
Exhibit
B
CLEVELAND
BIOLABS, INC.
TERMINATION
CERTIFICATION
This
is
to certify that the undersigned does not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Cleveland BioLabs, Inc., its subsidiaries, affiliates,
successors or assigns (together, the “Company”).
I
further
certify that I have complied with all the terms of the Company’s Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I
further
agree that, in compliance with the Employment Agreement, I will preserve as
confidential all trade secrets, confidential knowledge, data or other
proprietary information relating to products, processes, know-how, designs,
formulas, developmental or experimental work, computer programs, data bases,
other original works of authorship, customer lists, business plans, financial
information or other subject matter pertaining to any business of the Company
or
any of its employees, clients, consultants or licensees.
I
further
agree that for twelve (12) months from this date, I will not solicit, induce,
recruit or encourage any of the Company’s employees to leave their
employment.
I
further
agree that for twelve (12) months from this date I will not directly or
indirectly own, manage, operate, consult or to be employed in a business
substantially similar to, or competitive with, the present business of the
Company and its successors and assigns or such other business activity in which
the Company and its successors and assigns may substantially engage during
the
term of employment.
Date:_____________
(Employee’
Signature)___________________
_______________________________
(Type/Print
Employee’s Name)
Exhibit
C
CLEVELAND
BIOLABS, INC.
CONFLICT
OF INTEREST GUIDELINES
It
is the
policy of Cleveland BioLabs, Inc. to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles
of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1.
Revealing
confidential information to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this policy whether
or
not for personal gain and whether or not harm to the Company is intended. (The
Employment Agreement elaborates on this principle and is a binding
agreement.)
2.
Accepting
or offering substantial gifts, excessive entertainment, favors or payments
which
may be deemed to constitute undue influence or otherwise be improper or
embarrassing to the Company.
3.
Participating
in civic or professional organizations that might involve divulging confidential
information of the Company.
4.
Initiating
or approving personnel actions affecting reward or punishment of employees
or
applicants where there is a family relationship or is or appears to be a
personal or social involvement.
5.
Initiating
or approving any form of personal or social harassment of
employees.
6.
Investing
or holding outside directorship in suppliers, customers, or competing companies,
including financial speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
7.
Borrowing
from or lending to employees, customers or suppliers.
8.
Acquiring
real estate of interest to the Company.
9.
Improperly
using or disclosing to the Company any proprietary information or trade secrets
of any former or concurrent employer or other person or entity with whom
obligations of confidentiality exist.
10.
Unlawfully
discussing prices, costs, customers, sales or markets with competing companies
or their employees.
11.
Making
any unlawful agreement with distributors with respect to prices.
12.
Improperly
using or authorizing the use of any inventions which are the subject of patent
claims of any other person or entity.
13.
Engaging
in any conduct which is not in the best interest of the Company.
Each
officer, employee and independent contractor must take every necessary action
to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
Exhibit
D
CLEVELAND
BIOLABS, INC.
TRAVEL
ARRANGEMENTS
It
is understood that primary residence of Dr. Feinstein is Israel and she
will conduct her duties staying there most of the time. The company will cover
reasonable expenses with home-office set-up, IT and phone
connection.
It
is expected that she will be visiting CBL Cleveland location once a month for
1 weeks average. The company will be responsible for transportation,
housing expenses and health insurance during this time.
CLEVELAND
BIOLABS, INC.
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “
Agreement
”),
made
as of this 1st day of June, 2005, is entered into by Cleveland Biolabs,
Inc., a Delaware corporation with its principal place of business at
11000 Cedar Ave., Suite 29, Cleveland, OH 44106 (and together
with its subsidiaries, affiliates, successors or assigns the “
Company
”),
and
Dr. Farrel Fort, (the “
Executive
”).
PRELIMINARY
RECITALS
A.
The
Company, among other things, is engaged in the business of conducting research
and development of new pharmaceuticals in the field of cancer treatment and
that
provide protection for cells against harmful radiation (the “
Business
”).
B.
The
Company and Executive desire to formally state the terms of employment with
the
Company in this Agreement as
Vice-President
of Drug Development
as
described and incorporated in this agreement as Exhibit E (Job
Description)
.
NOW,
THEREFORE
,
in
consideration of the premises, the mutual covenants of the parties hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.
Employment
.
1.1
Engagement;
Duties and Powers
.
The
Company agrees to employ Executive, and Executive agrees to accept employment
with the Company, as
Vice-President
of Drug Development
for the
Term and in accordance with the terms and conditions of this Agreement. During
the Term, Executive shall serve as the Company’s
Vice-President
of Drug Development
and
shall have such responsibilities, duties and authorities, and shall render
such
services of an executive and administrative character or act in such other
capacity for the Company and its affiliates, as Chief Executive Officer shall
from time to time lawfully direct. Executive shall perform the duties and carry
out the responsibilities assigned to him (
outlined
in Exhibit _E_
),
to the
best of his ability, in a trustworthy, businesslike and efficient manner for
the
purpose of advancing the business of the Company. Executive acknowledges that
his duties and responsibilities hereunder will require his full business time
and effort and agrees that, during the Term, he will not engage in any other
business activity or have any business pursuits or interests which materially
interfere or conflict with the performance of his duties hereunder. Executive
may accept positions on grant panels, boards of Directors of other companies,
or
act as a consultant for compensation with the permission of the Board of
Directors of Cleveland Biolabs.
1.2
Term
.
The
engagement of Executive under this Agreement shall begin on the date hereof
and
shall continue through and until December 31, 2008 (the “
Initial
Period
”)
unless
extended as provided in this
Section 1.2
.
Thereafter, the term of this Agreement shall automatically renew and extend
for
additional consecutive one-year periods (“
Renewal
Periods
”)
unless
one of the parties shall deliver a written notice of termination to the other
party at least sixty (60) days prior to the expiration of the Initial Period
or
any Renewal Period. The Initial Period through the then current Renewal Period,
if any, is hereinafter referred to as the “
Term
.”
Notwithstanding anything to the contrary contained herein, the Term is subject
to termination pursuant to
Section 1.3
.
1.3
Termination
.
(a)
If
Executive dies during the Term, this Agreement shall automatically terminate
on
the date of Executive’s death.
(b)
The
Company may terminate Executive’s employment hereunder upon written notice to
Executive at any time (i) due to the Permanent Disability of Executive as
determined in
Section 1.3(d)
or
(ii) for Cause or without Cause, for any or no reason. Such termination
shall be effective 60 days after the date of service of such notice pursuant
to
Section 14.6
.
For
purposes of this Agreement, “
Cause
”
means
the occurrence of any of the following events, as determined in the reasonable
good faith judgment of CEO or the Board of Directors of Cleveland
Biolabs:
(i)
the
failure of Executive to perform his duties hereunder which continues for thirty
(30) days after CEO or the Board has given written notice to Executive,
specifying in reasonable detail the manner in which Executive has failed to
perform such duties or comply with such directions;
(ii)
the
determination by CEO or the Board of Directors of Cleveland Biolabs in the
exercise of its reasonable judgment that Executive has committed an act or
acts
constituting (a) a felony, (b) dishonesty or disloyalty with respect
to the Company or (c) fraud (in the case of felony or fraud, the judgment
by the Board of Directors of Cleveland Biolabs will be rendered only after
the
Executive has been found guilty of the offense in a court of law with competent
and legal jurisdiction. In the case of accusations of dishonesty or disloyalty,
judgment by the Board of Directors of Cleveland Biolabs will be rendered only
after review by independent arbitration as described in
Section 13
of this
agreement);
(iii)
the
determination by CEO or the Board of Directors of Cleveland Biolabs in the
exercise of its reasonable judgment that Executive has committed an act, or
has
failed to take action, which act or failure to take action (a) adversely
affects the Company’s business or reputation or (b) indicates alcohol abuse
or drug use by Executive that adversely affects his performance of the essential
job functions hereunder;
(iv)
the
breach, non-performance or non-observance of any of the terms of this Agreement
(other than as described in clause (i) above) or any other agreement to
which Executive and the Company are parties, by Executive, if such breach,
non-performance or non-observance shall continue beyond a period of
ten (10) business days immediately after written notice thereof by the
Chief Executive Officer (CEO) of the Company to Executive; or
(v)
notwithstanding
clause
(iv)
above, any breach of the Restrictive Covenants.
(c)
Executive
may terminate and resign from his Employment hereunder upon not less than sixty
(60) days prior written notice to the Company.
(d)
Determination
of Permanent Disability: Executive shall be deemed to have a “
Permanent
Disability
”
for
purposes of this Agreement if he suffers a physical or mental illness, injury
or
infirmity that prevents him from performing, with or without reasonable
accommodations, his essential job functions under this Agreement, for a total
period of 120 days in any 360-day period. The determination of permanent
disability by the Board of Directors of Cleveland Biolabs shall be based on
written documentation provided by the Executive’s personal
physician.
2.
Compensation
and Benefits
.
2.1
Base
Salary
.
As
consideration for the services of Executive hereunder, the Company shall pay
Executive an annual base salary of $199,000 (the “
Base
Salary
”),
payable in accordance with the Company’s customary payroll practices as in
effect from time to time. Notwithstanding the foregoing, during the period
beginning on and including January 1, 2006 and for each year during the
Term thereafter, the Board of Directors of Cleveland BioLabs, in its sole
discretion, may elect to cause the Company to increase the Executive’s Base
Salary by an amount to be determined by the Board in its sole judgment based
upon Executive’s and the Company’s performance and the achievement of the other
goals and objectives approved by the Board for such year. Cost of living
adjustment (as defined by U.S. government Bureau of Labor Statistics, Urban
Wage
Earners & Clerical Workers, CPI Chicago All Items, 1982-1984=00),
will be provided at the end of each calendar year of the initial contact period
(3 years) regardless of other salary adjustment decisions of the
Company.
2.2
Discretionary
Bonus
.
Following the end of each fiscal year the CEO, in its sole discretion, may
elect
to cause the Company to award to Executive a bonus up to 15% (the “
Discretionary
Bonus
”)
of the
Executive’s then current base salary. A metrics for the bonus will be developed
in the first 3 months of employment based upon Executive’s and the Company’s
performance. Such Discretionary Bonus shall be payable as determined by the
CEO
and only if Executive is employed by the Company as of the date such
Discretionary Bonus is paid.
2.3
Incentive
Stock
.
A
Restricted Stock Agreement will be executed between Cleveland BioLabs and
Executive granting approximately 2% of the outstanding shares (or options)
of
the company at the time of employment (190,000 units) with 0.5% vesting upon
execution of the Restricted Stock Agreement and the remainder vesting at 1-year
intervals over a 3-year period. The Restricted Stock Agreement is incorporated
herein to this Employment Agreement by reference.
2.4
Compensation
After Termination
.
(a)
If
Executive is terminated by the Company for Cause or resigns, then the Company
shall have no further obligations hereunder or otherwise with respect to
Executive’s employment hereunder from and after the date of said termination
(except payment of the Base Salary and other amounts owed to Executive for
reimbursable business expenses accrued through the date of said termination),
and the Company shall continue to have all other rights available hereunder
(including, without limitation, all rights under the Restrictive Covenants
at
law or in equity).
(b)
If
Executive is terminated by the Company without Cause, Executive shall be
entitled to receive as severance pay an amount equal to the Base Salary that
would otherwise have been payable if Executive continued his employment
hereunder,
for
a 4-month period
.
Such
severance pay will be paid in a lump sum payment within 30 days after
termination of employment with Company. In addition, health and life insurance
benefits of the Executive will continue for 1 year period. The Company shall
have no other obligations hereunder or otherwise with respect to Executive’s
employment from and after the termination date, and the Company shall continue
to have all other rights available hereunder (including, without limitation,
all
rights under the Restrictive Covenants at law or in equity).
(c)
If
Executive is terminated due to Permanent Disability or death, Executive or
Executive’s estate, as the case may be, shall be entitled to receive as
severance pay an amount equal to the Base Salary that would otherwise have
been
payable if Executive continued his employment hereunder for the period that
otherwise would be remaining in the Term (without any further adjustment as
described in
Section 2.1
),
payable in accordance with the Company’s payroll policies. Notwithstanding the
foregoing, in the event Executive is Permanently Disabled or dies as a result
of
or in the conduct of his employment activities hereunder, then Executive or
Executive’s estate, as the case may be, shall be entitled to receive severance
pay in an amount equal to the Base Salary that would otherwise have been payable
if Executive continued his employment hereunder (without any further adjustment
as described in
Section 2.1
)
for a
period of not less than eighteen (18) months, payable in accordance with the
Company’s payroll policies. The Company shall have no other obligations
hereunder or otherwise with respect to Executive’s employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including, without limitation, all rights under the
Restrictive Covenants at law or in equity).
(d)
Profit
Sharing, Pension and Salary Deferral Benefits
.
It is
understood by the parties to this Agreement that, during the Term, Executive
shall be entitled to participate in or accrue benefits under any pension, salary
deferral or profit sharing plan now existing or hereafter created for employees
of the Company upon terms and conditions equivalent to those which the Company
may provide for other key management employees (VP rank and
higher).
2.5
Fringe
Benefits and Expenses During the Term
.
(a)
Executive
shall be eligible to participate in any benefit plans maintained by the Company
for its key management employees from time to time, including, without
limitation, group life, disability and medical insurance in accordance with
such
plans as from time to time in effect and applicable to key management employees
of the Company.
(b)
Executive
shall be entitled to three weeks paid vacation per year for the first year,
and
four weeks paid vacation per year thereafter, earned pro rata during his
employment, to be taken at such times as may be approved by the Chief Executive
Officer. Such approval will not be unreasonably withheld or delayed. The maximum
vacation pay that may accrue is four weeks (“
Vacation
Cap
”).
When
Executive accrues four weeks of vacation, no further vacation will accrue until
he uses vacation time and reduces the accrued vacation time below the vacation
cap. He will then accrue vacation time until the vacation cap of four weeks
is
reached.
(c)
The
Company shall provide Executive sick days on substantially the same terms as
offered to other key management employees.
(d)
The
Company shall reimburse Executive for all ordinary, necessary and reasonable
travel and other business expenses incurred by him in connection with the
performance of his duties hereunder. Such reimbursement shall be made upon
presentation of itemized expense statements and such other supporting
documentation as the Company may reasonably require.
2.6
Taxes,
etc
.
All
compensation payable to Executive hereunder is stated in gross amount and shall
be subject to all applicable withholding taxes, other normal payroll and any
other amounts required by law to be withheld.
3.
Confidentiality
.
3.1
Company
Information
.
Executive agrees at all times during the term of my employment and thereafter,
to hold in strictest confidence, and not to use, except for the benefit of
the
Company, or to disclose to any person, firm or corporation without written
authorization of the CEO any Confidential Information of the Company, except
under a non-disclosure agreement duly authorized and executed. Executive
understands that “Confidential Information” means any non-public information
that relates to the actual or anticipated business or research and development
of the Company, technical data, trade secrets or know-how, including, but not
limited to, research, product plans or other information regarding Company’s
products or services and markets therefore, customer lists and customers
software, developments, inventions, processes, formulas, technology, designs,
drawings, engineering, hardware configuration information, marketing, finances
or other business information. Executive further understands that Confidential
Information does not include any of the foregoing items which have become
publicly known and made generally available through no wrongful act of mine
or
of others who were under confidentiality obligations as to the item or items
involved or improvements or new versions thereof.
3.2
Former
Employer Information
.
Executive agrees that be will not, during my employment with the Company,
improperly use or disclose any proprietary information or trade secrets of
any
former or concurrent employer or other person or entity and that Executive
will
not bring onto the premises of the Company any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
3.3
Third
Party Information
.
Executive recognizes that the Company has received and in the future will
receive from third parties their confidential or proprietary information subject
to a duty on the Company’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes. Executive agrees
to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to
use
it except as necessary in carrying out my work for the Company consistent with
the Company’s agreement with such third party.
4.
Inventions
.
4.1
Inventions
Retained and Licensed
.
Executive has attached hereto, as
Exhibit A
,
a list
describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made prior to his employment with
the
Company (collectively referred to as “
Prior
Inventions
”),
which
belong to Executive, which relate to the Company’s proposed business, products
or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, Executive represents that there
are
no such Prior Inventions. If in the course of Executive’s employment with the
Company, Executive incorporates into a Company product, process or service
a
Prior Invention owned by Executive or in which Executive has an interest,
Executive hereby grants to the Company a nonexclusive, royalty-free, fully
paid-up, irrevocable, perpetual, worldwide license to make, have made, modify,
use and sell such Prior Invention as part of or in connection with such product,
process or service, and to practice any method related thereto.
4.2
Assignment
of Inventions
.
Executive agrees that he will promptly make full written disclosure to the
Company, will hold in trust for the sole right and benefit of the Company,
and
hereby assign to the Company, or its designee, all my right, title, and interest
in and to any and all inventions, original works of authorship, developments,
concepts, improvements, designs, discoveries, ideas, trademarks or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which relate to the field of the Company stated in Preliminary
Recital A and which Executive may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to
practice, during the period of time Executive is in the employ of the Company
(collectively referred to as “
Inventions
”).
Executive further acknowledges that all original works of authorship which
are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are “works made for hire,” as that term is defined in the United States
Copyright Act. Executive understands and agrees that the decision whether or
not
to commercialize or market any invention developed by me solely or jointly
with
others is within the Company’s sole discretion and for the Company’s sole
benefit and that no royalty will be due to him as a result of the Company’s
efforts to commercialize or market any such invention.
4.3
Inventions
Assigned to the United States
.
Executive agrees to assign to the United States government all my right, title,
and interest in and to any and all Inventions required by
Section 4.2
above
whenever such full title is required to be in the United States by a contract
between the Company and the United States or any of its agencies.
4.4
Maintenance
of Records
.
Executive agrees to keep and maintain adequate and current written records
of
all Inventions made by me (solely or jointly with others) during the term and
as
part the normal duties of my employment with the Company. The records will
be in
the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
4.5
Patent
and Copyright Registrations
.
Executive agrees to assist the Company, or its designee, at the Company’s
expense, in every proper way to secure the Company’s rights in the above
mentioned (
Section 4.2
)
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the
disclosure to the Company of all pertinent information and data with respect
thereto, the execution of all applications, specifications, oaths, assignments
and all other instruments which the Company shall deem necessary in order to
apply for and obtain such rights and in order to assign and convey to the
Company, its successors, assigns, and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights, patents,
mask
work rights or other intellectual property rights relating thereto. Executive
further agree that my obligation to execute or cause to be executed, when it
is
in my power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If the Company is unable because of my mental
or
physical incapacity or for any other reason to secure my signature to apply
for
or to pursue any application for any United States or foreign patents or
copyright registrations covering inventions or original works of authorship
assigned to the Company as above, then Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as his
agent and attorney in fact, to act for and in his behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts
to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
him.
5.
Conflicting
Employment
.
Executive agrees that, during the term of his employment with the Company,
Executive will not engage in any other employment, occupation or consulting
directly related to the business in which the Company is now involved or becomes
involved during the term of my employment, nor will Executive engage in any
other activities that conflict with my obligations to the Company, unless
written consent is given by the Board of Directors of the Company.
6.
Returning
Company Documents
.
Executive agrees that, at the time of leaving the employ of the Company, he
will
deliver to the Company (and will not keep in his possession, recreate or deliver
to anyone else) any and all devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings, blueprints, sketches,
materials, equipment, other documents or property, or reproductions of any
aforementioned items developed by Executive pursuant to his employment with
the
Company or otherwise belonging to the Company, its successors or assigns,
including, without limitation, those records maintained pursuant to
paragraph 4.4. In the event of the termination of Executive’s employment,
Executive agrees to sign and deliver the ‘
Termination
Certification
”
attached hereto as
Exhibit B
.
7.
Notification
of New Employer
.
In the
event that Executive leaves the employ of the Company, Executive hereby grants
consent to notification by the Company to my new employer about my rights and
obligations under this Agreement.
8.
Solicitation
of Employees
Executive agrees that for a period of twelve (12) months immediately following
the termination of my relationship with the Company for any reason, whether
with
or without cause, Executive shall not either directly or indirectly solicit,
induce, recruit or encourage any of the Company’s employees to leave their
employment, or take away such employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Company, either for myself or for any
other person or entity.
9.
Non-Competition
.
Executive agrees that during the period of employment and for a period of
two (2) year immediately following the termination of his relationship with
the Company for any reason, whether with or without cause, Executive shall
not
directly or indirectly own, manage, operate, consult or to be employed in a
business substantially similar to or competitive with, the present business
of
the Company and its successors and assigns or such other business activity
in
which the Company and its successors and assigns may substantially engage during
the term of employment (bio-defense and anti-cancer drug development employing
concepts of apoptosis).
10.
Conflict
of Interest Guidelines
.
Executive agrees to diligently adhere to the Conflict of Interest Guidelines
attached as
Exhibit C
hereto.
11.
Representations
.
Executive agrees to execute any proper oath or verify any proper document
required to carry out the terms of this Agreement. Executive represents that
his
performance of all the terms of this Agreement will not breach any agreement
to
keep in confidence proprietary information acquired by Executive in confidence
or in trust prior to Executive’s employment by the Company. Executive hereby
represents and warrants that Executive has not entered into, and Executive
will
not enter into, any oral or written agreement in conflict herewith.
12.
Policy
Manual
.
Executive agrees that he is responsible for knowing the contents of the
Company’s Policy Manual (when developed), the contents of which may be modified
or eliminated at any time.
13.
Arbitration
and Equitable Relief
.
13.1
Arbitration
.
IN
CONSIDERATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY, ITS PROMISE TO ARBITRATE
ALL EMPLOYMENT-RELATED DISPUTES AND EXECUTIVE RECEIPT OF THE COMPENSATION,
PAY
RAISES, AND OTHER BENEFITS PAID TO EXECUTIVE BY THE COMPANY, AT PRESENT AND
IN
THE FUTURE, EXECUTIVE AGREES THAT ANY AND ALL CONTROVERSIES, CLAIMS OR DISPUTES
WITH ANYONE (INCLUDING THE COMPANY AND ANY EMPLOYEE, OFFICER, DIRECTOR,
SHAREHOLDER OR BENEFIT PLAN OF THE COMPANY IN THEIR CAPACITY AS SUCH OR
OTHERWISE) ARISING OUT OF, RELATING TO, OR RESULTING FROM EXECUTIVE EMPLOYMENT
WITH THE COMPANY OR THE TERMINATION OF EXECUTIVE EMPLOYMENT WITH THE COMPANY,
INCLUDING ANY BREACH OF THIS AGREEMENT, SHALL BE SUBJECT TO ARBITRATION UNDER
THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION. DISPUTES WHICH EXECUTIVE
AGREES TO ARBITRATE, AND THEREBY AGREES TO WAIVE ANY RIGHT TO A TRIAL BY JURY,
INCLUDE ANY STATUTORY CLAIMS UNDER STATE OR FEDERAL LAW, INCLUDING, BUT NOT
LIMITED TO, CLAIMS UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE
AMERICANS WITH DISABILITIES ACT OF 1990, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967 OR THE OLDER WORKERS BENEFIT PROTECTION ACT. EXECUTIVE FURTHER
UNDERSTANDS THAT THIS AGREEMENT TO ARBITRATE ALSO APPLIES TO ANY DISPUTES THAT
THE COMPANY MAY HAVE WITH EXECUTIVE.
13.2
Procedure
.
EXECUTIVE AGREES THAT ANY ARBITRATION WILL BE ADMINISTERED BY THE AMERICAN
ARBITRATION ASSOCIATION (“
AAA
”)
AND
THAT THE NEUTRAL ARBITRATOR WILL BE SELECTED IN A MANNER CONSISTENT WITH ITS
NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES. EXECUTIVE AGREES
THAT
THE ARBITRATOR SHALL HAVE THE POWER TO DECIDE ANY MOTIONS BROUGHT BY ANY PARTY
TO THE ARBITRATION, INCLUDING MOTIONS FOR SUMMARY JUDGMENT AND/OR ADJUDICATION
AND MOTIONS TO DISMISS AND DEMURRERS, PRIOR TO ANY ARBITRATION HEARING.
EXECUTIVE ALSO AGREES THAT THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY
REMEDIES, INCLUDING ATTORNEYS’ FEES AND COSTS, AVAILABLE UNDER APPLICABLE LAW.
EXECUTIVE UNDERSTANDS THE COMPANY WILL PAY FOR ANY ADMINISTRATIVE OR HEARING
FEES CHARGED BY THE ARBITRATOR OR AAA EXCEPT THAT EXECUTIVE SHALL PAY THE FIRST
$125.00 OF ANY FILING FEES ASSOCIATED WITH ANY ARBITRATION EXECUTIVE INITIATES.
EXECUTIVE AGREES THAT THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY
ARBITRATION IN A MANNER CONSISTENT WITH THE AAA’S RULES AND THAT TO THE EXTENT
THAT THE AAA’S NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES CONFLICT
WITH THE RULES, THE RULES SHALL TAKE PRECEDENCE. EXECUTIVE AGREES THAT THE
DECISION OF THE ARBITRATOR SHALL BE IN WRITING.
13.3
Remedy
.
If
after both parties have executed reasonable, good faith efforts to reach
agreement through the arbitration process, either party concludes that the
outcome is not acceptable, further remedy may then be pursued via the court
system.
13.4
Availability
of Injunctive Relief
.
IN
ADDITION TO THE RIGHT UNDER THE RULES TO PETITION THE COURT FOR PROVISIONAL
RELIEF, EXECUTIVE AGREES THAT ANY PARTY MAY ALSO PETITION THE COURT FOR
INJUNCTIVE RELIEF WHERE EITHER PARTY ALLEGES OR CLAIMS A VIOLATION OF THIS
EMPLOYMENT AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY OR ANY OTHER AGREEMENT
REGARDING TRADE SECRETS, CONFIDENTIAL INFORMATION OR NONSOLICITATION. EXECUTIVE
UNDERSTANDS THAT ANY BREACH OR THREATENED BREACH OF SUCH AN AGREEMENT WILL
CAUSE
IRREPARABLE INJURY AND THAT MONEY DAMAGES WILL NOT PROVIDE AN ADEQUATE REMEDY
THEREFOR AND BOTH PARTIES HEREBY CONSENT TO THE ISSUANCE OF AN INJUNCTION.
IN
THE EVENT EITHER PARTY SEEKS INJUNCTIVE RELIEF, THE PREVAILING PARTY SHALL
BE
ENTITLED TO RECOVER REASONABLE COSTS AND ATTORNEYS FEES.
13.5
Administrative
Relief
.
EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT DOES NOT PROHIBIT HIM FROM PURSUING
AN
ADMINISTRATIVE CLAIM WITH A LOCAL, STATE OR FEDERAL ADMINISTRATIVE BODY SUCH
AS
THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING, THE EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION OR THE WORKERS’ COMPENSATION BOARD.
13.6
Voluntary
Nature of Agreement
.
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE IS EXECUTING THIS AGREEMENT
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE
ELSE. EXECUTIVE FURTHER ACKNOWLEDGES AND AGREES THAT HE HAS CAREFULLY READ
THIS
AGREEMENT AND THAT HE HAS ASKED ANY QUESTIONS NEEDED FOR HIM TO UNDERSTAND
THE
TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND
IT, FINALLY, EXECUTIVE AGREES THAT HE HAS BEEN PROVIDED AN OPPORTUNITY TO SEEK
THE ADVICE OF AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS
AGREEMENT.
14.
Miscellaneous
.
14.1
Income
Tax Treatment
.
Executive and the Company acknowledge that it is the intention of the Company
to
deduct all amounts paid under
Section 2
hereof
as ordinary and necessary business expenses for income tax purposes. Executive
agrees and represents that he will treat all amounts paid hereunder as ordinary
income (except for expense reimbursement) for income tax purposes.
14.2
Assignment
.
Executive may not assign any of his rights or obligations hereunder without
the
written consent of the Company. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or
not.
14.3
Severability
.
Whenever possible, each provision of this Agreement shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition
or
invalidity without invalidating the remainder of this Agreement.
14.4
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the
same Agreement.
14.5
Descriptive
Headings; Interpretation
.
The
descriptive headings in this Agreement are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. The use of the word “including” in this
Agreement shall be by way of example rather than by limitation.
14.6
Notices
.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given if (i) delivered personally to the
recipient, (ii) sent to the recipient by reputable express courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or (iii) transmitted by
telecopy to the recipient with a confirmation copy to follow the next day to
be
delivered by overnight carrier. Such notices, demands and other communications
shall be sent to the addresses indicated below:
|
To
the Company:
|
Cleveland
BioLabs, Inc.
|
|
|
_________________________________
|
|
|
_________________________________
|
|
|
Attention:
Chief
Executive Officer
|
|
|
Facsimile:
_____________________
|
|
with
a copy to:
|
Katten
Muchin Zavis Rosenman LLP
|
|
|
Attention:
Kurt W. Florian, Esq.
|
|
|
Facsimile:
(312) 902-1061
|
|
To
Executive:
|
Farrel
Fort
|
|
|
Facsimile:
_____________________
|
|
with
a copy to:
|
Speranza
& Bates
|
|
|
1401
North Western Avenue
|
|
|
Facsimile:
(847)
615-1096
|
or
to
such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Date
of
service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) one day after the date of delivery to the overnight
courier if sent by overnight courier or (z) the next business day after the
date of transmittal by telecopy.
14.7
Preamble;
Preliminary Recitals
.
The
Preliminary Recitals set forth in the Preamble hereto are hereby incorporated
and made part of this Agreement.
14.8
Entire
Agreement
.
Except
as otherwise expressly set forth herein, this Agreement, including
Exhibits A, B, C, D, and E and the Restricted Stock Agreement mentioned in
Section 2.3
.
sets
forth the entire understanding of the parties, and supersedes and preempts
all
prior oral or written understandings and agreements with respect to the subject
matter hereof.
14.9
Governing
Law
.
This
Agreement shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Agreement shall be governed by, the laws of the State of Ohio without giving
effect to provisions thereof regarding conflict of laws.
14.10
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.
14.11
Amendment
and Waivers
.
Any
provisions of the Agreement may be amended or waived only with the prior written
consent of the Company and Executive.
Date:
June
1, 2005
|
|
|
|
|
|
|
/s/ Farrel
L. Fort
|
|
|
|
Signature
|
|
|
|
Farrel
L. Fort,
Ph.D.,
MBA, DABT
Name
of Executive (typed or printed)
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
/s/ Michael
Fonstein
|
|
|
|
By: Michael
Fonstein
|
|
|
|
Its:
CEO
|
Exhibit
A
LIST
OF PRIOR INVENTIONS
AND
ORIGINAL WORKS OF AUTHORSHIP
Title
|
|
Date
|
|
Identifying
Number
or
Brief Description
|
|
|
|
|
|
|
|
|
|
|
__
X
_
No
inventions or improvements
____
Additional
Sheets Attached
Signature
of Executive:
/s/
Farrel L. Fort
Print
Name of Executive:
Farrel
L. Fort
Date:
June
1, 2005
Exhibit
B
CLEVELAND
BIOLABS, INC.
TERMINATION
CERTIFICATION
This
is
to certify that the undersigned does not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Cleveland BioLabs, Inc., its subsidiaries, affiliates,
successors or assigns (together, the “Company”).
I
further
certify that I have complied with all the terms of the Company’s Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I
further
agree that, in compliance with the Employment Agreement, I will preserve as
confidential all trade secrets, confidential knowledge, data or other
proprietary information relating to products, processes, know-how, designs,
formulas, developmental or experimental work, computer programs, data bases,
other original works of authorship, customer lists, business plans, financial
information or other subject matter pertaining to any business of the Company
or
any of its employees, clients, consultants or licensees.
I
further
agree that for twelve (12) months from this date, I will not solicit, induce,
recruit or encourage any of the Company’s employees to leave their
employment.
I
further
agree that for twelve (12) months from this date I will not directly or
indirectly own, manage, operate, consult or to be employed in a business
substantially similar to, or competitive with, the present business of the
Company and its successors and assigns or such other business activity in which
the Company and its successors and assigns may substantially engage during
the
term of employment.
Date:
__________________
(Employee’
Signature)___________________
_______________________________
(Type/Print
Employee’s Name)
Exhibit
C
CLEVELAND
BIOLABS, INC.
CONFLICT
OF INTEREST GUIDELINES
It
is the
policy of Cleveland BioLabs, Inc. to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles
of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1.
Revealing
confidential information to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this policy whether
or
not for personal gain and whether or not harm to the Company is intended. (The
Employment Agreement elaborates on this principle and is a binding
agreement.)
2.
Accepting
or offering substantial gifts, excessive entertainment, favors or payments
which
may be deemed to constitute undue influence or otherwise be improper or
embarrassing to the Company.
3.
Participating
in civic or professional organizations that might involve divulging confidential
information of the Company.
4.
Initiating
or approving personnel actions affecting reward or punishment of employees
or
applicants where there is a family relationship or is or appears to be a
personal or social involvement.
5.
Initiating
or approving any form of personal or social harassment of
employees.
6.
Investing
or holding outside directorship in suppliers, customers, or competing companies,
including financial speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
7.
Borrowing
from or lending to employees, customers or suppliers.
8.
Acquiring
real estate of interest to the Company.
9.
Improperly
using or disclosing to the Company any proprietary information or trade secrets
of any former or concurrent employer or other person or entity with whom
obligations of confidentiality exist.
10.
Unlawfully
discussing prices, costs, customers, sales or markets with competing companies
or their employees.
11.
Making
any unlawful agreement with distributors with respect to prices.
12.
Improperly
using or authorizing the use of any inventions which are the subject of patent
claims of any other person or entity.
13.
Engaging
in any conduct which is not in the best interest of the Company.
Each
officer, employee and independent contractor must take every necessary action
to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
Exhibit
D
CLEVELAND
BIOLABS, INC.
TRAVEL
ARRANGEMENTS
It
is
understood that primary work location of Dr. Fort is Chicago and he will conduct
his duties staying there most of the time.
It
is
expected that he will be visiting CBL Cleveland location approximately 3
days each 2 weeks. The company will be responsible for transportation, housing
expenses and health insurance during this time.
Attending
various professional conferences is a part of Dr. Fort’s job responsibilities
which will be supported by adequate travel budget.
Exhibit
E
Cleveland
BioLabs, Inc.
Job
Description
V.P.
Drug Development
Scope:
All
development activities for declared drug candidates intended to meet regulatory,
scientific and commercial requirements for regulatory approval and launch of
new
or improved therapeutics. Specifically, this includes the following functional
responsibilities:
|
·
|
Preclinical
safety assessment
|
|
·
|
Formulation
development
|
|
·
|
Manufacturing
and controls required for drug development and
approval
|
This
position also participates in business development and corporate promotional
activities in collaboration with the executive office.
Accountability:
This
position reports to the CEO and is responsible for achieving drug development
milestones for declared drug candidates. Successful milestones will include
critical go/no-go decision points, regulatory submissions and approvals, and
scientific integrity of the data supporting these milestones.
Implementation:
The
above milestones will be achieved utilizing external capacity resources
including licensing partners and collaborators. External resources will be
managed by internal personnel with appropriate expertise. As required by various
drug development projects, the V.P. Drug Development will hire and lead small
expert teams in the above functional areas.
AMENDMENT
TO
EMPLOYMENT
AGREEMENT
THIS
AMENDMENT TO EMPLOYMENT AGREEMENT
(“
Amendment
”)
is
made as of September 30, 2005, by and among Cleveland BioLabs, Inc., a
Delaware corporation (the “
Company
”),
and
Dr. Farrel L. Fort (the “
Executive
”).
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Employment Agreement.
RECITALS
WHEREAS
,
the
Company and the Executive have entered into that certain Employment Agreement,
dated as of June 1, 2005 (the “
Employment
Agreement
”);
and
WHEREAS
,
the
Company and the Executive wish to amend and restate Section 2.3 of the
Employment Agreement in its entirety;
NOW,
THEREFORE
,
for
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
2.3
.
Section
2.3 of the Employment Agreement is hereby amended and restated in its entirety
to read as follows:
“2.3
Incentive
Stock
The
Company shall enter into a stock option agreement with the Executive granting
the Executive an option to purchase 190,000 shares of the Company’s common stock
pursuant to the vesting schedule provided for therein.”
2.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Employment Agreement. The
terms of the Employment Agreement not affected, modified or changed by this
Amendment shall remain in full force and effect.
3.
References
.
Each
reference in the Employment Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein”, or words of like import shall mean and be a reference to the
Employment Agreement as amended hereby, and each reference to the Employment
Agreement in any other document, instrument or agreement shall mean and be
a
reference to the Employment Agreement as amended hereby.
4.
Counterparts
.
This
Amendment may be executed in two counterparts, each of which shall be deemed
an
original, but both of which together shall constitute one and the same
instrument. Facsimile signatures shall be accepted as originals.
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
|
|
|
|
THE
COMPANY
:
|
|
Cleveland BioLabs, Inc.
,
a
Delaware corporation
|
|
|
|
|
|
/s/ Michael
Fonstein
|
|
Name:
Michael
Fonstein
|
|
Title:
CEO
|
|
|
|
|
|
|
|
|
|
|
THE
EXECUTIVE
:
|
|
|
|
|
|
/s/ Farrel
L.
Fort
|
|
Farrel
L. Fort, Ph.D., MBA, DABT
|
|
|
AMENDMENT
TO
CONSULTING
AGREEMENT
THIS
AMENDMENT TO CONSULTING AGREEMENT
(“
Amendment
”)
is
made as of January 23, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Dr.
Andrei Gudkov (the “
Consultant
”).
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Consulting Agreement.
R
E C I T A L S
WHEREAS
,
the
Company and the Consultant have entered into that certain Consulting Agreement,
dated as of August 1, 2004 (the “
Consulting
Agreement
”);
and
WHEREAS
,
the
Company and the Consultant wish to amend and restate Section 2 in its entirety,
the first sentence of Section 3 of the Consulting Agreement in its entirety
and
Section 4 of the Consulting Agreement as provided below;
NOW
,
THEREFORE
,
for
good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
2
.
Section
2 of the Consulting Agreement is hereby amended and restated in its entirety
to
read as follows:
“2.
Term.
This
Agreement shall commence on the date hereof and shall continue until December
31, 2008 (the “Consultation Period”), unless earlier terminated in accordance
with the provisions of Section 4.”
2.
Section
3
.
Section
3
of the Consulting Agreement is hereby amended and restated in its entirety
to
read as follows:
“3.
Compensation
.
Company
will pay to a consultant a monthly fee of $5,833.33 based on a work load of
approximately 25 hours per month.”
3.
Section
4
.
The
sentence of Section 4 which reads “Either party may terminate the Agreement,
without cause, upon 30 days notice in writing to the other party” is hereby
deleted and Section 4 of the Consulting Agreement is hereby amended and restated
in its entirety to read as follows:
“4.
Termination.
The
Company may terminate the Consultation Period, effective immediately upon
receipt of written notice, but only if the Consultant (a) breaches or threatens
to breach any provision of Section 6, (b) engages in any malfeasance,
misconduct, or conduct likely to cause reputational harm to the Company, (c)
enters into a relationship with any third party which creates a conflict of
interest with his Consulting Services for the Company, or (d) dies or becomes
physically or mentally disabled such that, in the Company’s reasonable judgment,
he cannot perform the duties contemplated hereunder, and any such termination
under (a), (b), (c) or (d) shall be deemed “for cause” termination. Following
termination, the Company shall pay all fees owing for services rendered prior
to
the termination date, as such fees become payable.”
4.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Consulting Agreement. The
terms of the Consulting Agreement not affected, modified or changed by this
Amendment shall remain in full force and effect.
5.
References
.
Each
reference in the Consulting Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein”, or words of like import shall mean and be a reference to the
Consulting Agreement as amended hereby, and each reference to the Consulting
Agreement in any other document, instrument or agreement shall mean and be
a
reference to the Consulting Agreement as amended hereby.
6.
Counterparts
.
This
Amendment may be executed in two counterparts, each of which shall be deemed
an
original, but both of which together shall constitute one and the same
instrument. Facsimile signatures shall be accepted as originals.
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
THE
COMPANY
:
Cleveland
BioLabs
,
Inc.
,
a
Delaware corporation
/s/
Michael
Fonstein
By:
Michael
Fonstein
Its:
President
and Chief Executive Officer
THE
EXECUTIVE
:
/s/
Andrei
Gudkov
By:
Andrei
Gudkov
AMENDMENT
TO
RESTRICTED
STOCK AGREEMENT
THIS
AMENDMENT TO RESTRICTED STOCK AGREEMENT
(“
Amendment
”)
is
made
as of January 23, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Michael Fonstein (the “
Executive
”).
Capitalized
terms not otherwise defined herein shall have the meaning ascribed to such
terms
in the Restricted Stock Agreement.
R
E C I T A L S
WHEREAS
,
the
Company and the Executive have entered into that certain Restricted Stock
Agreement, dated as of July 5, 2003 (the “
Restricted
Stock Agreement
”);
and
WHEREAS
,
the
Company and the Executive wish to amend and restate the definition of “Qualified
Public Offering” in its entirety and make certain other changes to the
Restricted Stock Agreement;
NOW
,
THEREFORE
,
for
good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
6
.
The
definition of “Qualified Public Offering” in Section 6 of the Restricted Stock
Agreement is hereby amended and restated in its entirety to read as
follows:
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $7.5 million.”
2.
Section
7
.
The
following portion of Section 7 of the Restricted Stock Agreement is hereby
amended and restated in its entirety to read as follows:
“
With
a
copy to
:
Katten
Muchin Rosenman
525
West
Monroe Street
Chicago,
Illinois 60661
Fax: (312) 577-8733
Tel: (312) 902-5520
Attn: Ram
Padmanabhan, Esq.”
3.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Restricted Stock Agreement.
The terms of the Restricted Stock Agreement not affected, modified or changed
by
this Amendment shall remain in full force and effect.
4.
References
.
Each
reference in the Restricted Stock Agreement to “this Agreement”, “hereunder”,
“hereof’, “herein”, or words of like import shall mean and be a reference to the
Restricted Stock Agreement as amended hereby, and each reference to the
Restricted Stock Agreement in any other document, instrument or agreement shall
mean and be a reference to the Restricted Stock Agreement as amended
hereby.
5.
Counterparts
.
This
Amendment may be executed in two counterparts, each of which shall be deemed
an
original, but both of which together shall constitute one and the same
instrument. Facsimile signatures shall be accepted as originals.
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
THE
COMPANY
:
Cleveland
BioLabs
,
Inc
.,
a
Delaware corporation
/s/
Michael
Fonstein
By:
Michael
Fonstein
Its:
President
and Chief Executive Officer
THE
EXECUTIVE
:
/s/
Michael
Fonstein
Michael
Fonstein
AMENDMENT
TO
RESTRICTED
STOCK AGREEMENT
THIS
AMENDMENT TO RESTRICTED STOCK AGREEMENT
(“
Amendment
”)
is
made
as of January 23, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Yakov
Kogan (the “
Executive
”).
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Restricted Stock Agreement.
R
E C I T A L S
WHEREAS
,
the
Company and the Executive have entered into that certain Restricted Stock
Agreement, dated as of July 5, 2003 (the “
Restricted
Stock Agreement
”);
and
WHEREAS
,
the
Company and the Executive wish to amend and restate the definition of “Qualified
Public Offering” in its entirety and make certain other changes to the
Restricted Stock Agreement;
NOW,
THEREFORE
,
for
good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
6
.
The
definition of “Qualified Public Offering” in Section 6 of the Restricted Stock
Agreement is hereby amended and restated in its entirety to read as
follows:
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $7.5 million.”
2.
Section
7
.
The
following portion of Section 7 of the Restricted Stock Agreement is hereby
amended and restated in its entirety to read as follows:
“
With
a
copy to:
Katten
Muchin Rosenman
525
West
Monroe Street
Chicago,
Illinois 60661
Fax:
(312)
577-8733
Tel:
(312)
902-5520
Attn:
Ram
Padmanabhan, Esq.”
3.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Restricted Stock Agreement.
The terms of the Restricted Stock Agreement not affected, modified or changed
by
this Amendment shall remain in full force and effect.
4.
References
.
Each
reference in the Restricted Stock Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein”, or words of like import shall mean and be a reference to the
Restricted Stock Agreement as amended hereby, and each reference to the
Restricted Stock Agreement in any other document, instrument or agreement shall
mean and be a reference to the Restricted Stock Agreement as amended
hereby.
5.
Counterparts
.
This
Amendment may be executed in two counterparts, each of which shall be deemed
an
original, but both of which together shall constitute one and the same
instrument. Facsimile signatures shall be accepted as originals.
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
|
|
|
|
THE
COMPANY
:
Cleveland BioLabs
,
Inc.
,
a
Delaware corporation
|
|
|
|
|
By:
|
/s/ Michael
Fonstein
|
|
|
Michael
Fonstein
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
THE EXECUTIVE
:
|
|
|
|
|
|
|
|
By:
|
/s/
Yakov
Kogan
|
|
Yakov
Kogan
|
|
|
AMENDMENT
TO
RESTRICTED
STOCK AGREEMENT
THIS
AMENDMENT TO RESTRICTED STOCK AGREEMENT
(“
Amendment
”)
is
made
as of January 23, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
Andrei Gudkov (the “
Executive
”).
Capitalized
terms not otherwise defined herein shall have the meaning ascribed to such
terms
in the Restricted Stock Agreement.
RECITALS
WHEREAS
,
the
Company and the Executive have entered into that certain Restricted Stock
Agreement, dated as of July 5, 2003 (the “
Restricted
Stock Agreement
”);
and
WHEREAS
,
the
Company and the Executive wish to amend and restate the definition of “Qualified
Public Offering” in its entirety and make certain other changes to the
Restricted Stock Agreement;
NOW
,
THEREFORE
,
for
good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
6
.
The
definition of “Qualified Public Offering” in Section 6 of the Restricted Stock
Agreement is hereby amended and restated in its entirety to read as
follows:
“
Qualified
Public Offering
”
means
the sale in an underwritten public offering registered under the Securities
Act
of shares of the Company’s Common Stock approved by the Board resulting in net
proceeds to the Company of no less than $7.5 million.”
2.
Section
7
.
The
following portion of Section 7 of the Restricted Stock Agreement is hereby
amended and restated in its entirety to read as follows:
“
With
a
copy to:
Katten
Muchin Rosenman
525
West
Monroe Street
Chicago,
Illinois 60661
Fax:
(312)
577-8733
Tel:
(312)
902-5520
Attn:
Ram
Padmanabhan, Esq.”
3.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Restricted Stock Agreement.
The terms of the Restricted Stock Agreement not affected, modified or changed
by
this Amendment shall remain in full force and effect.
4.
References
.
Each
reference in the Restricted Stock Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein”, or words of like import shall mean and be a reference to the
Restricted Stock Agreement as amended hereby, and each reference to the
Restricted
Stock Agreement in any other document, instrument or agreement shall mean and
be
a
reference to the Restricted Stock Agreement as amended hereby.
5.
Counterparts
.
This
Amendment may be executed in two counterparts, each of which shall be deemed
an
original, but both of which together shall constitute one and the same
instrument. Facsimile signatures shall be accepted as originals.
[Signature
Page Follows]
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
|
|
|
|
|
|
|
THE COMPANY
:
|
|
|
|
|
|
Cleveland BioLabs
,
Inc
.,
a Delaware corporation
|
|
|
|
|
|
/s/ Michael
Fonstein
|
|
By:
Michael
Fonstein
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
THE EXECUTIVE
:
|
|
|
|
|
|
/s/ Andrei
Gudkov
|
|
By:
Andrei
Gudkov
|
|
|
AMENDMENT
TO
COMMON
STOCKHOLDERS AGREEMENT
THIS
AMENDMENT TO COMMON STOCKHOLDERS AGREEMENT
(“
Amendment
”)
is
made
as of January 26, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
and
the
Stockholders party thereto. Capitalized terms not otherwise defined herein
shall
have the meaning ascribed to such terms in the Common Stockholders
Agreement.
RECITALS
WHEREAS
,
the
Company and the Stockholders have entered into that certain Common Stockholders
Agreement, dated as of July 1, 2004 (the “
Common
Stockholders Agreement
”);
and
WHEREAS
,
the
parties to the Common Stockholders Agreement wish to amend and restate Sections
1(j) and 2(d) of the Common Stockholders Agreement in their
entirety.
NOW
,
THEREFORE
,
for
good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
1(j)
.
Section
1(j) of the Common Stockholders Agreement is hereby amended and restated in
its
entirety to read as follows:
“
Qualified
IPO
”
means
a
fully underwritten firm commitment public offering of shares of Common Stock
consummated pursuant to a registration statement declared effective under the
Securities Act, other than an offering made in connection with a business
acquisition or combination or an employee benefit plan, in which the aggregate
gross proceeds to the Company after deducting underwriters’ discounts and
commissions and related offering expenses equals or exceeds Fifteen Million
Dollars ($15,000,000).”
2.
Section
2(d)
.
Section
2(d) of the Common Stockholders Agreement is hereby amended and restated in
its
entirety to read as follows:
“Notwithstanding
the foregoing, the provisions of this Section 2 will terminate automatically
and
be of no further force and effect upon the consummation of a Qualified IPO
or
upon consummation of any equity financing or series of equity financings after
January 1, 2006 in which the aggregate gross proceeds to the Company after
deducting underwriters’ discounts and commissions and related offering expenses
equals or exceeds Fifteen Million Dollars ($15,000,000);
provided
,
however
,
for as
long as CCF owns at least three percent (3%) of the shares of the Company on
a
fully diluted basis, CCF will be entitled to have one representative elected
to
the Board pursuant to the terms of this Section 2.”
3.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Common Stockholders Agreement.
The terms of the Common Stockholders Agreement not affected, modified or changed
by this Amendment shall remain in full force and effect.
4.
Counterparts
.
This
Amendment may be executed in two or more
counterparts,
each of which shall be deemed an original, but all of
which
together
shall constitute
one and
the same instrument. Facsimile signatures shall be accepted as
originals.
*
* *
*
Signature
Page Follows
E
I
N
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
|
|
|
|
THE
COMPANY
:
|
|
|
|
Cleveland
BioLabs
,
Inc.
,
a
Delaware
corporation
|
|
|
|
|
|
/s/
Michael
Fonstein
|
|
By:
Michael
Fonstein
|
|
Title:
President
and Chief Executive
Officer
|
[Signatures
Continue on Next Page]
|
COMMON
STOCKHOLDERS
|
|
|
|
|
|
/s/ Michael Fonstein
|
|
Michael
Fonstein
|
|
|
|
|
|
/s/
Yakov
Kogan
|
|
Yakov
Kogan
|
|
|
|
|
|
/s/
Elena
Feinstein
|
|
Elena Feinstein
|
|
|
|
|
|
/s/
George
R. Stark
|
|
George R. Stark
|
|
|
|
|
|
/s/
Mikhail
V. Chernov
|
|
Mikhail V. Chernov
|
|
|
|
|
|
/s/
Katerina
Gurova
|
|
Katerina Gurova
|
|
|
|
|
|
/s/
Vadim
Krivokrysenko
|
|
Vadim Krivokrysenko
|
[Signatures
Continue on Next Page]
|
|
|
ChemBridge
Corporation
|
|
|
|
|
|
|
By:
|
/s/
Sergey
Altshtein
|
|
Name:
Sergey
Altshtein
|
|
Title:
President
|
|
|
|
|
|
|
|
The
Cleveland Clinic Foundation
|
|
|
|
|
|
|
|
By:
|
/s/
Michael
P. O’Boyle
|
|
Name:
Michael
P. O’Boyle
|
|
Title:
Chief
Operating
Officer
|
|
|
|
|
|
|
|
|
/s/
Michael
P. O’Boyle
|
|
|
Andrei Gudkov
|
|
By:
|
The Cleveland Clinic Foundation,
|
|
as
attorney-in-fact
|
|
|
AMENDMENT
TO RIGHTS AGREEMENT
THIS
AMENDMENT TO RIGHTS AGREEMENT
(“
Amendment
”)
is
made as of February 17, 2006, by and among Cleveland BioLabs, Inc., a Delaware
corporation (the “
Company
”),
the
Common Stockholders and the Purchasers of the Series A Preferred Shares.
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Rights Agreement.
R
E C I T A L S
WHEREAS
,
the
Company and the Purchasers have entered into that certain Stock Purchase
Agreement dated as of March 15, 2005 (the “
Purchase
Agreement
”),
pursuant to which the Purchasers acquired shares of the Company’s Series A
Participating Convertible Preferred Stock, $0.005 par value per share
(collectively, the “
Series
A Preferred Shares
”);
WHEREAS
,
in
connection with the Purchase Agreement, the Company, the Common Stockholders
and
the Purchasers have agreed to the terms and conditions set forth in that certain
Series A Rights Agreement dated as of March 15, 2005, by and among the Company,
the Common Stockholders and the Purchasers (the “
Rights
Agreement
”).
WHEREAS
,
the
parties to the Rights Agreement wish to amend and restate Section 5(a) of the
Rights Agreement in its entirety;
NOW,
THEREFORE
,
for
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Section
5(a)
.
Section
5(a) of the Rights Agreement is hereby amended and restated in its entirety
to
read as follows:
“In
the
event that that Corporation has not consummated one of the Required Transactions
on or before the Public Trigger Date, the Corporation shall issue to each holder
of Registrable Securities, such number of additional Series A Preferred Shares
as shall equal 2% of the Series A Preferred Shares held by such holder (not
including any previously issued Penalty Shares), plus such number of additional
shares of Common Stock as shall equal 2% of the shares of Common Stock held
by
such holder (not including any previously issued Penalty Shares or shares of
Common Stock issuable upon conversion of Series A Preferred Stock, but including
Fee Securities and shares of Common Stock previously issued upon conversion
of
Series A Shares) for each thirty (30) day period beyond the Public Trigger
Date
that a Required Transaction has not been consummated; provided, however, Penalty
Shares shall not accrue for a period commencing on the initial filing date
of
any registration statement with the Commission (the “
Initial
Filing Date
”)
to and
including seventy (70) days thereafter, provided further, that, in the event
that effectiveness of such registration statement is delayed due to Commission
comments on such registration statement, and the Corporation is in good faith
responding to such comments in a timely manner and such comments do not preclude
the Corporation from going effective on such registration statement entirely,
such seventy (70) day period shall be extended (only once) for an additional
forty-five (45) day period (collectively, the “
Grace
Period
”).
For
the avoidance of doubt, the parties hereto agree that (i) the Initial Filing
Date is February 17, 2006, and (ii) the Grace Period shall not therefore, in
any
event, exceed one hundred fifteen (115) days from February 17,
2006.”
2.
No
Amendment or Waiver
.
The
execution, delivery and effectiveness of this Amendment shall not constitute
an
amendment or waiver of any other provision of the Rights Agreement. The terms
of
the Rights Agreement not affected, modified or changed by this Amendment shall
remain in full force and effect.
3.
Counterparts
.
This
Amendment may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. Facsimile signatures shall be accepted as originals.
*
* *
*
Signature
Page Follows
IN
WITNESS WHEREOF
,
the
undersigned or each of their respective duly authorized officers or
representatives have set their hands hereunder effective upon the date
referenced-above.
THE
COMPANY
:
Cleveland
BioLabs, Inc.
,
a
Delaware corporation
By:
_/s/
Michael Fonstein
______________
Name:
Michael Fonstein
Title:
President
and Chief Executive Officer
[Signatures
Continue on Next Page]
COMMON
STOCKHOLDERS
________________________________
Michael
Fonstein
________________________________
Yakov
Kogan
________________________________
Elena
Feinstein
________________________________
George
R.
Stark
________________________________
Mikhail
V. Chernov
________________________________
Katerina
Gurova
________________________________
Vadim
Krivokrysenko
[Signatures
Continue on Next Page]
ChemBridge
Corporation
By:
_________________________
Name:
_________________________
Title:
_________________________
The
Cleveland Clinic Foundation
By:
_________________________
Name:
_________________________
Title:
_________________________
________________________________
Andrei
Gudkov
[Signatures
Continue on Next Page]
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PURCHASERS
|
|
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|
INDIVIDUAL:
|
|
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|
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|
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|
|
Print
Name
|
|
|
|
|
|
|
|
|
Signature
|
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ENTITY:
|
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|
|
Print
Entity Name
|
|
|
|
|
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|
|
|
Signature
|
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Name
and Title of Signatory
|
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CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation in this Registration Statement on Form SB-2 of
Cleveland BioLabs, Inc. of our report dated February 7, 2006 relating to the
financial statements. We also consent to the reference to us as “Experts” under
the heading “Experts” in such Registration Statement.
/s/
Meaden & Moore, Ltd.
MEADEN
& MOORE, LTD.
Independent
Registered Public Accounting Firm
April
24,
2006
Consent
of Person Nominated to Become a Director
I,
Bernard L. Kasten, hereby consent to the use, in the Registration Statement
on
Form SB-2 of Cleveland BioLabs, Inc., a Delaware corporation (the “Company”), to
which this Consent is filed as an exhibit, of my name as a person nominated
to
become a director of the Company.
April
10,
2006
/s/
Bernard L. Kasten
Bernard
L. Kasten
Consent
of Person Nominated to Become a Director
I,
H.
Daniel Perez, hereby consent to the use, in the Registration Statement on Form
SB-2 of Cleveland BioLabs, Inc., a Delaware corporation (the “Company”), to
which this Consent is filed as an exhibit, of my name as a person nominated
to
become a director of the Company.
April
10,
2006
/s/
H.
Daniel Perez
H.
Daniel
Perez
Consent
of Person Nominated to Become a Director
I,
James
Antal, hereby consent to the use, in the Registration Statement on Form SB-2
of
Cleveland BioLabs, Inc., a Delaware corporation (the “Company”), to which this
Consent is filed as an exhibit, of my name as a person nominated to become
a
director of the Company.
April
10,
2006
/s/
James
Antal
James
Antal