SYMBOLLON CORPORATION
STOCK PURCHASE AGREEMENT
This Agreement dated as of August 4, 1997 is entered into by and
between Symbollon Corporation, a Delaware corporation, residing at 00 Xxxxxx
Xxxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx 00000 (the "Company"), and Bausch & Lomb
Pharmaceuticals, Inc., a Delaware corporation ("B&L"), residing at 0000 Xxxxxx
Xxxxx Xxxxxxx, Xxxxx, Xxxxxxx 00000 (B&L and any subsequent valid and permitted
transferee, shall hereinafter be collectively referred to as the "Purchaser").
Certain other terms are defined in Section 9 below.
A. The Company and B&L have entered into a Collaboration and
Sale/License Agreement of even date herewith (the "Collaboration and
Sale/License Agreement") pursuant to which the Company and B&L have provided for
the development and commercialization of products for the treatment of various
ophthalmic conditions;
B. In connection with the execution and delivery of the Collaboration
and Sale/License Agreement, the Purchaser desires to purchase, and the Company
desires to sell, shares of the Company's Class A Common Stock, $.001 par value
per share (the "Common Stock") upon the terms and conditions hereinafter
described.
In consideration of the mutual promises and covenants contained in the
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the Closings (as
defined in Section 2) will have, duly authorized and taken all such corporate
and other actions within its control as is necessary for the issuance, sale and
delivery, pursuant to the terms of this Agreement, of that number of shares of
the Common Stock that can be purchased for a purchase price of eight hundred
fifty thousand dollars ($850,000) as is determined by dividing $850,000 by the
applicable Market Price relevant thereto as defined in Section 2 below.
1.2 Sale of Shares. Subject to the terms and conditions of
this Agreement, at the First Closing (as defined in Section 2) the Company will
sell and issue to B&L, and B&L will purchase, for an aggregate purchase price of
$500,000 that number of shares of the Common Stock as is determined by dividing
$500,000 by the Market Price per share on the First Closing Date (the "First
Closing Shares"). Subject to the terms and conditions of this Agreement, at the
Second Closing (as defined in Section 2) the Company will sell and issue to B&L,
and B&L will purchase, for an aggregate purchase price of $350,000 that number
of shares of the Common Stock as is determined by dividing $350,000 by the
Market Price per share on the Second Closing Date (the "Second Closing Shares").
The First Closing Shares and the Second Closing Shares are hereinafter referred
to collectively as the "Shares".
2. The Closings. The closing of the sale and purchase of the First
Closing Shares shall take place at the offices of the Company, or such other
mutually agreeable location as the parties may deem appropriate, on the date
hereof unless the parties shall otherwise agree in writing (the "First
Closing"). The closing of the sale to and purchase of the Second Closing Shares
shall take place at the offices of the Company, or such other mutually agreeable
location as the parties may deem appropriate, on the date the payment is due by
B&L to the Company pursuant to Section 6.2(b) of the Collaboration and
Sale/License Agreement, if and when such payment becomes due (the "Second
Closing").
The First Closing and the Second Closing are sometimes each referred to
hereinafter as a "Closing" and collectively as the "Closings". The date of the
First Closing is hereinafter referred to as the "First Closing Date" and the
date of the Second Closing is hereinafter referred to as the "Second Closing
Date".
At each of the Closings, the Company shall deliver to B&L certificates
for the number of Shares being purchased by B&L, registered in the name of B&L,
against payment to the Company of the purchase price therefor, by wire transfer.
The purchase price per share for the Shares to be purchased at the Closings
shall be the average of the closing price of the Common Stock for the
immediately preceding five trading days before the First Closing Date or the
Second Closing Date, as applicable (the "Market Price").
3. Representations of the Company. The Company hereby represents and
warrants to B&L as follows:
3.1 Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated hereby. The Company is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business transacted by it or the character or location of its properties
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect.
3.2 Capitalization. The authorized capital stock of the
Company as of the date hereof consists of 18,750,000 shares of the Common Stock,
1,250,000 shares of Class B Common Stock, $.001 par value per share, and
5,000,000 shares of Preferred Stock, $.001 par value per share, of which
2,913,234 shares of the Common Stock and 15,738 shares of Class B Common Stock
are outstanding as of the date hereof without taking into effect the
transactions contemplated by this Agreement. As of the date of this Agreement,
there are 1,572,080 Class A Warrants (each of which is exercisable to purchase
one share of Class A Common Stock and one Class B Warrant on the terms and
conditions thereof) and 1,227,920 Class B Warrants (each of which is exercisable
to purchase one share of Class A Common Stock on the terms and conditions
thereof) presently outstanding. As of the date of this Agreement, there are
options outstanding to purchase 100,000 Units (a Unit consists of one share of
Class A Common Stock, one Class A Warrant and one Class B Warrant), and 691,222
shares of Class A Common Stock. All shares outstanding on the date hereof are,
and any shares that will be issued under the terms and conditions of the
warrants and options referred to above, when issued in accordance with their
terms, will be, duly authorized, validly issued and fully paid and
nonassessable. There are no preemptive rights, rights of first refusal, or other
similar rights available to the existing holders of Common Stock or other
securities of the Company.
3.3 Issuance of Shares. The issuance, sale and delivery of the
Shares have been, or will be on or prior to the applicable Closing Date, duly
authorized by all necessary corporate action on the part of the Company. The
Shares, when issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement, will be duly and validly issued, fully
paid and non-assessable and free and clear of any liens or preemptive, rights of
first refusal, or other similar rights (other than Applicable Securities Laws
and the terms of this Agreement).
3.4 Authority for Agreement; No Conflicts. The execution,
delivery and performance by the Company of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and delivered
by the Company, and is enforceable against it in accordance with its terms,
except that such enforcement may be subject to applicable bankruptcy,
receivership, fraudulent transfer, moratorium and similar laws affecting
creditors' rights, and the remedy of specific performance and injunctive relief
may be subject to equitable defenses and to the discretion of the court for
which proceeding therefor may be brought. The execution and delivery of this
Agreement and performance of the transactions contemplated by this Agreement and
compliance with its provisions by the Company will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute a
default under, or require a consent or waiver under, its Certificate of
Incorporation or By-Laws (each as amended to date) or any indenture, lease,
agreement or other instrument to which the Company is party or by which it or
any of its properties is bound, or violate any decree, judgment, order, statute,
rule, regulation or other provision of law applicable to the Company, except in
each case as would not result in a Material Adverse Effect.
3.5 Governmental Consents. No consents, approval, order or
authorization of, or regulation, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Shares or the other transactions to be
consummated at any Closing, as contemplated by this Agreement, except for
compliance with the provisions of any laws as to which the failure to be made or
obtained would not result in a Material Adverse Effect and such filings as shall
have been made prior to and shall be effective on and as of the applicable
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission (the "Commission") under Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), or such post-closing
filings as may be required under applicable state securities laws, which will be
timely filed within the applicable periods therefor.
3.6 Corporate Condition. The Company's condition was, in all
material respects, as described in the Disclosure Documents at the respective
dates thereof, including without limitation the reports filed pursuant to the
Exchange Act. There has been no material adverse change in the Company's
business, financial condition or prospects since March 31, 1997. The Disclosure
Documents are true and correct as of their respective dates, in all material
respects, and the financial statements contained in the Disclosure Documents
have been prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present the financial position and results of
operation and cash flows of the Company, for the periods then ended. Without
limiting the foregoing as of the date hereof, there are no material pending or
threatened litigation or other material liabilities, contingent or actual, that
are not disclosed in the Disclosure Documents except as incurred in the ordinary
course of business since March 31, 1997. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not omit
to state any material fact required to be stated therein or herein necessary to
make statements contained therein or herein not misleading in the light of the
circumstances under which they were made.
3.7 Current Public Information. During the three months prior
to the execution of this Agreement, the Company has filed all the materials
required to be filed as reports pursuant to the Exchange Act on a timely basis.
4. Representations of the Purchaser. The Purchaser represents and
warrants to the Company as follows (such representations and warranties shall be
true and correct on the date hereof and on and as of the Second Closing Date):
4.1 Investment. The Purchaser is acquiring the Shares for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same. The Purchaser is an "Accredited Investor" within the
meaning of Rule 501(a)(3) of Regulation D under the Securities Act. The
Purchaser understands that the Shares have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions thereof which depends upon, among other things, the bona fide nature
of its investment intent as expressed herein. The Purchaser will not transfer
the Shares except in compliance with Applicable Securities Laws and the terms of
this Agreement.
4.2 Power and Authority. The Purchaser has the full power and
authority to execute, deliver and perform this Agreement. This Agreement, when
executed and delivered by the Purchaser, will constitute a valid and legally
binding obligation of the Purchaser, enforceable in accordance with its terms.
4.3 State of Jurisdiction. The Purchaser represents and
warrants that all matters and actions relevant to its considerations,
evaluations or executions of this Agreement or the transactions contemplated
hereby by its including, without limitation, the receipt of any offer to
purchase, the receipt and review of any documents or other materials relevant
hereto, the participation in any communications with the Company or any other
party, and the consummation of the transactions contemplated hereby occurred
solely in Florida or Massachusetts.
4.4 Independent Investigation. The Purchaser has relied solely
upon an independent investigation made by it and its representatives and has,
prior to the date hereof, been given access to and the opportunity to examine
all material contracts and documents of the Company which have been filed as
exhibits to the Company's filings made under the Securities Act and the Exchange
Act through publicly available means. The Purchaser has been provided with
copies of the Company's (i) Annual Report on Form 10-KSB for the year ended
December 31, 1996; (ii) Annual Report to Stockholders for the year ended
December 31, 1996, (iii) Registration Statement on Form S-3 filed with the
Commission on May 21, 1997, (iv) Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997; (v) Risk Factors, attached hereto as Exhibit 4.4, and (vi)
Proxy Statement dated April 9, 1997 (collectively, the "Disclosure Documents").
The Purchaser has requested, received, reviewed and considered all information
it deems relevant in making a decision to execute this Agreement and to purchase
the Shares. In making its investment decision to purchase the Shares, the
Purchaser is not relying on any oral or written representations or assurances
from the Company or any other person or any representation of the Company or any
other person other than as set forth in this Agreement, or the Disclosure
Documents.
4.5 Economic Risk. The Purchaser understands and acknowledges
that an investment in the Shares involves a high degree of risk. The Purchaser
acknowledges that there are limitations on the liquidity of the Shares. The
Purchaser represents that the Purchaser is able to bear the economic risk of an
investment in the Shares, including a possible total loss of investment. The
Purchaser has such knowledge and experience in financial and business matters
that the Purchaser is capable of evaluating the merits and risks of the
investment in the Shares to be received by the Purchaser; and that the Purchaser
is sophisticated accredited investor with experience with development stage
issuers engaged in biotech and pharmaceutical businesses.
4.6 No Conflicts. The execution of and performance of the
transactions contemplated by this Agreement and compliance with its provisions
by the Purchaser will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, or require a
consent or waiver under any indenture, lease, agreement or other instrument to
which the Purchaser is a party or by which it or any of its properties are
bound, or violate any decree, judgment, order, statute, rule, regulation or
other provision of law applicable to the Purchaser, which violation would
prevent, impair, hinder or delay the consummation of the transactions
contemplated by this Agreement.
4.7 Governmental Consents. No consents, approval, order or
authorization of, or regulation, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Purchaser
in connection with the execution and delivery of this Agreement or the purchase
of the Shares or the other transactions to be consummated at any Closing, as
contemplated by this Agreement.
4.8 Brokers, Etc. The Purchaser has dealt with no broker,
finder, commission agent or person in connection with the offer or sale of the
Shares and the transactions contemplated by this Agreement and neither the
Purchaser nor the Company is under any obligation to pay any broker's fees,
finder's fees, or other fees or commissions in connection with such transactions
as a result of any action by the Purchaser.
5. Conditions to the Obligations of the Purchaser at the Closings.
Notwithstanding anything to the contrary contained herein, the obligation of the
Purchaser to purchase Shares at each of the Closings is subject to the
fulfillment, or the waiver by the Purchaser, of each of the following conditions
on or before each Closing:
5.1 Accuracy of Representations and Warranties. Each
representation and warranty of the Company contained in Section 3 hereof shall
be true on and as of each Closing Date in all material respects with the same
effect as though such representation and warranty had been made on and as of
that date.
5.2 Performance. The Company shall have performed and complied
in all material respects with all agreements and conditions contained in this
Agreement and the Collaboration and Sale/License Agreement required to be
performed or complied with by the Company prior to or at each Closing.
5.3 Qualifications. There shall not be in effect any law, rule
or regulation prohibiting or restricting the sale and issuance of the Shares or
requiring any consent or approval of any person or governmental entity which
shall not have been obtained prior to the issuance of the Shares in such
Closing.
5.4 Collaboration and Sale/License Agreement. The Company and
the Purchaser shall have executed and delivered the Collaboration and
Sale/License Agreement, and that as of each Closing Date, the Collaboration and
Sale/License Agreement shall be a validly existing agreement.
5.5 Proceedings and Documents. All corporate or other
proceedings in connection with the transactions contemplated at such Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchaser and its counsel and the Purchaser shall have received
all such counterpart original and certified or other copies of such documents as
it may reasonably request.
5.6 Issuance of Shares. The Company shall have taken all steps
necessary to instruct its transfer agent to issue a share certificate or
certificates representing the Shares issued in such Closing.
5.7 Compliance Certificate. An authorized officer of the
Company shall have delivered to the Purchaser a certificate certifying that the
conditions specified in Sections 5.1, 5.2, and 5.3 have been fulfilled and
stating that there shall have been no adverse change in the business, affairs,
properties, assets or conditions of the Company since the Effective Date, except
as otherwise disclosed in any report or other document filed by the Company with
the Commission under the Securities Act or the Exchange Act from the date hereof
through the applicable Closing Date.
6. Conditions to the Obligations of the Company. Notwithstanding
anything to the contrary contained herein, the obligations of the Company to
issue, sell and deliver at each Closing the Shares are subject to fulfillment,
on or before each Closing Date, of each of the following conditions:
6.1 Accuracy of Representations and Warranties. Each
representation and warranty of the Purchaser contained in Section 4 hereof shall
be true on and as of each Closing Date in all material respects with the same
effect as though such representation and warranty had been made on and as of
that date.
6.2 Performance. The Purchaser shall have performed and
complied in all material respects with all agreements and conditions contained
in this Agreement and the Collaboration and Sale/License Agreement required to
be performed or complied with by the Purchaser prior to or at each Closing.
6.3 Qualifications. There shall not be in effect any law, rule
or regulation prohibiting or restricting the sale and issuance of the Shares or
requiring any consent or approval of any person or governmental entity which
shall not have been obtained prior to the issuance of the Shares in such
Closing.
6.4 Collaboration and Sale/License Agreement. The Company and
the Purchaser shall have executed and delivered the Collaboration and
Sale/License Agreement, and that as of each Closing Date, the Collaboration and
Sale/License Agreement shall be a validly existing agreement.
6.5 Required Payment. The Purchaser shall have delivered in
accordance with this Agreement and the Collaboration and Sale/License Agreement
the purchase price of $500,000 (with respect to the First Closing), the purchase
price of $350,000 (with respect to the Second Closing), and all amounts as
required to be paid by the Purchaser pursuant to the terms of the Collaboration
and Sale/License Agreement.
6.6 Compliance Certificate. An authorized officer of the
Purchaser shall have delivered to the Company a certificate certifying that the
conditions specified in Sections 6.1, 6.2, and 6.3 have been fulfilled.
7. Transfer Restrictions and Registration.
7.1 Legend. Unless and until otherwise permitted, each
certificate representing the Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. NO
TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE UNLESS A
REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES HAS BECOME EFFECTIVE UNDER
SAID ACT, OR SYMBOLLON CORPORATION IS FURNISHED WITH AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH REGISTRATION IS NOT
REQUIRED."
`THE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON THEIR TRANSFER, SALE
OR OTHER DISPOSITION AND ARE SUBJECT TO CERTAIN REDEMPTION PROVISIONS PURSUANT
TO A STOCK PURCHASE AGREEMENT DATED AUGUST 4, 1997. A COPY OF WHICH IS
AVAILABLE UPON WRITTEN REQUEST OF SYMBOLLON CORPORATION WITHOUT CHARGE."
and any legend required by any applicable state securities laws.
7.2 Required Registration. The Purchaser shall have the right,
exercisable upon written notice to the Company, to request the Company to file a
registration statement on the Form S-3 (or other applicable form, as the Company
determines appropriate) covering the Base Shares purchased hereunder after the
fourth anniversary of the date of this Agreement. Upon receipt of any such
notice, the Company shall, as expeditiously as possible, use commercially
reasonable efforts to effect such registration, obtain any governmental approval
and effect listing with any securities exchange on which the stock of the
Company is then listed, which may be required to permit the Purchaser to dispose
of the Shares. The Company shall use its commercially reasonable efforts to
maintain the effectiveness of the registration statement until the first to
occur of (i) the completion of the distribution of the Shares covered thereby,
(ii) such time as the Shares covered thereby may be sold without restrictive
legend under Rule 144 or other exemption from the registration requirements of
the Securities Act, or (iii) 90 days from the effective date of the registration
statement. The Company agrees to keep the registration statement current
during such period. The Company's obligation shall be limited to one
registration covering the Base Shares.
The Purchaser shall have the right, exercisable upon written notice to
the Company, to request the Company to file a registration statement on the Form
S-3 (or other applicable form, as the Company determines appropriate) covering
the Additional Shares purchased hereunder after the seventh anniversary of the
date of this Agreement. Upon receipt of any such notice, the Company shall, as
expeditiously as possible, use commercially reasonable efforts to effect such
registration, obtain any governmental approval and effect listing with any
securities exchange on which the stock of the Company is then listed, which may
be required to permit the Purchaser to dispose of the Shares. The Company shall
use its commercially reasonable efforts to maintain the effectiveness of the
registration statement until the first to occur of (i) the completion of the
distribution of the Shares covered thereby, (ii) such time as the Shares covered
thereby may be sold without restrictive legend under Rule 144 or other exemption
from the registration requirements of the Securities Act, or (iii) 90 days from
the effective date of the registration statement. The Company agrees to keep the
registration statement current during such period. The Company's obligation
shall be limited to one registration covering the Additional Shares.
Notwithstanding anything contained in this Section 7.2 to the contrary,
the Company shall not be obligated to effect a registration covering the Shares
if at the time of request, all such Shares can be immediately sold without
restrictive legend under Rule 144 or other exemption from the registration
requirements of the Securities Act. The Company shall not be required to cause a
registration statement to become effective pursuant to this Section 7.2 prior to
120 days following the effective date of the most recent registration by the
Company under the Securities Act.
7.3 Piggy-Back Registration Rights. With regard to the Base
Shares and the Additional Shares, if the Company at any time after the fourth
and the seventh anniversary, respectively, proposes to register under the
Securities Act any of its Common Stock on any form on which the Shares may be
included, except shares to be issued in connection with any acquisition of any
entity or business, shares issuable upon the exercise of stock options or shares
issuable pursuant to employee benefit plans, it will each such time give written
notice to the Purchaser of its intention to do so. If the Purchaser desires to
have any of its Shares purchased hereunder included in such registration, it
shall, within 20 days after it receipt of such notice from the Company, notify
the Company of the number of shares which it desires to have so included and the
manner in which it proposes to dispose of such Shares. The Company will cause
all such Shares requested to be registered by the Purchaser to be registered or
qualified to the extent requisite to permit the sale or other disposition
thereof in the manner described by the Purchaser; provided, however, that if, in
connection with the offering of Common Stock pursuant to a registration under
the Securities Act, such offering includes shares of Common Stock being sold by
the Company and the managing underwriter shall impose a limitation on the number
of shares of the Common Stock which may be included in any such registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution and such limitation is imposed pro rata with respect
to all securities which have an incidental or "piggy back" rights to be included
in the registration statement, then the Company shall be obligated to include in
such registration statement only such limited portion of the Shares which it has
been requested hereunder to include.
In connection with any such offering, the Purchaser shall execute such
agreements as the underwriters shall reasonably request, including without
limitation "lock-up" agreements. Notwithstanding anything contained in this
Section 7.3 to the contrary, the Company shall not be required to offer the
Purchaser the right to participate in more than two offerings.
7.4 Non-public Information. Notwithstanding anything to the
contrary in this Section 7, the Company shall have the right (i) to defer the
initial filing or request for acceleration of effectiveness of any registration
or (ii) after effectiveness, to suspend effectiveness of any such registration
statement, if, in the good faith judgment of the board of directors of the
Company, such delay in filing or requesting acceleration of effectiveness or
such suspension of effectiveness is necessary in light of the existence of
material non-public information (financial or otherwise) concerning the Company
disclosure of which at the time is not, in the opinion of the board of directors
of the Company, (A) otherwise required and (B) in the best interests of the
Company; provided however that the Company will use its commercially reasonable
efforts to terminate such delay or suspension as soon as practicable.
7.5 Payment of Expenses. The Company shall bear the expense
(excluding underwriting commissions, dealers' fees, brokers' fees, concessions
applicable to the Shares, legal fees and expenses of the Purchaser and any
out-of-pocket expenses of the Purchaser) of all registrations pursuant to this
Section 7.
7.6 Indemnification. The Company hereby agrees to indemnify
and hold harmless the Purchaser and any underwriter against all losses, claims,
damages, liabilities and expenses (under the Applicable Securities Laws, or
common law or otherwise) caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (and as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus or any
other document prepared and/or furnished to the Purchaser incident to such
registration statements or prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein complete or not misleading except
insofar as such losses, claims, damages, liabilities or expenses are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by the Purchaser expressly for use therein. In connection with
any registration statement in which the Purchaser is participating, and as a
condition to the obligation of the Company to cause any Shares of the Purchaser
to be included in a registration statement pursuant to this Section 7, the
Purchaser will furnish to the Company in writing such information as shall
reasonably be requested by the Company for use in any such registration
statement or prospectus and will indemnify, severally and not jointly, the
Company, its directors and officers, each person, if any, who controls the
Company within the meaning of the Applicable Securities Laws, such underwriters
and each person who controls such underwriters within the meaning of the
Applicable Securities Laws, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus and necessary to make the
statements therein complete or not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by the Purchaser expressly for use therein.
Promptly after receipt by any person entitled to indemnity hereunder
(the "Indemnified Party") of notice of the commencement of any action in respect
of which indemnity may be sought against another party hereunder (the
"Indemnifying Party") such Indemnified Party will notify the Indemnifying Party
in writing of the commencement thereof, and, subject to the provisions
hereinafter stated, the Indemnifying Party shall assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such Indemnified Party), and the payment of expenses as incurred
insofar as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Indemnifying Party. Such Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
shall not be at the expense of the Indemnifying Party unless (i) the employment
of such counsel has been specifically authorized by the Indemnifying Party or
(ii) the Indemnifying Party shall have failed to assume the defense of such
action or proceeding. The Indemnifying Party shall not be liable to indemnify
any person for any settlement of any such action effected without the
Indemnifying Party's consent, which consent shall not be unreasonably withheld
or delayed.
If the indemnification provided for in this Section is held by a court
of competent jurisdiction to be unavailable to the Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other hand in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
7.7 Exchange Act Registration Requirements. The Company shall
use its commercially reasonable efforts to remain subject to the reporting
requirements of either Section 13 or Section 15(d) of the Exchange Act. The
Company shall file with the Commission in a timely manner such information as
the Commission may require under either of said Sections, and shall take all
reasonable action as may be required to be taken under the Exchange Act to
permit sales of the Shares pursuant to Rule 144 (or any similar or successor
exemptive rule hereafter in effect) and the use of Form S-3 (or any similar form
which hereafter may be promulgated under the Securities Act) for registration of
the Shares.
7.8 Notice. The Company shall provide notice to the Purchaser
of any "stop order" or other notice affecting the Purchaser's right to sell the
Shares under any effective registration statement.
8. Covenants of the Purchaser.
8.1 Transfer Restrictions. On or before the fourth anniversary
of this Agreement, B&L shall not, directly or indirectly, transfer, sell, assign
or otherwise encumber the Base Shares except as noted below. Starting with the
payment due pursuant to Section 6.2(c) of the Collaboration and Sale/License
Agreement, and for each payment due on or before the fourth anniversary of this
Agreement, B&L shall have the right to offset a portion of the payment then due
with up to 50% of the Base Shares; provided, that for the payment due pursuant
to Section 6.2(e) of the Collaboration and Sale/License Agreement such offset
may be up to 100% of the Base Shares. The Base Shares shall be valued at their
original Market Price per share. At any time on or before the fourth anniversary
of this Agreement, Symbollon shall have a right to purchase some or all of the
Base Shares from B&L at their original Market Price per share.
On or before the seventh anniversary of this Agreement, B&L shall not,
directly or indirectly, transfer, sell, assign or otherwise encumber the
Additional Shares except as noted below. Starting with the payment due pursuant
to Section 6.2(e) of the Collaboration and Sale/License Agreement, and for each
payment due on or before the seventh anniversary of this Agreement, B&L shall
have the right to offset a portion of the payment then due with up to one
hundred seventy thousand dollars ($170,000) of the Additional Shares; provided,
that for the payment due pursuant to Section 6.2(g) of the Collaboration and
Sale/License Agreement such offset may be up to 100% of the Additional Shares;
and provided, further, that for any payment (except for the payment due pursuant
to Section 6.2(g) of the Collaboration and Sale/License Agreement) that B&L has
a right to offset a portion of such payment with both Base Shares and Additional
Shares, B&L shall only be allowed to offset such payment with an amount of
Additional Shares such that the offset does not exceed one hundred seventy
thousand ($170,000) of the Shares. The Additional Shares shall be valued at
their original Market Price per share. At any time on or before the seventh
anniversary of this Agreement, Symbollon shall have a right to purchase some or
all of the Additional Shares from B&L at their original Market Price per share.
For purposes of B&L's right to offset payments with the Shares and
Symbollon's right to purchase the Shares, the Shares shall be offset and
purchased, as the case may be, in the order in which the Shares were originally
purchased from Symbollon. The Base Shares shall be deemed to have been purchased
prior to the Additional Shares.
8.2 Voting Agreement. The Purchaser agrees that it, and its
affiliates, shall vote any shares of the Common Stock, including the Shares, in
such manner as the Company's Board of Directors shall recommend and, in the
absence of any such recommendation, the same proportion as the other outstanding
voting shares of Symbollon are voted on any matter submitted to the shareholders
for consideration; provided, however, that the foregoing voting requirement
shall not apply to the Purchaser in any transaction which is not approved by the
Company's Board of Directors or in the event of a proposed merger or combination
or sale of substantially all of the assets of the Company to a competitor of the
Purchaser.
8.3 Forfeiture. If the Collaboration and Sale/License
Agreement is terminated before the payments required pursuant to Sections 6.2(a)
through (g) of the Collaboration and Sale/License Agreement are made by the
Purchaser, then the Purchaser shall transfer the Additional Shares held by the
Purchaser to Symbollon for no consideration.
8.4 Standstill. Except for the Shares, prior to the seventh
anniversary of this Agreement, B&L, and its affiliates, shall not acquire any
securities of the Company without the Company's consent.
8.4 Redemption Rights. If the Collaboration and Sale/License
Agreement is terminated by B&L pursuant to Sections 16.2 or 16.3 thereof prior
to the fourth anniversary of this Agreement, then after the completion of each
calendar year thereafter which ends prior to the seventh anniversary of this
Agreement, B&L shall have the right to require the Company to purchase at their
original Market Price per share that number of the Base Shares then outstanding
equal to twenty-five percent (25%) of the Company's positive cash flows from
operating activities, as determined under generally accepted accounting
principles, for that calendar year. B&L may exercise its right to require
redemption in accordance with this Section 8.4 for a given calendar year by
sending written notice to the Company within 30 days of its receipt of the
Company's audited financial statements for such year.
9. Definitions. When used in this Agreement, the following terms shall
have the meanings indicated.
"Additional Shares" mean the remaining one hundred fifty
thousand dollars ($150,000) of the Shares purchased by the Purchaser from the
Company on the First Closing Date after subtracting the Base Shares, together
with the Shares purchased by the Purchaser from the Company on the Second
Closing, if and when purchased.
"Applicable Securities Laws" means the applicable Federal and
state securities laws.
"Base Shares" mean three hundred fifty thousand dollars
($350,000) of the Shares purchased by the Purchaser from the Company on the
First Closing Date.
"Class A Common Stock" means the Company's Class A Common
Stock, $.001 par value per share.
"Class B Common Stock" means the Company's Class B Common
Stock, $.001 par value per share.
"Closing" shall have the meaning specified in Section 2.
"Collaboration and Sale/License Agreement" shall have the
meaning specified on the first page hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Common Stock.
"Company" means Symbollon Corporation, a Delaware corporation.
"Disclosure Documents" shall have the meaning specified in
Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"First Closing" shall have the meaning specified in Section 2.
"First Closing Date" shall have the meaning specified in
Section 2.
"First Closing Shares" shall have the meaning specified in
Section 1.2.
"Indemnified Party" shall have the meaning specified in
Section 7.6.
"Indemnifying Party" shall have the meaning specified in
Section 7.6.
"Market Price" shall have the meaning specified in Section 2.
"Material Adverse Effect" means a material adverse effect on
the business, prospects, condition (financial or otherwise), assets or results
of operations of the Company taken as a whole.
"Purchaser" means Bausch & Lomb Pharmaceuticals, Inc., and any
subsequent valid transferee.
"Second Closing" shall have the meaning specified in
Section 2.
"Second Closing Date" shall have the meaning specified in
Section 2.
"Second Closing Shares" shall have the meaning specified in
Section 1.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning specified in Section 1.2.
"Units" means securities of the Company each of which consist
of one share of Class A Common Stock, one Class A Warrant and one Class B
Warrant.
10. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered in person with
receipt acknowledged or mailed by first class certified or registered mail,
return receipt requested, postage prepaid, by reputable overnight mail or
courier, with receipt confirmed, or by telecopy and confirmed by telecopy
answerback, addressed as follows:
If to the Company:
Symbollon Corporation
00 Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: President
With a copy to:
Xxxxxxx X. Xxxxxx, Xx., Esq.
Xxxxxx, Xxxx & Xxxxxxx
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: (000)-000-0000
Fax: (000)-000-0000
To B&L:
Bausch & Lomb Pharmaceuticals, Inc.
0000 Xxxxxx Xxxxx Xxxxxxx
Xxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attention: President
With copy to:
Bausch & Lomb, Incorporated
Xxx Xxxxxx & Xxxx Xxxxx
Xxxxxxxxx, X.X. 00000-0000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attention: General Counsel
or at such other address or addresses as may have been furnished in writing by
any party to the other in accordance with the provisions of this Section 10.
Notices and other communications provided in accordance with this Section 10
shall be deemed delivered upon receipt.
11. Entire Agreement. This Agreement, together with the Exhibits and
documents incorporated by reference herein, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
12. Amendments and Waivers. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Purchaser. Any amendment or waiver effected in
accordance with this Section 12 shall be binding upon each party. No waivers of
or exceptions to any terms, condition or provision of this Agreement, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
14. Section Headings. The section headings are for the convenience of
the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of The Commonwealth of Massachusetts.
17. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto, provided that B&L (and any subsequent
permitted Purchaser) may not assign its rights hereunder without the prior
written consent of the Company.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SYMBOLLON CORPORATION BAUSCH & LOMB PHARMACEUTICALS, INC.
By: /s/ Xxxx X. Xxxxxxxxx By: /s/ Xxxxxx Xxxxxxxxxx
---------------------- ----------------------
Xxxx X. Xxxxxxxxx, Xxxxxx Xxxxxxxxxx.
Executive Vice President and President
Chief Financial Officer
EXHIBIT 4.4
RISK FACTORS
An investment in the securities offered hereby involves a high degree
of risk. Prior to making an investment, the Purchaser should carefully consider
the following factors, as well as others described elsewhere in the Disclosure
Documents, relating to the business of the Company and the securities offered
hereby.
Development Stage Company; Early Stage of Product Development; No
Assurance of Successful Product Development. The Company is in the development
stage and has not conducted any significant operations to date or received any
operating revenues, except for revenues from the sale of the Company's bovine
teat sanitizer, marketed under the name IodoZyme(R), which the Company began
shipping in early 1995, and license fees and contract revenues. Potential
investors should be aware of the problems, delays, expenses and difficulties
encountered by an enterprise in the Company's stage of development, many of
which may be beyond the Company's control. These include, but are not limited
to, unanticipated problems relating to product development, testing, regulatory
compliance, manufacturing costs, production, the competitive and regulatory
environment in which the Company plans to operate, marketing problems and
additional costs and expenses that may exceed current estimates. Products under
development by the Company will require additional development and investment
prior to obtaining regulatory approvals and commercialization. There can be no
assurance that such products will be successfully developed, meet applicable
regulatory standards, be capable of production in commercial quantities at
reasonable costs or be successfully marketed.
Risks Associated With Uncertainties Of Clinical Trials. Most of the
Company's proposed therapeutic products are required to obtain approval from the
United States Food and Drug Administration ("FDA") prior to marketing such
products in the United States and the approval of foreign regulatory authorities
to commercialize such proposed products in other countries. To obtain such
approvals, the Company is required to prove the safety and efficacy of its
proposed products through extensive preclinical studies and clinical trials. The
Company's proposed therapeutic products are in various stages of pre-clinical
development. The completion of clinical trials regarding any of such proposed
products is dependent upon many factors including the rate of patient enrollment
and the heterogeneity of the patients and indications to be treated. Delays in
patient enrollment, as well as the heterogeneity of patients and indications to
be treated, may result in increased trial costs and delays in FDA submissions,
which could have a material adverse effect on the Company.
A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in clinical trials, even after
showing promising results in earlier studies or trials. Therefore, any favorable
results the Company may obtain in the future in preclinical studies and clinical
trials of its proposed products may not be predictive of results that will
ultimately be obtained in or throughout such preclinical studies and clinical
trials. There can be no assurance that the Company will not encounter problems
in its clinical trials that will cause the Company to delay or suspend its
development efforts and any proposed clinical trials for its proposed products,
that any clinical trial will be completed at all, that such testing will
ultimately demonstrate the safety or efficacy of such proposed products or that
any proposed products will receive regulatory approval on a timely basis, if at
all. If any such problems occur, the Company could be materially and adversely
affected.
No Assurance Of Regulatory Approvals; Potential Delays. The Company's
proposed products will be subject to regulation by the FDA and comparable
agencies in foreign countries. The regulatory approval process often takes a
number of years and requires the expenditure of substantial funds. In the United
States, the FDA enforces, where applicable, development, testing, labeling,
manufacturing, registration, notification, clearance or approval, marketing,
distribution, recordkeeping and reporting requirements for new drugs, medical
devices, biologics and cosmetics. In addition, there can be no assurance that
government regulations applicable to the Company's products or the
interpretation of those regulations will not change and thereby prevent the
Company from marketing some or all of its products temporarily or permanently.
There can be no assurance that any proposed products that may be developed by
the Company will be able to satisfy the current requirements and regulations of
the FDA or comparable foreign agencies. There can be no assurance that the
Company's proposed products will ever obtain the regulatory clearance or
approval required for marketing. Therapeutic products currently being developed
utilizing the Company's iodine technologies will likely be regulated as new
drugs products, each of which faces a substantially more burdensome regulatory
approval process than that applicable to most medical devices.
Whether or not FDA approval has been obtained, approval of a drug by
comparable regulatory authorities in other countries must be obtained prior to
marketing the product in those countries. The approval process varies by country
and the time required may be longer or shorter than that required for FDA
approval. Approval of a drug for sale in one country does not ensure approval in
other countries. The results of Phase I or Phase II studies are not necessarily
indicative of the efficacy or safety of a drug candidate for human therapeutic
use. There can be no assurance that clinical testing will provide evidence of
safety and efficacy in humans or that regulatory approvals will be granted for
any of the Company's products. Manufacturers of therapeutic products are
required to obtain FDA approval of their manufacturing facilities and processes,
to adhere to applicable standards for manufacturing practices and to engage in
extensive recordkeeping and reporting. Failures to obtain or delays in obtaining
regulatory approvals would adversely affect the manufacturing and marketing of
the Company's products, the Company's financial position and the Company's
revenues or royalties. When and if approvals are granted, the Company, the
approved drug, the manufacture of such drug and the facilities in which such
drug is manufactured are subject to ongoing regulatory review. Subsequent
discovery of previously unknown problems may result in restriction on a
product's use or withdrawal of the product from the market. Adverse government
regulation that might arise from future legislative or administrative action,
particularly as it relates to healthcare reform and product pricing, cannot be
predicted.
Teat sanitizers, although considered animal drugs by the FDA, do not
currently require clearance by the FDA prior to marketing. The FDA, however, has
recently issued draft voluntary guidelines governing teat dips and no assurance
can be made that clearance by the FDA will not be required in the future.
Required compliance with these guidelines or other FDA requirements, the
probability of which cannot currently be ascertained by the Company, would have
a significant adverse effect on the marketing of IodoZyme and, consequently, on
the Company's results of operations. The Federal Environmental Protection Agency
("EPA") has regulations covering many of the same areas for many of the
Company's products and proposed products. In addition, the United States
Department of Agriculture ("USDA") may regulate, on either a voluntary or
mandatory basis, products which the Company may develop for sanitizing food or
food contact surfaces. Comparable state and local agencies may have similar
regulations.
Uncertain Market Acceptance of Proposed Products. The Company's future
growth and profitability will depend, in large part, on the acceptance by the
medical community of the Company's proposed products. This acceptance will be
substantially dependent on educating the medical community as to the full
capabilities, distinctive characteristics, perceived benefits and clinical
efficacy of the Company's proposed products. There can be no assurance that the
Company's efforts or those of others on its behalf will be successful or that
any of the Company's proposed products will receive the necessary market
acceptance. Failure of the Company's proposed products to gain market acceptance
would have a material adverse effect on the Company.
Risk Of Not Obtaining Manufacturing Facility And Experienced
Manufacturing Personnel And/Or Establishing Manufacturing Arrangements With
Others. The Company intends to seek out contracts to obtain sufficient
manufacturing capabilities to allow for production of its proposed therapeutic
products in quantities sufficient to support its anticipated clinical needs. To
be successful, however, the Company must be capable of manufacturing or
contracting for the manufacture of its products in commercial quantities, in
compliance with regulatory requirements and at acceptable costs. While the
Company has manufacturing experience regarding IodoZyme, the Company has no
experience in large scale commercial manufacturing of therapeutic products. The
Company intends to enter into contractual arrangements to manufacture its
proposed products at such time, if ever, that such products are successfully
developed. There can be no assurance that the Company will be able to enter into
any such arrangements on acceptable terms, or at all, or that any manufacturer
will be able to meet any demand for such products on a timely basis. The
Company's dependence on third parties for manufacturing may adversely affect the
Company's ability to develop and deliver products on a timely and competitive
basis. The Company may manufacture its proposed products directly at such time,
if ever, that such products are successfully developed. The Company has no
experience with the direct manufacture of these proposed products. The
manufacture of these proposed products is complex and difficult, and will
require the Company to attract and retain experienced manufacturing personnel
and to obtain the use of a manufacturing facility in compliance with FDA and
other regulatory requirements. There can be no assurance that experienced
personnel can be attracted to or retained by the Company, or that the Company
will be able to obtain the financing necessary to manufacture these products
directly. In the event the Company continues to perform its current IodoZyme
manufacturing activities in-house, additional manufacturing space and equipment
may be necessary beyond 1997 as product volume increases.
Dependence Upon Third Parties For Clinicals Development Of Proposed
Products. The Company has entered into strategic alliances for the clinical
development of certain of its proposed products. There can be no assurance that
the Company will be successful in retaining the existing agreements, or be able
to obtain satisfactory new agreements with strategic partners in other areas. In
addition, there can be no assurance that the interests and motivations of any
strategic partner would be or remain consistent with those of the Company or
that such partner would successfully perform its obligations.
Accumulated Deficit; Expectation of Future Losses; Need for Additional
Financing. At March 31, 1997, the Company had an accumulated deficit of
$5,546,130, which deficiency has increased to date. The Company will be required
to conduct significant research, development and testing activities which,
together with manufacturing, and other general and administrative expenses, are
expected to result in operating losses for the foreseeable future. There can be
no assurance that the Company will ever have significant revenues or achieve
profitable operations. At March 31, 1997, the Company had working capital of
$1,503,808. Based on its current operating plan, the Company believes it will
have sufficient working capital to fund its operations for the next 12 months.
It is not expected that revenues from operations will be sufficient to enable
the Company to complete the necessary regulatory approval process for its
products currently under development, or if any such approval were obtained, to
begin manufacturing or marketing such products on a commercial basis. Given the
Company's limited financial resources, the uncertainty of the development effort
and the necessity for regulatory approval, there can be no assurance of ultimate
success with respect to any product development program or that resulting
product, if any, will be commercially successful. Additionally, the Company's
limited resources will require substantial support from corporate partners who
would ultimately introduce the Company's products into the marketplace. In
addition to support from corporate partners, the Company may seek additional
financing to fund its operating requirements. There can be no assurance that the
Company will be able to obtain such partnering arrangements or financing, or
that such partnering arrangements or financing, if available, will be on
acceptable terms. In the event that the Company fails to raise any funds it
requires, it may be necessary for the Company to cease operations or severely
limit growth.
Lack of Marketing Experience; Dependence on Outside Parties for
Marketing and Distribution; Uncertainty of Market Acceptance of Products and
Proposed Products. The marketing and distribution of IodoZyme is conducted by
West Agro pursuant to an exclusive marketing and supply agreement with the
Company which covers IodoZyme as well as other products which may be developed
for use in dairy facilities. The Company intends to rely on similar arrangements
with others for the marketing and distribution of its products currently under
development, if and when successfully developed and approved by applicable
regulatory agencies. This results, and will result, in a lack of control by the
Company over some or all of the marketing and distribution of such products.
Although the Company has entered into development agreements with parties
experienced in the marketing of some of the Company's proposed products, which
development agreements contemplate future marketing arrangements, there can be
no assurance that the Company will be able to enter into any marketing
arrangements for such products, if and when developed, on terms acceptable to
the Company or that any marketing efforts undertaken on behalf of the Company
will be successful. Although the Company has no present plans to do so, the
Company may, in the future, determine to directly market certain of its proposed
products. The Company has no marketing experience and significant additional
capital expenditures and management resources would be required to develop a
direct sales force. In the event the Company elects to engage in direct
marketing activities, there can be no assurance that the Company would be able
to obtain the requisite funds or attract and retain the human resources
necessary to successfully market any of such products.
The Company's future growth and profitability will depend, in large
part, on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering acceptance among the various markets of the
use of the Company's products as an alternative to other available products or
otherwise. The Company's success in marketing its products will be substantially
dependent on educating its targeted markets as to the distinctive
characteristics and perceived benefits of the Company's products. In this
regard, West Agro, which acts as exclusive marketer and distributor of IodoZyme,
also markets and distributes products which are directly competitive with
IodoZyme. There can be no assurance that the Company's efforts or the efforts of
others will be successful or that any of the Company's products or proposed
products will be favorably accepted among the targeted markets.
Dependence Upon, and Need for, Key Personnel. The Company does not
currently have a President or Chief Executive Officer. The Company is dependent
on the services of Xx. Xxxx X. Xxxxxxx, the Chairman of the Board, Executive
Vice President, Chief Scientific Officer, Secretary and a principal stockholder
of the Company, and Xxxx X. Xxxxxxxxx, Executive Vice President, Chief Financial
Officer, Treasurer and a director of the Company. The loss of either of such
individuals or a reduction in the time devoted by such persons to the Company's
business could have a material adverse effect on the Company's business. The
Company has obtained key-person life insurance coverage in the face amount of
$1,000,000 for Xx. Xxxxxxx naming the Company as beneficiary under such policy.
The Company's success also will depend, in large part, on its ability to attract
and retain highly qualified scientific and business personnel, competition for
which is intense. There can be no assurance that the Company will be able to
attract and retain the necessary personnel to implement its business plan.
Intense Competition and Rapid Technological Change. The Company is
engaged in rapidly evolving and highly competitive fields. There are many
companies, including large pharmaceutical and chemical companies, which have
established a significant presence in the markets which the Company's products
and proposed products are designed to address. Most of these companies have
substantially greater capital resources, research and development staffs,
facilities and experience in obtaining regulatory approvals, as well as in the
manufacturing, marketing and distribution of products, than the Company. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective and less costly
than any products developed or being developed by the Company or which could
render the Company's microbicide technology obsolete.
Uncertain Protection of Patents and Proprietary Rights. The Company
considers patent protection of its technology to be critical to its business
prospects. There can be no assurance that the Company's pending patent
applications will issue as patents, that any issued patents will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent owned by the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement of patents can be
substantial. Furthermore, there can be no assurance that others will not
independently develop similar or more advanced technologies or design around
aspects of the Company's technology which may be patented, or duplicate the
Company's trade secrets. In some cases, the Company may rely on trade secrets to
protect its innovations. There can be no assurance that trade secrets will be
established, or that secrecy obligations will be honored, or that others will
not independently develop similar or superior technology. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company.
Materials Incompatibility. An important aspect of the Company's present
and future microbicides is that they must be compatible with the surfaces on
which they come in contact. The Company has ceased efforts to develop a
microbicide for dental handpieces and renal control units as a result of
staining and corrosion caused by required microbicide formulations, and the
Company has encountered problems of staining in connection with its efforts to
develop a high level disinfectant for flexible endoscopes. The Company continues
to investigate the balance between the level of microbicidal efficacy and the
need to avoid staining and corrosion. For any proposed inanimate object product
applications, staining or corrosion from a microbicide could be sufficient to
limit or forestall regulatory approval of such microbicide or, if approved,
could adversely affect market acceptance of such microbicide. There can be no
assurance that the Company will be successful in overcoming any problems of
materials incompatibility.
Potential Product Liability and Lack or Insufficiency of Insurance. The
Company's business will expose it to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of microbicide
products for animal and human use. If available, product liability insurance
generally is expensive. The Company currently has product liability insurance in
amounts that it believes are adequate to protect it against potential
liabilities. However, there can be no assurance to such effect or that the
Company will be able to maintain such insurance on acceptable terms. In the
event of a successful suit against the Company, a lack or insufficiency of
insurance coverage could have a material adverse effect on the Company's
business and operations.
Charge to Income in the Event of Release of Restrictions on Shares. In
connection with the Company's initial public offering, certain stockholders of
the Company agreed to transfer an aggregate of 700,000 shares of Common Stock to
the Company if the Company does not attain certain minimum earnings thresholds.
In the event the Company attains any of such earnings thresholds, the position
of the Securities and Exchange Commission is that the release of these
restrictions will be treated as expense to the Company which is nondeductible
for income tax purposes. (See "Note E - Capitalization" to the Company's
Financial Statements set forth in the Annual Report on Form 10-KSB for the year
ended December 31, 1996.) Accordingly, the Company will, in the event of the
release of the restrictions, recognize during the period in which the earnings
thresholds are met or probable of being met, what could be a substantial
one-time charge which would have the effect of substantially increasing the
Company's loss or reducing or eliminating earnings, if any, at such time.
Although the amount of expense recognized by the Company will not affect the
Company's total stockholders' equity, it may have a depressive effect on the
market price of the Company's securities.
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Certificate of Incorporation authorizes the issuance of 5,000,000
shares of preferred stock on terms which may be fixed by the Company's Board of
Directors without further stockholder action. The terms of any series of
preferred stock, which may include priority claims to assets and dividends, and
special voting rights, could adversely affect the rights of holders of the Class
A Common Stock. The issuance of such preferred stock could make the possible
takeover of the Company or the removal of management of the Company more
difficult, discourage hostile bids for control of the Company in which
stockholders may receive premiums for their shares of Class A Common Stock, or
otherwise dilute the rights of holders of Class A Common Stock and the market
price of the Class A Common Stock.
The Company has no current plans to issue any shares of preferred stock.
Possible Volatility of Stock Price. The market prices for securities of
emerging and development stage companies in general, and biopharmaceutical
companies in particular, have historically been highly volatile. Future
announcements concerning the Company or its competitors, including the results
of testing, technological innovations or new commercial products, government
regulations, developments concerning proprietary rights, litigation or public
concern as to safety of products developed by the Company or others, may have a
significant adverse impact on the market price of the Company's securities.
Shares Eligible For Future Sale; Outstanding Warrants And Options;
Registration Rights. Of the Company's 2,913,234 shares of Class A Common Stock
currently outstanding, 1,234,262 shares are "restricted securities," as defined
in Rule 144 of the Securities Act, and all 1,234,262 shares of Class A Common
Stock are eligible for sale under Rule 144. The Company is unable to predict the
effect that sales made under Rule 144, or otherwise, may have on the then
prevailing market price of the Common Stock. Any substantial sale of restricted
securities pursuant to Rule 144 may have an adverse effect on the market price
of the Common Stock. 456,500 shares of Class A Common Stock issuable upon
exercise of stock options have been registered on a registration statement on
Form S-8.
The Company has outstanding (i) Class A Warrants and Class B Warrants
which could result in the issuance of 4,372,080 additional shares of Class A
Common Stock, and (ii) 456,500 shares of Class A Common Stock issuable upon
exercise of options which have been granted under the Company's Option Plans
(the "Plans"). In connection with the Company's IPO the Company issued Unit
Purchase Options ("UPO") to the underwriter of the IPO which UPO's are
convertible into 100,000 shares of Class A Common Stock, 100,000 Class A
Warrants and 100,000 Class B Warrants. The foregoing options and warrants are
likely to be exercised at a time when the Company might be able to obtain
additional equity capital on more favorable terms. In addition, to the extent
they are exercised, they will decrease the percentage of the Company owned by
the Company's stockholders. While these options and warrants are outstanding,
they may adversely affect the terms on which the Company could obtain additional
capital. The Company cannot predict the effect, if any, that market sales of
Class A Common Stock, the exercise of options or warrants or the availability of
such Class A Common Stock for sale will have on the market price prevailing from
time to time. In addition, if the exercise price of options or warrants are
adjusted downward, such options or warrants may be exercised sooner than
otherwise with a resulting increase in the number of shares of Class A Common
Stock available for sale on the market.
Possible Delisting of Securities from the NASDAQ System and Possible
Market Illiquidity. There can be no assurance that the Company will continue to
meet the criteria for continued listing of securities on NASDAQ. In order to
qualify for continued listing on the NASDAQ System, a company must, among other
things, have at least $2,000,000 in total assets, $1,000,000 in capital and
surplus, a minimum bid price of $1.00 per share of common stock, and 100,000
shares in the public float. In addition, the common stock must have at least two
registered and active market makers and must be held by at least 300 holders and
the market value of its public float must be at least $200,000. If an issuer
does not meet the $1.00 minimum bid price standard, it may, however, remain in
NASDAQ if the market value of its public float is at least $1,000,000 and the
issuer has capital and surplus of at least $2,000,000. NASDAQ has proposed
changes to the criteria for continued listing of securities. These proposed
changes are currently being considered by the SEC, and if approved, would make
it more difficult for the Company to maintain its NASDAQ listing. Under the
proposed criteria, among other things, the Company would have to have net
tangible assets (total assets less total liabilities and goodwill) of at least
$2,000,000, a minimum bid price of $1.00 per share of common stock and 500,000
shares in the public float. In addition, the market value of its public float
must be at least $1,000,000. At March 31, 1997, the Company's balance sheet
reflects total assets of $2,159,279, capital and surplus of $1,730,152 and net
tangible assets of $1,610,970. If the Company should become unable to meet the
continued listing criteria of NASDAQ and is delisted therefrom, trading, if any,
in the Class A Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the "OTC Bulletin Board Service." As a result, an investor would likely find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, the Company's securities. If the Company's securities were delisted from
NASDAQ, they may become subject to xxxxx stock restrictions. If the Company's
securities were subject to the rules on xxxxx stocks, the market liquidity for
the Company's securities could be severely adversely affected.
Disclosure Relating to Low Priced Securities; Possible Restrictions on
Resales of Low Priced Securities and on Broker-Dealer Sales; Possible Adverse
Effect of "Xxxxx Stock" Rules on Liquidity for the Company's Securities. If the
Company's securities were removed from NASDAQ (see "Possible Delisting of
Securities from the NASDAQ System and Possible Market Illiquidity" above), they
may become subject to rule 15g-9 under the Securities Exchange Act of 1934 (the
"1934 Act"), which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouses). For transactions covered by this Rule, a broker-dealer must
make a special suitability determination for the purchase and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
Rule may affect the ability of broker-dealers to sell the Company's securities
and may affect the ability of purchasers in this offering to sell any of the
securities acquired hereby in the secondary market.
The SEC has adopted regulations which generally define a "xxxxx stock"
to be any non-NASDAQ equity security that has a market price (as therein
defined) less than $5.00 per share, subject to certain exceptions. For any
transaction by broker-dealers involving a xxxxx stock, unless exempt, the rules
require delivery of a risk disclosure document relating to the xxxxx stock
market prior to any such transaction. Disclosure is also required to be made
about compensation payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
xxxxx stock held in the account and information on the limited market in xxxxx
stocks.
The foregoing xxxxx stock restrictions will not apply to the Company's
securities if such securities are listed on the NASDAQ SmallCap Market System,
are otherwise listed on NASDAQ and have certain price and volume information
provided on a current and continuing basis, or if the Company meets certain
minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
any such restrictions, the SEC has the authority, pursuant to Section 15(b)(6)
of the 1934 Act, to prohibit any person that is engaged in unlawful conduct
while participating in a distribution of a xxxxx stock from associating with a
broker-dealer or participating in a distribution of a xxxxx stock, if the SEC
finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on xxxxx stocks,
the market liquidity for the Company's securities could be severely adversely
affected.
No Dividends Anticipated. The Company has never paid any cash dividends
on its common stock and does not anticipate the payment of cash dividends in the
foreseeable future.
Substantial Influence of the Market Makers. There are a limited number
of market makers which currently make a market in the Company's securities and
the securities are thinly traded. Consequently, such market makers may exert a
dominating influence on the market for such securities. Such market-making
activity may be discontinued at any time. The price and liquidity of the
Company's securities may be significantly affected by the degree of any current
market maker's participation in such market.
