-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O6V0CoE/WETdaB+w0H/Ei1Wdz95kXpUlEv0gm0JFmDuPUoTw1wW8SFAQ/8scayX/ MvWK/isOvdBX1ZcPBNhXKQ== 0000950116-96-000456.txt : 20020722 0000950116-96-000456.hdr.sgml : 20020722 19960523173100 ACCESSION NUMBER: 0000950116-96-000456 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 19960523 DATE AS OF CHANGE: 20020722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMARILLO BIOSCIENCES INC CENTRAL INDEX KEY: 0001014763 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 000-20791 FILM NUMBER: 96571805 BUSINESS ADDRESS: STREET 1: 800 W 9TH AVE CITY: AMARILLO STATE: TX ZIP: 79101-3206 BUSINESS PHONE: 8063761741 MAIL ADDRESS: STREET 1: AMARILLO BIOSCIENCES INC STREET 2: 800 W 9TH AVE CITY: AMARILLO STATE: TX ZIP: 79101-3206 SB-2 1 SB-2 =============================================================================== AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996 REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------ FORM SB-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------ AMARILLO BIOSCIENCES, INC. (Name of Small Business Issuer in its Charter) Texas 8731 75-1974352 (State or Other Jurisdiction (Primary Standard Industrial I.R.S. Employer Incorporation or Organization) Classification Code Number) dentification No.) 800 West 9th Avenue Organization) Amarillo, Texas 79101 (806) 376-1741 (Address and Telephone Number of Principal Executive Offices and Principal Place of Business) Dr. Joseph M. Cummins, DVM, PhD Amarillo Biosciences, Inc. 800 West 9th Avenue Amarillo, Texas 79101 (806) 376-1741 (Name, Address and Telephone Number of Agent for Service) ------ Copies to: ROBERT E. FISCHER, ESQ. ROBERT J. MITTMAN, ESQ. Lowenthal, Landau, Fischer & Bring, P.C. Tenzer Greenblatt LLP 250 Park Avenue 405 Lexington Avenue New York, New York 10177 New York, New York 10174 (212) 986-1116 (212) 885-5000 Facsimile No. (212) 986-0604 Facsimile No. (212) 885-5001 Approximate Date of Proposed Sale to the Public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------------------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ============================================================================== CALCULATION OF REGISTRATION FEE ==============================================================================
Proposed Proposed Maximum Maximum Offering Aggregate Amount of Title of Each Class of Amount to be Price per Offering Registration Securities to be Registered Registered Unit(1) Price(1) Fee - ------------------------------------------------------------------------------------------------- Shares of Common Stock, par value $.01 per share .................. 2,300,000 shares (2) $5.00 $11,500,000 $3,965.52 - ------------------------------------------------------------------------------------------------- Underwriter's Warrants to Purchase Shares of Common Stock (3) ...... 200,000 warrants $.001 $200 (4) - ------------------------------------------------------------------------------------------------- Shares of Common Stock, par value $.01 per share(5) ............... 200,000 shares $7.00 $1,400,000 $482.76 - ------------------------------------------------------------------------------------------------- Total ............................................................................ $4,448.28 =================================================================================================
(1) Estimated solely for purposes of calculating the registration fee. (2) Includes 300,000 shares which the Underwriter has the option to purchase from the Registrant solely to cover over-allotments. (3) Represents warrants to be issued by the Registrant and purchased by the Underwriter at the time of delivery and acceptance of the shares of Common Stock offered hereby. (4) None, pursuant to Rule 457(g). (5) Reserved for issuance upon exercise of the Underwriter's Warrants. AMARILLO BIOSCIENCES, INC. ------ CROSS REFERENCE SHEET ------
Form SB-2 Item Nos. and Caption Prospectus Caption -------------------------------- ------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus ............................................ Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus . Inside Front and Outside Back Cover Pages 3. Summary Information and Risk Factors .................. Prospectus Summary; Risk Factors 4. Use of Proceeds ....................................... Use of Proceeds 5. Determination of Offering Price ....................... Underwriting 6. Dilution .............................................. Dilution 7. Selling Security-Holders .............................. * 8. Plan of Distribution .................................. Outside Front Cover Page; Underwriting 9. Legal Proceedings ..................................... * 10. Directors, Executive Officers, Promoters and Control Persons................................................. Management 11. Security Ownership of Certain Beneficial Owners and Management.............................................. Principal Shareholders 12. Description of Securities ............................. Description of Common Stock; Shares Eligible For Future Sale 13. Interest of Named Experts and Counsel ................. Legal Matters; Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities ............................ * 15. Organization Within Last Five Years ................... * 16. Description of Business ............................... Prospectus Summary; Business 17. Management's Discussion and Analysis or Plan of Operation Management's.................................. Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property ............................... Business 19. Certain Relationships and Related Transactions ........ Certain Transactions 20. Market for Common Equity and Related Stockholder Matters................................................. * 21. Executive Compensation ................................ Management 22. Financial Statements .................................. Consolidated Financial Statements 23. Changes in and Disagreements with Accountants on Accountingand Financial Disclosure .................... *
- ------ * Not applicable. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PRELIMINARY PROSPECTUS DATED MAY 23, 1996 SUBJECT TO COMPLETION [LOGO] 2,000,000 SHARES AMARILLO BIOSCIENCES, INC. COMMON STOCK Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that any such market will develop. It is anticipated that the Common Stock will be quoted on the NASDAQ Small Cap Market ("NASDAQ") under the symbol "AMAR." For a discussion of the factors considered in determining the initial public offering price, see "Underwriting." In connection with this offering, Hayashibara Biochemical Laboratories, Inc. ("HBL"), a principal shareholder and supplier of the Company, has agreed with the Underwriter that HBL or its designees will purchase up to 600,000 of the shares of Common Stock offered hereby at the initial public offering price. In addition, the Company has agreed to use $1,000,000 of the proceeds of this offering to pay a portion of the indebtedness owed by the Company to HBL. See "Use of Proceeds," "Principal Shareholders" and "Certain Transactions." ------ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 8 AND "DILUTION" ON PAGE 19. ------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =============================================================================== Price Underwriting Proceeds to Discounts and to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------- Per Share ..................... $5.00 $.50 $4.50 - ------------------------------------------------------------------------------- Total(3) ...................... $10,000,000 $1,000,000 $9,000,000 =============================================================================== (1) In addition, the Company has agreed to pay to the Underwriter a 3% nonaccountable expense allowance, to sell to the Underwriter warrants (the "Underwriter's Warrants") to purchase up to 200,000 shares of Common Stock and to retain the Underwriter as a financial consultant. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses, including the nonaccountable expense allowance in the amount of $300,000 ($345,000 if the Underwriter's over-allotment option is exercised in full), estimated at $825,000, payable by the Company. (3) The Company has granted the Underwriter an option, exercisable within 45 days from the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock, on the same terms as set forth above, solely for the purpose of covering over-allotments, if any. If the Underwriter's over-allotment option is exercised in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $11,500,000, $1,150,000 and $10,350,000 respectively. See "Underwriting." The shares of Common Stock are being offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify the offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the shares of Common Stock offered hereby will be made at the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019, on or about , 1996. ------ WHALE SECURITIES CO., L.P. The date of this Prospectus is , 1996. A graphic image of a man appears here showing the path of IFNa taken orally. Four circles surrounding the image display drawings of (i) a profile of the head of a person suffering from Sjogren's syndrome, (ii) the mouth of an individual with oral mucositis, (iii) an IFNa molecule and (iv) a microscopic view of a portion of a liver infected with the hepatitis virus. In addition to the graphic images, the following text appears: "Sjogren's Syndrome. The Company believes oral IFNa therapy helps to relieve the dryness associated with Sjogren's syndrome and may effectively supplement or replace the existing treatments. Oral Mucositis. The Company has filed and there is now in effect an Investigational New Drug Application for the use of IFNa to treat oral mucositis. Hepatitis B. The Company believes that low dose oral IFN |ga therapy for chronic active HBV disease might be as beneficial a treatment for the disease as parenteral IFNa and be more economical. Hepatitis C. The Company believes that, by pretreating hepatitis C patients with low dose oral IFNa , the response rate of those patients to parenteral IFNa treatment may increase." AVAILABLE INFORMATION As of the date of this Prospectus, the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices: Northeast Regional Office, Suite 1300, 7 World Trade Center, New York, New York 10048, and Midwest Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such material may also be obtained from the Public Reference Section of the Commission at prescribed rates. The Company intends to furnish its shareholders with annual reports containing audited financial statements and such other reports as the Company deems appropriate or as may be required by law. ------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Unless otherwise indicated, all share and per share information in this Prospectus (i) gives retroactive effect to a 10-for-1 stock split effected in May 1993 and a 20% stock dividend effected in May 1996, and (ii) assumes that the Underwriter's over-allotment option is not exercised. See "Underwriting" and Notes 1 and 13 of Notes to Consolidated Financial Statements. For definitions of certain terms used in this Prospectus see the Glossary beginning on page 6. THE COMPANY Amarillo Biosciences, Inc., a development-stage company (the "Company"), is engaged in developing biologics for the treatment of human and animal diseases. The Company is currently focusing its research on human health indications for the use of low dose oral natural interferon alpha ("IFNa"), particularly for the treatment of Sjogren's syndrome, oral mucositis in cancer patients and hepatitis B and C ("Primary Development Projects"). The Company believes that significant worldwide opportunities exist for the development of low dose oral natural IFNa as an inexpensive, non-toxic, efficacious alternative to the treatment of disease by injection of high doses of IFNa. In addition, the Company believes that low dose oral natural IFNa can be an effective treatment for diseases or conditions for which current therapies are inadequate. The Company owns or licenses ten United States patents relating to low dose oral natural IFNa. Since 1992, the Company has filed, and there now are in effect, seven Investigational New Drug Applications covering indicated uses for low dose oral IFNa, including treatment of Sjogren's syndrome and oral mucositis. The Company is seeking regulatory approvals in certain foreign countries to test and/or market low dose oral IFNa for the treatment of hepatitis B and C. The Company is also testing oral IFNa in cats with herpesvirus-1 infection, dogs with keratoconjunctivitis sicca and cattle with shipping fever or mastitis and has filed, and there are now in effect, Investigational New Animal Drug Notices for these and other indications in animals. The Company is also testing a topical IFNa as a treatment for genital warts in humans. The Company has formed a strategic alliance with Hayashibara Biochemical Laboratories, Inc. ("HBL") of Okayama, Japan, a subsidiary of Hayashibara Company, Ltd., a privately-owned Japanese holding corporation with diversified subsidiaries. To date, the Company has received from HBL research funding in the amount of $9,000,000. HBL has also purchased from the Company an aggregate of 461,520 shares of Common Stock for a total purchase price of $1,443,800 and has made loans to the Company aggregating $3,000,000, of which $1,000,000 borrowed after March 31, 1996 will be repaid simultaneously with the consummation of this offering. Pursuant to a Joint Development and Manufacturing/Supply Agreement between HBL and the Company (the "Development Agreement"), HBL manufactures and supplies exclusively to the Company IFNa for oral use in the development of human applications under the Company's patents for worldwide markets outside of Japan and for animal applications worldwide. The Company also has a non-exclusive license from HBL to use HBL's patented technology to produce IFNa lozenges with anhydrous maltose. This formulation significantly prolongs the stability of IFNa activity at room temperature. In addition, HBL has agreed to supply its IFNa exclusively to the Company in North America for non-oral (topical and parenteral) use. The Company has also entered into manufacturing and supply and license agreements with Interferon Sciences, Inc. ("ISI") of New Brunswick, New Jersey, a subsidiary of National Patent Development, Inc., under which ISI, among other things, supplies exclusively to the Company, IFNa for oral use in animals. The Company's objective is to exploit its proprietary technology to become a leader in the field of low dose oral IFNa applications. The Company's business strategy is to pursue those indications for low dose oral IFNa treatment for which initial clinical research has indicated the treatment is efficacious and 3 which in the opinion of the Company have the greatest commercial potential and are most likely to be approved by the FDA. To the extent possible, the Company will attempt to minimize the cost to the Company of obtaining FDA approval by utilizing forms of IFNa already approved (in other dosage forms and for different indications) by the Japanese Ministry of Health and Welfare for human use or by the FDA for animal use. The Company will attempt to gain market share for approved products by forming alliances with strong marketing partners. The Company is in the development stage and currently has no products approved for commercial use other than in Kenya. The Company's long-term viability, profitability and growth will depend upon successful commercialization of products resulting from its research and product development activities. To date, although the Company has recorded contract revenue relating to research and development pursuant to the Development Agreement, the Company has generated only limited revenues from product sales and licensing. Moreover, the Company has incurred significant losses, including losses of $129,239 and $311,579 for the years ended December 31, 1994 and 1995, respectively, and $4,943,168 for the period from June 25, 1984 (inception) through March 31, 1996. For the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996, the Company recorded contract revenues of $2,480,093, $1,361,395 and $402,574, respectively, as research and development and administrative costs were incurred. As of March 31, 1996, all but $14,566 of the $9,000,000 in research funding provided by HBL from 1992 to 1994 pursuant to the Development Agreement had been recognized as contract revenue. HBL has no obligation to provide additional research funding to the Company nor does the Company currently have such a commitment from any other person. Inasmuch as the Company will continue to have a high level of research and development and general and administrative expenses (including compensation expense in 1996 of $515,156 relating to the issuance of restricted stock to three officers of the Company simultaneously with the sale of the Common Stock offered hereby) and will not have matching contract revenues as such expenditures are incurred, the Company anticipates that, commencing in the second quarter of 1996, losses will increase significantly and losses will continue until such time, if ever, as the Company is able to generate sufficient revenues to support its operations. The Company believes that its ability to generate sufficient revenues primarily depends on the success of the Company in completing development and obtaining regulatory approvals for the commercial sale of products, including approval of any manufacturing facilities established or maintained by the Company or its suppliers that produce such products. There can be no assurance that any of such events will occur, that the Company will attain revenues from commercialization of its products or that the Company will ever achieve profitable operations. See "Risk Factors." The Company was incorporated in June 1984 in the State of Texas under the name of Amarillo Cell Culture Company, Incorporated. In May 1996, the Company changed its name to Amarillo Biosciences, Inc. The executive offices of the Company are located at 800 West 9th Avenue, Amarillo, Texas 79101 and its telephone number is (806) 376-1741. Unless the context otherwise requires, all references in this Prospectus to the Company include its wholly-owned subsidiaries, Vanguard Biosciences Inc., Veldona USA Inc., Veldona Inc., Veldona Africa Inc., Veldona Poland Inc. and Amarillo Cell of Canada Inc. THE OFFERING Common Stock offered........... 2,000,000 shares Common Stock to be outstanding after the offering (1)....... 5,114,232 shares Use of Proceeds................ The Company intends to use approximately $6,350,000 of the net proceeds of this offering for research and development, $1,000,000 for repayment of certain short-term indebtedness to HBL and the balance for working capital and general corporate purposes. See "Use of Proceeds." 4 Risk Factors................... The securities offered hereby are speculative and involve a high degree of risk and immediate substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors" and "Dilution." Proposed NASDAQ symbol......... AMAR - ------ (1) Includes 79,000 shares of Common Stock to be issued to three officers of the Company simultaneously with the sale of the Common Stock offered hereby pursuant to their employment agreements. Does not include (i) 200,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants; (ii) an aggregate of 115,500 shares of Common Stock reserved for issuance upon the exercise of stock options to be outstanding under the Company's 1996 Employee Stock Option Plan and the Company's Outside Director and Advisor Stock Option Plan (collectively, the "Plans"), none of which options are currently exercisable; or (iii) an aggregate of 134,500 shares of Common Stock reserved for issuance upon exercise of stock options which are available for future grant under the Plans. See "Management -- Employment Agreements," "-- Stock Option Plans," "Principal Shareholders," "Certain Transactions" and "Underwriting." SUMMARY CONSOLIDATED FINANCIAL INFORMATION The summary consolidated financial information set forth below is derived from the consolidated financial statements appearing elsewhere in this Prospectus. Such information should be read in conjunction with such financial statements, including the notes thereto. CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Cumulative From June 25, 1984 (Inception) Through Year Ended December 31, Three Months Ended March 31, March 31, --------------------------- ----------------------------- -------------- 1994 1995 1995 1996 1996 ------------ ------------ ----------- ----------- --------------- Total revenues ........ $2,653,331 $2,006,262 $ 647,069 $ 415,728 $10,570,886 Total expenses ........ 2,782,570 2,317,841 722,003 402,921 15,514,054 Net income (loss) ..... (129,239) (311,579) (74,934) 12,807 (4,943,168) Net loss per share .... (.04) (.10) (.02) -- Weighted average shares outstanding .......... 3,005,592 3,034,339 3,031,609 3,035,232
CONSOLIDATED BALANCE SHEET DATA:
March 31, 1996 ------------------------------------------------ December 31, 1995 Actual As Adjusted(1) ----------------- ----------- ----------- Cash and cash equivalents ....................... $ 1,108,527 $ 724,280 $ 8,664,280 Working capital (deficiency) .................... (18,035) (2,585) 8,062,102 Total assets .................................... 1,791,060 1,424,004 9,364,004 Total liabilities ............................... 3,152,957 2,743,094 2,618,407 Deficit accumulated during the development stage . (4,955,975) (4,943,168) (5,448,481) Shareholders' equity (deficit) .................. (1,361,897) (1,319,090) 6,745,597
- ------ (1) Gives effect to the sale of 2,000,000 shares of Common Stock offered hereby and the anticipated application of the estimated net proceeds therefrom, including the payment of $235,000 to satisfy withholding tax obligations of the Company arising in a transaction required under the employment agreements of three officers in which the Company shall also issue 79,000 shares of Common Stock to such officers. Subsequent to March 31, 1996, the Company borrowed $1,000,000 from HBL, which amount will be repaid from the proceeds of this offering. See "Use of Proceeds" and "Certain Transactions." 5 GLOSSARY
AIDS .............................. Acquired Immunodeficiency Syndrome ANTIPROLIFERATIVE ................. Slowing or stopping the multiplication of cells. APHTHOUS STOMATITIS ............... Painful ulcers occurring in the mucosal lining of the mouth. BIOLOGIC .......................... A product derived from living cells which is used to treat or diagnose disease. CELL CULTURE ...................... A large number of cells maintained in an environment in which nutrients and oxygen are provided for growth. CIRRHOSIS ......................... Fibrosis of the liver with hardening caused by excessive formation of connective tissue followed by contraction. CLINICAL TRIALS ................... The investigational use of a product in humans or animals. Phase I trials test the product for general safety and metabolism. Phase II trials test various dosages for efficacy and Phase III trials test the chosen dosage in many patients. DISTAL ............................ Far from the point of origin. FELINE HERPESVIRUS-1 INFECTION .... Feline viral rhinotracheitis - a viral disease of the upper respiratory tract of cats. FIBROMYALGIA ...................... A debilitating disease characterized by pain at specific "trigger points", fatigue, sleeplessness, headaches and stiffness. HEPATITIS B (HBV) ................. Disease of the liver caused by a DNA virus. HEPATITIS C (HCV) ................. Disease of the liver caused by an RNA virus. IMMUNOMODULATORY .................. That which modulates (augments or diminishes) immune responses. INDICATION ........................ A specific condition intended to be treated by a drug or biologic. INTERFERON (IFN) .................. A natural protein produced by all species of animals in response to infection by viruses and other intracellular microorganisms. IFNa............................... Interferon alpha, a distinct class of IFN. INTERNATIONAL UNIT (IU) ........... An internationally accepted measure of IFNa anti- viral activity. INAD .............................. Notice of Claimed Investigational Exemption for a New Animal Drug. A document that must be submitted to the FDA before animal clinical trials can be conducted using a new drug or biologic. IND ............................... Investigational New Drug Application. A document that must be submitted to the FDA before human clinical trials can be conducted using a new drug or biologic. KERATOCONJUNCTIVITIS SICCA ........ Inflammation of the cornea and conjunctiva of the eye resulting in a decrease in tear production. LOZENGE ........................... A solid dosage formulation designed to dissolve in the mouth and deliver a drug, biologic or active ingredient to the oral cavity. MASTITIS .......................... Inflammation of the mammary gland.
6
LOZENGE ........................... Inflammation and ulcers of the mucosal lining of the mouth, often associated with the use of chemotherapy and/or radiation therapy in cancer patients. PARENTERAL ........................ By injection, not by the digestive tract. SHIPPING FEVER .................... A bovine respiratory disease complex observed in cattle after shipment. Usually shipping fever is a combination of viral and bacterial infections. SJOGREN'S SYNDROME ................ A symptom complex of unknown cause marked by keratoconjunctivitis sicca (dry eye) and xerostomia (dry mouth).
7 RISK FACTORS The shares of Common Stock offered hereby are speculative and involve a high degree of risk, including, but not necessarily limited to, the risk factors described below. Each prospective investor should carefully consider the following risk factors inherent in and affecting the business of the Company and this offering before making an investment decision. Except for the historical information contained herein, the discussion in this Prospectus contains forward- looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such difference include, but are not limited to, those discussed in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" as well as those discussed elsewhere in this Prospectus. Development Stage Company; Uncertainty of Product Development; Limited Relevant Operating History. The Company is in the development stage and currently has no products approved for commercial use other than in Kenya. The Company's long-term viability, profitability and growth will depend upon successful commercialization of products resulting from its research and product development activities. The Company will not be able to sell significant quantities of any product until such time, if ever, as it receives regulatory approval to commercially market the product. All of the Company's products will require significant additional development, laboratory and clinical testing and investment prior to obtaining such approvals for any product and prior to commercialization. The Company does not expect to receive regulatory approvals in the United States for any product for at least three years. Moreover, adverse or inconclusive results in clinical trials could significantly delay or ultimately preclude any such approvals and, even if obtained, there can be no assurance that any product approval will lead to the successful commercialization of such product. Further, as a development stage company, the Company has a limited relevant operating history upon which an evaluation of its prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in the evolving, heavily regulated pharmaceutical industry, which is characterized by an increasing number of market entrants, intense competition and a high failure rate. In addition, significant challenges are often encountered in shifting from development to commercialization of new products. See "Business." History of Significant Losses; Anticipated Future Losses; Limited Product Revenues. To date, although the Company has recorded contract revenues relating to research and development pursuant to the Development Agreement, the Company has generated only limited revenues from product sales and licensing. Moreover, the Company has incurred significant losses, including losses of $129,239 and $311,579 for the years ended December 31, 1994 and 1995, respectively, and $4,943,168 for the period from June 25, 1984 (inception) through March 31, 1996. For the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996, the Company recorded contract revenues of $2,480,093, $1,361,395 and $402,574, respectively, as research and development and administrative costs were incurred. As of March 31, 1996, all but $14,566 of the $9,000,000 in research funding provided by HBL from 1992 to 1994 pursuant to the Development Agreement had been recognized as contract revenue. HBL has no further obligation to provide additional research funding to the Company nor does the Company currently have such a commitment from any other person. Inasmuch as the Company will continue to have a high level of research and development and general and administrative expenses (including compensation expense in 1996 of $515,156 relating to the issuance of restricted stock to three officers of the Company simultaneously with the sale of the Common Stock offered hereby) and will not have matching contract revenues as such expenditures are incurred, the Company anticipates that, commencing in the second quarter of 1996, losses will increase significantly and losses will continue until such time, if ever, as the Company is able to generate sufficient revenues to support its operations. The Company believes that its ability to generate sufficient revenues primarily depends on the success of the Company in completing development and obtaining regulatory approvals for the commercial sale of products, including approval of any manufacturing facilities established or maintained by the Company or its suppliers that produce such products. There can be no assurance that any of such events will occur, that the Company will attain revenues from commercialization of its products or that the Company will ever achieve profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and Consolidated Financial Statements. Significant Capital Requirements; Dependence on Proceeds of this Offering; Need for Additional Capital. The Company's capital requirements have been and will continue to be significant. To fund its capital requirements to date, the 8 Company has been dependent primarily on (i) an aggregate of $9,000,000 in funding received from HBL under the Development Agreement, (ii) the net cash proceeds of private placements of the Company's Common Stock, aggregating approximately $3,500,000 and (iii) loans from HBL aggregating $3,000,000, of which $1,000,000 borrowed after March 31, 1996 will be repaid with a portion of the proceeds of this offering. The Company is dependent upon the proceeds of this offering to fund its research and development as well as other working capital requirements. The Company anticipates, based on its currently proposed plans and assumptions relating to its operations (including assumptions regarding the progress of its research and development and the timing and costs associated with the Primary Development Projects), that the net proceeds of this offering, together with the Company's existing capital resources, will be sufficient to satisfy the Company's estimated cash requirements for at least 12 months following the consummation of this offering. The Company estimates that an aggregate of $11,100,000 will be needed over approximately the next three years to complete its Primary Development Projects. Such amount is in excess of the net proceeds of this offering and the existing capital of the Company. Therefore, unless the Company generates significant revenues during such period, which the Company believes is unlikely, the Company will need additional financing to fully fund such development. The Company has no current arrangements with respect to sources of additional financing and it is not anticipated that any of the officers, directors or shareholders of the Company (including HBL) will provide any portion of the Company's future financing requirements. There can be no assurance that, when needed, additional financing will be available to the Company on commercially reasonable terms, or at all. In the event that the Company's plans change, its assumptions change or prove inaccurate, or if the proceeds of this offering, together with other capital resources, otherwise prove to be insufficient to fund operations, the Company could be required to seek additional financing sooner than currently anticipated. Any inability to obtain additional financing when needed would have a material adverse effect on the Company, including possibly requiring the Company to cease its operations. In addition, any additional equity financing may involve substantial dilution to the Company's then existing shareholders. See "Use of Proceeds," "Dilution," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Certain Transactions." Patent Claims Made By Roche. Hoffmann La-Roche, Inc. ("Roche") has asserted to both HBL and ISI that the manufacture, sale and use of their respective forms of IFNa infringe United States Patent 4,503,035 and foreign counterparts thereof owned by Roche relating to IFNa (collectively, the "Roche Patent"). The Roche Patent expires in March 2002 in the United States and at various times in other jurisdictions. HBL has informed the Company that it believes that the claims of the Roche Patent are not applicable to the manufacture and sale of HBL IFNa. HBL has prevailed at the trial level in litigation initiated by Roche in Japan concerning the dispute and Roche has appealed the decision. The Company is not a party to the litigation between Roche and HBL in Japan. The Company believes that it is likely that Roche would commence suit against the Company if the Company were to sell or attempt to sell HBL IFNa for commercial use in the United States or any other country where the Roche Patent has issued with IFNa composition claims and is still in effect. However, under applicable United States patent law, the use of a patented product solely for uses reasonably related to the development and submission of information for FDA approval of a biologic for indicated uses in humans is not an act of infringement. Thus, the Company believes that it is unlikely that it would be sued by Roche prior to commercialization of the Company's IFNa products. Roche would also not assert infringement claims with respect to the Company's sale of ISI IFNa, because in March 1995 ISI entered into a license agreement with Roche pursuant to which ISI was granted a license to use the Roche Patent in exchange for specified royalties. The Company believes that its oral IFNa dosage forms do not infringe any claims of the Roche Patent. However, there can be no assurance that, if the Company sells or attempts to sell HBL IFNa for commercial use in one or more countries in which the Roche Patent has issued, such sale or attempted sale would not be determined to be an infringement of the Roche Patent under applicable law. HBL has agreed to indemnify the Company for litigation expenses incurred in defending suits brought by Roche against the Company for infringement of the Roche Patent and for any damages the Company may be required to pay to Roche in the event that Roche is successful in any such suit. Nevertheless, a determination of infringement could have a material adverse effect on the business and operations of the Company. See "Business-Patents and Proprietary Rights." Government Regulation. The development, manufacture, testing and marketing of all of the Company's products are subject to extensive regulation by numerous authorities in the United States and other countries. In the United States, 9 before new pharmaceutical products (including biologics) are permitted to be marketed commercially, they must undergo extensive preclinical and clinical testing to satisfy the FDA that they are safe and efficacious in each clinical indication (the specific condition intended to be treated) for which approval is sought. Additionally, approval by analogous regulatory authorities in other countries must be obtained prior to commencing marketing of pharmaceutical products in those countries. The approval process varies from country to country and approval of a drug for sale in one country does not ensure approval in other countries. Delays in obtaining regulatory approvals may adversely affect the development, testing or marketing of the Company's products and the ability of the Company to generate revenues from the sale or licensing of such products. There can be no assurance that the Company will obtain regulatory approvals for its products in a timely manner, or at all. Since 1992 the Company has filed and there are now in effect, seven INDs covering indicated uses for low dose oral IFNa. The Company intends to use a portion of the proceeds of this offering to do clinical testing of the use of low dose oral IFNa in treating Sjogren's syndrome and oral mucositis, two of the indications covered by the INDs granted to the Company. There can be no assurance that regulatory approvals will be obtained by the Company in the United States or any other country to sell IFNa for such purposes. In addition, INADs have been filed and are now in effect for testing of low dose oral IFNa in cats, dogs, swine, horses and cattle. Manufacturers of therapeutic products sold in the United States are required to satisfy the FDA that their manufacturing facilities and processes adhere to the agency's good manufacturing practices ("GMP") regulations and to engage in extensive record keeping and reporting. Even if regulatory approval for a product is granted, the facilities in which the product is manufactured will be subject to periodic review and inspections by the FDA or the analogous regulatory authorities of other countries for compliance with GMP or similar foreign regulatory standards. Compliance with such regulations requires substantial time and attention, and is costly. In addition, each domestic manufacturing establishment must be registered with and approved by the FDA. For biologics, except certain well-characterized ones, this requires the filing of an establishment license application for the facilities at which the product will be produced. Failure to comply with the applicable regulatory requirements by either the Company or its strategic partners could, among other things, result in criminal prosecution and fines, product recalls, product seizures and operating restrictions. The Company has not yet sought FDA approval for the commercial sale of any of its products or for the manufacturing processes or facilities of any of its strategic partners. The Company has obtained approval in Kenya for the use of oral IFNa for the treatment of certain symptoms of AIDS and has made application in Poland for the use of oral IFNa as a treatment for hepatitis B and AIDS, but has not yet received approval for commercial sales in Poland. The approval process applicable to products of the type being developed by the Company usually takes many years and typically requires substantial expenditures. Moreover, even if approval is granted, such approval may impose limitations on the indicated uses for which a product may be marketed. Inasmuch as the Company may manufacture products in the United States and seek to market or license other domestic manufacturers to market products throughout the world, the Company may become subject to United States laws and regulations applicable to exporting drugs, including biologics. The Federal Food, Drug, and Cosmetic Act stipulates that, prior to FDA approval for commercial sale, a drug manufactured in the United States may be exported, without prior FDA authorization, only to certain countries listed in Section 802 of that act. This list contains 25 countries to which such a drug may be exported, provided certain requirements are met, including that: (i) at least one of the 25 countries has granted approval for such drug for commercial sale, (ii) the product is manufactured in substantial compliance with the FDA's GMP regulations, (iii) the FDA is notified of the exportation, and (iv) the FDA has not determined that the probability of reimportation presents an imminent hazard to the public health and safety of the United States. Drugs for investigational use in any of the 25 countries may be exported without notification to the FDA. Thus, the ability of the Company or its licensees to export products manufactured in the United States prior to receiving commercial approval in the United States will be subject to certain restrictions. Therefore, there can be no assurance that the Company or its licensees would be able to export for investigational use or commercial sale in any countries products manufactured in the United States which have not received FDA approval. The Company is also subject to the regulations of the United States Environmental Protection Agency as well as other federal, state and local laws and regulations governing the use and disposal of hazardous materials. Compliance with these laws and regulations is time-consuming and expensive and failure to comply could have a material adverse effect on the Company. 10 The adoption by federal, state or local governments of significant new laws or regulations or a change in the interpretation of existing laws or regulations relating to environmental or other regulatory matters could increase the cost of producing the products manufactured by the Company or its strategic partners or otherwise adversely affect the demand for the Company's products. Adverse governmental regulation which might arise from future legislative or administrative action cannot be predicted. See "Business-Government Regulation." Dependence on HBL. The success of the Company's business will depend upon many factors beyond the Company's control, including its contractual and working relationship with HBL. The Company relies and will rely on HBL to supply HBL IFNa to the Company in sufficient quantities to support development and regulatory approval of products for oral and topical use in humans and animals. The ability of the Company to commercialize its oral IFNa products in Japan will be dependent upon the efforts of HBL, to which it has granted exclusive marketing rights in such country. To date HBL has provided to the Company an aggregate of $9,000,000 of funding pursuant to the Development Agreement. HBL has also purchased from the Company an aggregate of 461,520 shares of Common Stock for a total purchase price of $1,443,800 and has made loans to the Company aggregating $3,000,000 of which $1,000,000 borrowed after March 31, 1996 will be repaid with a portion of the proceeds of this offering. HBL has also agreed that it or its designees will purchase an aggregate of 600,000 shares of Common Stock in this offering. Giving effect to the sale of 2,000,000 shares of the Company's Common Stock pursuant to this offering, including 600,000 shares to HBL, and the issuance of 79,000 shares to three officers of the Company simultaneously with the sale of the Common Stock offered hereby, HBL will own approximately 31.9% of the Company's Common Stock. Despite its substantial investment in the Company, HBL is not obligated to provide any additional funding to the Company. The initial term of the Development Agreement expires in March 1999, but the agreement is automatically renewable for successive three year terms, subject to the prior written agreement of the parties. Commencing in March 2002, HBL may also terminate the Development Agreement if sales by the Company or its sublicensees of oral products containing HBL IFNa shall not have exceeded $100,000 during the calendar year prior to the termination. If such agreement is terminated, the Company would lose its only current source of supply of IFNa for use in humans and there can be no assurance that alternate sources of supply would be available on satisfactory terms, or at all. Such loss could severely limit the Company's ability to conduct clinical trials for the development of applications for its products or to sell its products. The termination of the Company's relationship with HBL could also adversely affect the Company's ability to develop and maintain business relationships with other companies. See "Business-Strategic Alliance with HBL." Limited Manufacturing Capability and Experience. To be successfully commercialized, the Company's products must be manufactured in large quantities in compliance with regulatory requirements and at an acceptable cost. The Company does not intend to build manufacturing facilities for such purpose. Rather, it currently intends to obtain all of its requirements of bulk IFNa for oral use in humans from HBL and all of its requirements of bulk IFNa for animal use from either ISI or HBL. HBL manufactures IFNa at its plant in Okayama, Japan, which the Company believes will have sufficient capacity to produce all of the Company's requirements of the product for the foreseeable future. HBL will be required to obtain FDA approval for commercial-scale manufacturing of products sold in the United States which contain HBL IFNa, which approval has not yet been sought or obtained. ISI manufactures IFNa at its plant in New Brunswick, New Jersey. The FDA has approved an establishment license application for such facility. The Company has entered into a supply agreement with ISI pursuant to which ISI is obligated to use its best efforts to supply the Company's requirements of IFNa for animal use. However, such agreement may be terminated by ISI under certain circumstances. If for any reason HBL and ISI were unwilling or unable to supply to the Company IFNa, the Company would be required to seek alternate sources of such product. The availability of such alternate sources of supply, on terms satisfactory to the Company, or at all, is not assured. The Company's failure to obtain adequate supplies of IFNa at a competitive cost or in a timely manner could have a material adverse effect on the Company. See "Business." Patents and Proprietary Technology. The Company's success will depend in part on its ability to obtain or license patents, protect trade secrets for its technology and operate without infringing on the proprietary rights of others. The Company owns or exclusively licenses eight issued United States patents and numerous foreign counterparts. The Company or its licensors also have eight United States patent applications pending. The issued United States patents are primarily "use" patents (which cover the use of oral IFNa for particular purposes). The Company also licenses from HBL on a non-exclusive basis two United States patents covering the process of manufacturing lozenges. The Company and its licensors have filed patent applications in certain other areas 11 of the world and expect to make additional patent applications in the United States and other countries with respect to the use of low doses of IFNa for oral mucosal administration. There can be no assurance, however, that either the Company's or its licensors' existing patent applications will mature into issued patents or, if issued, that such patents will be adequate to protect the Company's products or processes. In addition, there can be no assurance that the Company will be able to obtain any necessary or desired additional licenses to patents or technologies of others or that the Company will be able to develop its own additional patentable technologies. The Company believes that the patent position of pharmaceutical companies generally involves complex legal and factual questions. There can be no assurance that any future patent applications or any patents issued to the Company will provide it with competitive advantages or that the use of this patented technology will not be challenged as infringing upon the patents or proprietary rights of others, or that the patents or proprietary rights of others will not have an adverse effect on the ability of the Company to do business. Furthermore, there can be no assurance that others will not independently develop similar technology or that others will not design technology to circumvent the Company's existing or future patents or proprietary rights. In the event that the Company's technology were deemed to be infringing upon the rights of others, the Company could be subject to damages or enjoined from using such technology or the Company could be required to obtain licenses to utilize such technology. No assurance can be given that any such licenses would be made available on terms acceptable to the Company, or at all. If the Company were unable to obtain such licenses, it could encounter significant delays in introducing products to the market while it attempted to design around the patents or rights infringed upon, or the Company's development, manufacture and sale of products requiring such licenses could be foreclosed. In addition, the Company could experience a loss of revenues and may incur substantial costs in defending itself and indemnifying its strategic partners in patent infringement or other actions based on proprietary rights violations brought against it or its strategic partners. The Company could also incur substantial costs in the event it finds it necessary to assert claims against third parties to prevent the infringement of its patents and proprietary rights by others. The Company relies on proprietary know-how and confidential information and employs various methods, such as entering into confidentiality and noncompete agreements with its current employees and with third parties to whom it has divulged proprietary information, to protect the processes, concepts, ideas and documentation associated with its technologies. Such methods may afford incomplete protection and there can be no assurance that the Company will be able to protect adequately its trade secrets or that other companies will not acquire information which the Company considers to be proprietary. The Company will be materially adversely affected if it cannot maintain its proprietary technologies. See "Business--Patents and Proprietary Rights." Competition. The pharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition. The Company believes that its ability to compete will be dependent in large part upon its ability to continually enhance and improve its products and technologies. In order to do so, the Company must effectively utilize and expand its research and development capabilities and, once developed, expeditiously convert new technology into products and processes which can be commercialized. Competition is based primarily on scientific and technological superiority, technical support, availability of patent protection, access to adequate capital, the ability to develop, acquire and market products and processes successfully, the ability to obtain governmental approvals and the ability to serve the particular needs of commercial customers. Corporations and institutions with greater resources than the Company may, therefore, have a significant competitive advantage. The Company's potential competitors include entities that develop and produce therapeutic agents for treatment of human and animal diseases. These include numerous public and private academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things, biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Almost all of these competitors and potential competitors have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources and experience than the Company. The Company's competitors may succeed in developing products or processes that are more effective or less costly than any that may be developed by the Company, or that gain regulatory approval prior to the Company's products. The Company also expects that the number of its competitors 12 and potential competitors will increase as more IFNa products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful than the Company in manufacturing, marketing and distributing its products. There can be no assurance that the Company will be able to compete successfully. See "Business- Competition." Technological Change. The pharmaceutical industry is subject to rapid and significant technological change, and the ability of the Company to compete is dependent in large part on its ability continually to enhance and improve its products and technologies. In order to do so, the Company must effectively utilize and expand its research and development capabilities, and, once developed, expeditiously convert new technology into products and processes which can be commercialized. The Company's competitors may succeed in developing technologies, products and processes that render the Company's processes and products obsolete. Certain companies, such as Roche, have filed applications for or have been issued patents and may obtain additional patents and proprietary rights relating to products or processes competitive with or otherwise related to those of the Company. The scope and viability of these patents, the extent to which the Company may be required to obtain licenses under these patents or under other proprietary rights and the cost and availability of licenses are unknown, but these factors may limit the Company's ability to market its products. See "Business-- Competition." Product Liability Exposure; Uncertainty of Availability of Insurance. The Company's business exposes it to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of therapeutic products. While the Company will take precautions it deems appropriate, there can be no assurance that it will be able to avoid significant product liability exposure. Product liability insurance for the pharmaceutical industry generally is expensive, to the extent it is available at all. Although the Company is currently making limited sales of IFNa in Kenya and is using IFNa in clinical trials, it has not yet sought to obtain product liability coverage. The Company intends to obtain product liability insurance coverage at such time, if any, that the volume of sales of its products in its opinion warrants such coverage. There can be no assurance that it will be able to obtain coverage on acceptable terms or that any insurance policy will provide adequate protection against potential claims. A successful claim brought against the Company in excess of any insurance coverage could have a material adverse effect upon the Company. Dependence on Management. The success of the Company will be largely dependent on the abilities and continued personal efforts of Dr. Joseph Cummins, the Company's founder, Chairman of the Board, President and Chief Executive Officer, as well as, to a lesser extent, Dr. Alan Richards, its Director of Clinical and Regulatory Affairs, and Charles Hughes, its Vice President-Finance and Administration and Chief Financial Officer. Dr. Cummins is employed by the Company under an employment agreement expiring December 31, 1999. Dr. Richards and Mr. Hughes each have an employment agreement with the Company which is terminable by either the individual or the Company on six months prior written notice to the other. The loss of the services of Dr. Cummins would have a material adverse effect on the Company. The Company is the beneficiary of a key man life insurance policy on Dr. Cummins in the amount of $2,000,000. It does not own policies covering any other officer or employee. The Company is seeking the services of an additional experienced senior executive. There can be no assurance that the Company will be able to attract such a person. See "Management." Continuing Control by Existing Shareholders. Upon the consummation of this offering, HBL and Dr. Joseph Cummins, the Chairman of the Board, President and Chief Executive Officer of the Company, will beneficially own approximately 31.9% and 13.6%, respectively, of the shares of Common Stock outstanding. Katsuaki Hayashibara, the Director of the Research and Development Center of HBL, is a director of the Company. In the event that HBL and Dr. Cummins were to act in concert, they would be in a position generally to control the affairs of the Company. These two shareholders may be able to control the outcome of shareholder votes, including votes concerning the election of directors, the adoption of amendments to the Company's Restated Certificate of Incorporation or By-laws and the approval of certain mergers and other significant corporate transactions, including a sale of substantially all of the Company's assets. Such control by existing shareholders could also have the effect of delaying, deferring or preventing a change in control of the Company. Moreover, purchasers of the shares offered hereby (other than HBL) will be minority shareholders and, although entitled to vote on matters submitted to a vote of shareholders, they will not control the outcome of such a vote. See "Principal Shareholders" and "Description of Common Stock." 13 Indemnification of Directors and Officers. The Company's By-laws provide for the Company to indemnify each director and officer of the Company against liabilities imposed upon him (including reasonable amounts paid in settlement) and expenses incurred by him in connection with any claim made against him or any action, suit or proceeding to which he may be a party by reason of his being or having been a director or officer of the Company. The Company has also entered into Indemnification Agreements with each officer and director pursuant to which the Company will, in general, indemnify such persons to the maximum extent permitted by the Company's By-laws and the laws of the State of Texas against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding to which such director or officer is made or threatened to be made a party by reason of the fact that such person is or was a director or officer of the Company. The foregoing provisions may reduce the likelihood of derivative litigation against directors and may discourage or deter shareholders or management from suing directors for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its shareholders. See "Management -- Indemnification of Directors and Officers." Broad Discretion in Application of Proceeds. Although the Company currently intends to use approximately $6,350,000 (77.7%) of the net proceeds of this offering to fund the Primary Development Projects, it will have broad discretion in the use of such funds as circumstances warrant. In addition, approximately $825,000 (10.1%) of the estimated net proceeds from this offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. See "Use of Proceeds." No Assurance of Public Market; Arbitrary Determination of Offering Price; Possible Volatility of Market Price of Common Stock. Prior to this offering, there has been no public trading market for the Common Stock. Consequently, the initial public offering price has been determined by negotiation between the Company and the Underwriter and does not necessarily reflect the Company's book value or other established criteria of value. In addition, there can be no assurance that a regular trading market will develop after this offering or that, if developed, it will be sustained. The market prices for securities of biotechnology companies have been volatile. Announcements of technological innovations or new products by the Company or its competitors, developments concerning proprietary rights (including patents and litigation matters), publicity regarding actual or potential clinical testing relating to products under development by the Company or others, regulatory developments in both the United States and foreign countries, public concern as to the safety of biotechnology products and economic and other external factors, as well as period-to-period fluctuations in financial results, may have a significant impact on the market price of the Common Stock. Additionally, in recent years, the stock market has experienced a high level of price and volume volatility and market prices for the stock of many companies, particularly the common stock of small and emerging growth companies that trade in the over-the-counter market, have experienced wide price fluctuations not necessarily related to the operating performance of such companies. See "Underwriting." Benefits of Offering to Existing Shareholders. Upon the consummation of this offering, the existing shareholders of the Company will receive substantial benefits, including the creation of a public trading market for their securities and the corresponding facilitation of sales by such shareholders of their shares of Common Stock in the secondary market, as well as an immediate increase in net tangible book value of $1.77 per share to such shareholders based upon the pro forma net tangible book value per share after this offering and the initial public offering price per share of the Common Stock offered hereby. If, at the time the existing shareholders are able to sell their shares of Common Stock in the public market, the market price per share remains at the $5.00 initial public offering price (of which there can be no assurance) such shareholders would realize an aggregate gain of $11,951,082 ($3.84 per share) on the sale of all of their existing shares. Additionally, $1,000,000 of the proceeds of this offering will be used to repay indebtedness owing by the Company to HBL, which is an existing shareholder. See "Use of Proceeds," "Dilution" and "Shares Eligible for Future Sale." Shares Eligible for Future Sale. Upon the consummation of this offering, the Company will have 5,114,232 shares of Common Stock outstanding. Up to 600,000 of the 2,000,000 shares offered hereby will be purchased by HBL and will be subject to certain restrictions on sale imposed under the federal securities laws. The remaining shares of Common Stock offered hereby will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). All of the 3,035,232 shares of Common Stock outstanding 14 as of the date of this Prospectus are, and all of the 79,000 shares to be issued to three officers of the Company simultaneously with the consummation of the sale of the Common Stock offered hereby will be, "restricted securities" as that term is defined under Rule 144 promulgated under the Securities Act. Such shares may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemptive provisions of Rule 144 or pursuant to another exemption under the Securities Act. Of such 3,114,232 restricted shares of Common Stock, an aggregate of 1,040,976 shares are immediately eligible for sale, without registration, under Rule 144 (subject to the contractual restrictions described below). An additional 1,964,616 shares will become eligible for sale (subject to the volume limitations prescribed in Rule 144 and such contractural restrictions) commencing 90 days after the date of this Prospectus. The balance of such shares will become eligible for sale at various times commencing in January 1997. In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person (or persons whose shares are aggregated for this purpose), including an affiliate of the Company, who has owned restricted shares of Common Stock beneficially for at least two years is permitted to sell in the open market within any three-month period a number of shares that does not exceed the greater of 1% of the outstanding shares of the same class or, if the Common Stock is quoted on NASDAQ, the average weekly trading volume during the four calendar weeks preceding the filing of the required notice of sale. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock as described above for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The Company and its officers and directors and shareholders owning of record more than 99% of the Common Stock outstanding as of the date of this Prospectus, have agreed with the Underwriter not to sell or otherwise dispose of any shares of Common Stock for a period of 12 months after the date of this Prospectus, without the Underwriter's prior written consent. No predictions can be made of the effect, if any, that sales of Common Stock in the market or the availability of shares of Common Stock for sale under Rule 144 will have on the market price of Common Stock prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale" and "Underwriting." Outstanding Options. Upon the consummation of this offering, there will be 40,500 shares of Common Stock reserved for issuance upon the exercise of stock options outstanding under the Company's 1996 Employee Stock Option Plan (the "Employee Plan") and 75,000 shares of Common Stock reserved for issuance upon exercise of stock options outstanding under the Company's Outside Director and Advisor Stock Option Plan (the "Director Plan" and together with the Employee Plan, the "Plans"). None of the foregoing options is currently exercisable. An additional 134,500 shares are reserved for issuance upon exercise of options available for future grant under the Plans. All of the options outstanding upon consummation of this offering will be exercisable at a price of $5.00 per share. To the extent the market price of Common Stock at the time of exercise exceeds the exercise price, the exercise of the foregoing options will have a dilutive effect on the Company's shareholders. Moreover, the terms upon which the Company may be able to obtain additional equity may be adversely affected, since the holders of the options can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the options. See "Management - Stock Option Plans" and "Shares Eligible for Future Sale." Immediate and Substantial Dilution. This offering involves an immediate and substantial dilution of $3.69 (73.8%) between the pro forma net tangible book value per share of Common Stock after the offering and the initial public offering price of $5.00 per share. See "Dilution." No Dividends. To date, the Company has not paid any dividends on its Common Stock and it does not expect to declare or pay dividends on the Common Stock in the foreseeable future. In addition, future agreements or credit facilities may restrict dividend payments. See "Dividend Policy" and "Description of Common Stock." Possible Delisting of Securities from NASDAQ System; Risks of Low-Priced Stocks. It is anticipated that the Company's Common Stock will be quoted on NASDAQ on the date of this Prospectus. However, in order to continue to be listed on NASDAQ, a company must maintain $2,000,000 in total assets, a $200,000 market value of the public float and $1,000,000 in total capital and surplus. In addition, continued inclusion requires two market makers and a minimum bid price of $1.00 per share; provided, however, that if a company falls below such 15 minimum bid price, it will remain eligible for continued inclusion on NASDAQ if the market value of the public float is at least $1,000,000 and the company has $2,000,000 in capital and surplus. The failure to meet these maintenance criteria in the future may result in the delisting of the Company's Common Stock from NASDAQ and trading, if any, in the Company's Common Stock would thereafter be conducted in the non- NASDAQ over-the-counter market. As a result of such delisting, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's Common Stock. In addition, if the Common Stock were to become delisted from trading on NASDAQ and the trading price of the Common Stock were to fall below $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a "penny stock" (generally, any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000, $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Such information must be provided to the customer orally or in writing prior to effecting the transaction and in writing before or with the customer confirmation. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements may discourage them from effecting transactions in the Common Stock, which could severely limit the liquidity of the Common Stock and the ability of purchasers in this offering to sell the Common Stock in the secondary market. 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered hereby, after deducting underwriting discounts and commissions and other expenses of the offering are estimated to be approximately $8,175,000 ($9,480,000 if the Underwriter's over-allotment option is exercised in full). The Company expects to use such net proceeds approximately as follows:
Approximate Approximate Dollar Percentage of Application of Proceeds Amount Net Proceeds - ----------------------- ------------- --------------- Research and development(1) ..................... $6,350,000 77.7% Repayment of indebtedness to HBL (2) ............ 1,000,000 12.2 Working capital and general corporate purposes(3) . 825,000 10.1 ---------- ----- Total ....................................... $8,175,000 100.0% ========== =====
- ------ (1) Represents a portion of the costs associated with the Primary Development Projects, including the cost of conducting clinical trials to determine the safety, efficacy and optimal dosages of low dose oral IFNa for indicated uses as well as other direct and indirect costs. The Company estimates that the amounts required to complete the Primary Development Projects will be substantially in excess of the portion of the proceeds allocated to research and development. See "Business--Research and Development." (2) The Company has borrowed $3,000,000 from HBL, of which $1,000,000 borrowed after March 31, 1996, bearing interest at the rate of 4% per annum, is required to be repaid upon the consummation of the sale of Common Stock offered hereby. The Company has used the proceeds of loans made to it by HBL for research and development and general corporate purposes. (3) Pursuant to agreements between the Company and three of its officers, simultaneously with the consummation of this offering the Company was to have issued an aggregate of 126,000 shares to such officers. In satisfaction of such obligation, the Company will issue 79,000 shares and use $235,000 of the proceeds of this offering to satisfy required tax withholding relating to such transaction. In addition, a portion of the proceeds allocated to working capital is expected to be utilized to pay the salaries of the Company's three executive officers, which salaries are anticipated to aggregate approximately $281,500 for the 12 months following the consummation of this offering. See "Management" and "Certain Transactions." If the Underwriter exercises its over-allotment option in full, the Company will receive additional net proceeds of approximately $1,305,000, which amount will be utilized for research and development. The allocation of the net proceeds of this offering set forth above represents the Company's best estimates based upon its current plans and certain assumptions regarding the Company's future revenues and expenditures. If any of these factors change, the Company may find it necessary or advisable to reallocate some of the proceeds within the above-described categories or to use portions thereof for other purposes. The Company estimates that approximately $4,500,000 and $3,800,000 will be needed for regulatory compliance and clinical trials with respect to low dose oral IFNa therapy for the treatment of Sjogren's syndrome and oral mucositis, respectively, approximately $2,000,000 will be needed for HCV testing in Mexico and Canada and approximately $800,000 will be needed for HBV testing in Mexico, subject to obtaining regulatory approvals in such countries. The amounts actually expended by the Company for these activities may vary significantly from the foregoing estimates as a result of a variety of factors, including the timing of regulatory approvals (if such approvals are given at all), the status of competitive products, technological advances made by the Company or others, the progress of the Company's research and development efforts, the availability of funding from institutions or corporate sponsors and determinations regarding the commercial potential of the Company's products, including other products the Company is currently developing and new products the Company may identify. The Company may abandon, deemphasize or expand its activities with respect to one or more of the Primary Development Projects and may use a portion of the proceeds of this offering for other projects as circumstances warrant. 17 The Company anticipates, based on its currently proposed plans and assumptions relating to its operations (including assumptions regarding the progress of its research and development and the timing and costs associated with the Primary Development Projects), that the net proceeds of this offering, together with the Company's existing capital resources, will be sufficient to satisfy the Company's estimated cash requirements for at least 12 months following the consummation of this offering. In the event the Company's plans change, its assumptions prove to be inaccurate or the net proceeds of this offering and the Company's existing capital resources prove insufficient to fund operations, the Company may be required to seek additional financing sooner than anticipated. As set forth above, the Company estimates that an aggregate of $11,100,000 will be needed to complete the Primary Development Projects. Such amount is in excess of the net proceeds of this offering. Therefore, the Company may need additional financing to fully fund such development. The Company has no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any needed financing would be available to the Company on commercially reasonable terms, or at all. Proceeds not immediately required for the purposes described above will be invested principally in United States Government securities, bank certificates of deposit, money market funds or other short-term interest-bearing investments. DIVIDEND POLICY To date, the Company has not declared or paid any cash dividends on its Common Stock and does not expect to declare or pay any dividends in the foreseeable future. Instead, the Company intends to retain all earnings, if any, for use in the Company's business operations. 18 DILUTION The difference between the public offering price per share of the Common Stock and the pro forma net tangible book value per share of the Common Stock after completion of this offering constitutes the dilution to investors in this offering. Net tangible book value per share on any given date is determined by dividing the Company's net tangible book value (total tangible assets less total liabilities) on such date by the number of outstanding shares of Common Stock. At March 31, 1996, the negative net tangible book value of the Company was $(1,383,475) or approximately $(.46) per share of Common Stock. After giving effect to the sale by the Company of 2,000,000 shares of Common Stock offered hereby (less underwriting discounts and commissions and estimated expenses of this offering and assuming no exercise of the Underwriter's over-allotment option or the Underwriter's Warrants) and the issuance of 79,000 shares and the use of $235,000 of the proceeds of this offering simultaneously with such sale to satisfy withholding tax obligations relating to such transaction, the pro forma net tangible book value of the Company at March 31, 1996 would have been $6,681,212, or approximately $1.31 per share of Common Stock. This represents an immediate increase in net tangible book value of $1.77 per share to the existing shareholders and an immediate dilution of $3.69 per share to new investors. The following table illustrates this dilution to new investors on a per share basis:
Public offering price .............................. $5.00 Negative net tangible book value before offering $(.46) Increase attributable to new investors ......... 1.77 Pro forma net tangible book value after offering ..... 1.31 ------- Dilution to new investors ........................... $3.69
The following table sets forth, with respect to the Company's existing shareholders (including three employees of the Company who will be issued an aggregate of 79,000 shares simultaneously with the consummation of the sale of the Common Stock offered hereby) and new investors in this offering a comparison of the number of shares of Common Stock purchased from the Company, the percentage ownership of such shares, the total consideration paid, the percentage of total consideration paid and the average price per share:
Average Price Per Shares Purchased Total Consideration Share ------------------------ ------------------------- ---------- Number Percent Amount Percent ----------- --------- ------------- --------- Existing shareholders . 3,114,232 60.9% $ 3,620,078 26.6% $1.16 New investors ....... 2,000,000 39.1 10,000,000 73.4 5.00 --------- ---- ----------- ----- Total ............. 5,114,232 100.0% $13,620,078 100.0% ========= ===== =========== =====
The above table assumes no exercise of the Underwriter's over-allotment option. If the Underwriter's over-allotment option is exercised in full, the new investors will have paid $11,500,000 or 76.1% of the total consideration, for 2,300,000 shares, or approximately 42.5% of the total number of shares of Common Stock outstanding. See "Underwriting." 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996 on a historical basis and as adjusted to give effect to the Company's sale of 2,000,000 shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom.
March 31, 1996 ------------------------------ Actual As Adjusted(1) ------------- -------------- Notes payable to related party(2) ................. $ 2,000,000 $ 2,000,000 ----------- ----------- Shareholders' equity (deficit) .................... Common Stock, $.01 par value, 10,000,000 shares authorized, 3,048,672 shares issued, 5,114,232 shares as adjusted(3) ........... 30,487 51,142 Additional paid-in capital ................... 3,589,591 12,112,936 Deficit accumulated during the development stage. .................................... (4,943,168) (5,448,481) Unrealized gain on marketable securities ..... 30,000 30,000 Treasury stock -- 13,440 shares(4) ........... (26,000) -- ----------- ----------- Total shareholders' equity (deficit) ....... (1,319,090) 6,745,597 ----------- ----------- Total capitalization ..................... $ 680,910 $ 8,745,597 =========== ===========
- ------ (1) Gives effect to the issuance of 79,000 shares of Common Stock to three officers of the Company and the use of $235,000 of the proceeds of this offering simultaneously with the sale of the Common Stock offered hereby to satisfy withholding tax obligations relating to such transaction. See "Management-Employment Agreements." (2) Represents the outstanding principal amounts of two $1,000,000 promissory notes issued to HBL in September 1991 and September 1992, respectively. Accrued interest on such notes was $483,699 as of March 31, 1996. The notes are due on September 16, 1996 and September 25, 1997, respectively, provided that principal and accrued interest thereon are required to be paid only out of 10% of the Company's gross revenues from its sales of IFN. The notes bear interest at the rate of 6% per annum. Since repayment of the notes is dependent on future sales of IFN by the Company, material amounts of which are not expected within the next year, they are classified as non-current liabilities. (3) Does not include (i) 200,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants; (ii) 115,500 shares of Common Stock reserved for issuance upon exercise of stock options to be outstanding under the Plans, none of which options are currently exercisable; or (iii) an aggregate of 134,500 shares of Common Stock reserved for issuance upon exercise of stock options which are available for future grant under the Plans. See "Management Stock-Option Plans," "Principal Shareholders," "Certain Transactions" and "Underwriting." (4) On May 14, 1996 the Board of Directors of the Company approved the cancellation of all treasury shares. 20 SELECTED FINANCIAL DATA The selected financial data presented below under the captions "Consolidated Statement of Operations Data" and "Consolidated Balance Sheet Data" for the two years ended December 31, 1995 and as of December 31, 1995 are derived from the consolidated financial statements of the Company and its subsidiaries (companies in the development stage) included elsewhere in this Prospectus, which financial statements have been audited by Ernst & Young LLP, independent auditors. Financial data for the three months ended March 31, 1995 and March 31, 1996 and the period from June 25, 1984 (inception) through March 31, 1996 and as of March 31, 1996 are unaudited and, in the opinion of the Company's management, contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. Results for the three months ended March 31, 1996, are not indicative of the results that may be expected for the full 1996 fiscal year. The selected financial data should be read in conjunction with the consolidated financial statements, the related notes and the independent auditors' report, appearing elsewhere in this Prospectus. CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Cumulative From June 25, 1984 (Inception) Year Ended December 31, Three Months Ended March 31, Through --------------------------- ---------------------------- March 31, 1994 1995 1995 1996 1996 ------------ ------------ ----------- ----------- -------------- Total revenues ................ $2,653,331 $2,006,262 $ 647,069 $ 415,728 $10,570,886 Total expenses ................ 2,782,570 2,317,841 722,003 402,921 15,514,054 Net income (loss) ............. (129,239) (311,579) (74,934) 12,807 (4,943,168) Net loss per share ............ (.04) (.10) (.02) -- Weighted average shares outstanding .................. 3,005,592 3,034,339 3,031,609 3,035,232
CONSOLIDATED BALANCE SHEET DATA:
March 31, 1996 -------------------------------- December 31, 1995 Actual As Adjusted(1) ----------------- ----------- -------------- Cash and cash equivalents ....................... $ 1,108,527 $ 724,280 $ 8,664,280 Working capital (deficiency) .................... (18,035) (2,585) 8,062,102 Total assets .................................... 1,791,060 1,424,004 9,364,004 Total liabilities ............................... 3,152,957 2,743,094 2,618,407 Deficit accumulated during the development stage . (4,955,975) (4,943,168) (5,448,481) Shareholders' equity (deficit) .................. (1,361,897) (1,319,090) 6,745,597
- ------ (1) Gives effect to the sale of 2,000,000 shares of Common Stock offered hereby and the anticipated application of the estimated net proceeds therefrom, including the payment of $235,000 to satisfy withholding tax obligations of the Company arising in a transaction required under the employment agreements of three officers in which the Company shall also issue 79,000 shares of Common Stock to such officers. Subsequent to March 31, 1996, the Company borrowed $1,000,000 from HBL, which amount will be repaid from the proceeds of this offering. See "Use of Proceeds" and "Certain Transactions." 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Since June 1984, the Company, a development stage company, has been engaged almost exclusively in research and development activities focused on developing biologics for the treatment of human and animal diseases. Other than limited sales of natural IFNa in Kenya, the Company has not yet commenced any significant product commercialization and, until such time as it does, will not generate significant product revenues. The Company has incurred significant operating losses since its inception resulting in an accumulated deficit of $4,943,168 at March 31, 1996. Beginning in April 1996, the rate of loss increased and such losses are expected to continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 During the three months ended March 31, 1996 (the "1996 Quarter") and the three months ended March 31, 1995 (the "1995 Quarter") the Company recorded total revenues of $415,728 and $647,069, respectively. $402,574 of the 1996 revenues and $618,266 of the 1995 revenues were contract revenues recognized during the respective periods. Other revenues consisted primarily of interest income of $11,154 and $28,803 for the 1996 and 1995 quarters, respectively. Of the $9 million contract revenues received from HBL from 1992 through 1994, all but $14,566 has been recognized as income as of the end of the 1996 Quarter. Beginning in April 1996, the Company will no longer have contract revenues to offset expenditures as they are incurred. Accordingly, the Company anticipates a significant increase in net losses. During the 1996 Quarter, research and development expenses were $134,209 as compared to $247,978 for the 1995 Quarter. The decrease of $113,769 was the result of fewer clinical studies conducted and completed in the 1996 Quarter. General and administrative expenses were $238,712 during the 1996 Quarter as compared to $444,025 during the 1995 Quarter. The primary reason for the decrease was fewer employees in the 1996 Quarter (eight compared to eleven) and litigation expense in the 1995 Quarter of $103,737 compared to none in the 1996 Quarter. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 During the year ended December 31, 1995, the Company had total revenues of $2,006,262 compared to total revenues of $2,653,331 during the year ended December 31, 1994. $550,000 of the revenues for 1995 were received in connection with the settlement of a patent infringement action brought by the Company in New Zealand. Of the total settlement amount, $50,000 was in exchange for the grant by the Company of a sublicense of the technology that was the subject of the lawsuit and $500,000 was a reimbursement of research and development cost incurred by the Company. Other revenues for 1995 consisted of interest income of $94,867 and deferred contract revenues recognized in the amount of $1,361,395. Had the Company not received the $500,000 payment toward research and development costs from the settlement, the remaining balance of deferred contract revenue ($417,140) would have been recognized as contract revenue in 1995. During 1994, deferred contract revenues of $2,480,093 were recorded as earned based on research and development and administrative costs incurred. Other 1994 revenues consisted of interest income of $132,713 and interferon sales of $40,525. During 1995, research and development expenses were $875,093 as compared to $1,364,042 during 1994. The decrease of $488,949 in 1995 was the result of certain clinical studies being completed in 1994 and the continuation of certain other studies into 1996. It is anticipated that approximately $76,000 will be paid by the Company in 1996 for 1995 studies which will be completed in 1996. During 1995 and 1994, the Company incurred general and administrative expenses of $1,322,748 and $1,298,528, respectively. Over all, general and administrative expenses for 1995 were lower than 1994. However, the Company recorded a $150,000 discount on its investment in ISI common stock due to certain restrictions placed on the sale of such stock. The Company acquired 22 312,500 shares of ISI common stock for $625,000, or $2.00 per share, representing the quoted market price of ISI stock at that time. The stock was acquired as a result of an agreement with ISI to allow the sublicense by the Company to others of certain products previously exclusively licensed to ISI. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company had cash of $724,280 with accounts payable of $100,175 and other funding commitments for clinical studies of approximately $36,000. Deferred contract revenues of $14,566 at March 31, 1996 represents contract revenues received from HBL in advance of services to be performed for research and development activities. The Company has borrowed $2 million from HBL and the notes accrue interest at the rate of 6% with accrued interest of $483,699 at March 31, 1996. The accrued interest and principal are to be paid only from 10% of the Company's gross revenues from sales of IFN. The Company has made arrangements with HBL to borrow an additional $1 million, of which $500,000 will be advanced in May and $500,000 will be advanced in June of 1996. The Company shall be obligated to repay such additional loans in full simultaneously with the consummation of this offering. At the present time, the Company's only sales of IFNa are to Kenya and such sales are insignificant. Accordingly, the Company believes that losses from operations will continue until such time, if ever, as the Company receives approval from the FDA, so that commercial marketing of the Company's products can begin in the United States. Also, approval is being sought in certain foreign countries for product sales. However, there can be no assurance that such approvals will occur. The Company anticipates, based on its currently proposed plans and assumptions relating to its operations (including assumptions regarding the progress of its research and development and the timing and costs associated with the Primary Development Projects), that the net proceeds of this offering, together with the Company's existing capital resources, will be sufficient to satisfy the Company's estimated cash requirements for at least 12 months following the consummation of this offering. The Company estimates that an aggregate of $11,100,000 will be needed over approximately the next three years to complete its Primary Development Projects. Such amount is in excess of the net proceeds of this offering and the existing capital of the Company. Therefore, unless the Company generates significant revenues during such period, which the Company believes is unlikely, the Company will need additional financing to fully fund such development. The Company has no current arrangements with respect to sources of additional financing and it is not anticipated that any of the officers, directors or shareholders of the Company (including HBL) will provide any portion of the Company's future financing requirements. There can be no assurance that, when needed, additional financing will be available to the Company on commercially reasonable terms, or at all. In the event that the Company's plans change, its assumptions change or prove inaccurate, or if the proceeds of this offering, together with other capital resources, otherwise prove to be insufficient to fund operations, the Company could be required to seek additional financing sooner than currently anticipated. Any inability to obtain additional financing when needed would have a material adverse effect on the Company, including requiring the Company to significantly curtail or possibly cease its operations. 23 BUSINESS GENERAL The Company, a development-stage company, is engaged in developing biologics for the treatment of human and animal diseases. The Company is currently focusing its research on human health indications for the use of low dose oral natural IFNa, particularly for the treatment of Sjogren's syndrome, oral mucositis in cancer patients and hepatitis B and C. The Company believes that significant worldwide opportunities exist for the development of low dose oral natural IFNa as an inexpensive, non-toxic, efficacious alternative to the treatment of disease by injection of high doses of IFNa. In addition, the Company believes that low dose oral natural IFNa can be an effective treatment for diseases or conditions for which current therapies are inadequate. The Company owns or licenses ten United States patents relating to low dose oral natural IFNa. Since 1992, the Company has filed, and there now are in effect, seven Investigational New Drug Applications covering indicated uses for low dose oral IFNa, including treatment of Sjogren's syndrome and oral mucositis. The Company is seeking regulatory approvals in certain foreign countries to test and/or market low dose oral IFNa for the treatment of hepatitis B and C. The Company is also testing oral IFNa in cats with herpesvirus-1 infection, dogs with keratoconjunctivitis sicca and cattle with shipping fever or mastitis and has filed and there are now in effect Investigational New Animal Drug Applications for these and other indications for the product in animals. The Company is also testing a topical IFNa as a treatment for genital warts in humans. The Company's objective is to exploit its proprietary technology to become a leader in the field of low dose oral IFNa applications. The Company's business strategy is to pursue those indications for low dose oral IFNa treatment for which initial clinical research has indicated the treatment is efficacious and which in the opinion of the Company have the greatest commercial potential and are most likely to be approved by the FDA. To the extent possible, the Company will attempt to minimize the cost to the Company of obtaining FDA approval by utilizing forms of IFNa already approved (in other dosage forms and for different indications) by the Japanese Ministry of Health and Welfare for human use or by the FDA for animal use. The Company believes such minimized costs will be the result of more information available for use in preparing applications for such approvals. The Company will attempt to gain market share for approved products by forming alliances with strong marketing partners. IFNa The bodies of humans and animals maintain delicately balanced immune systems that fight disease and injury. Substances such as IFNa, which are produced by the body in small quantities, play important roles in the maintenance of these systems. The Company believes that IFNa and other biologics show great promise as weapons against disease and for use in therapy. IFNa has antiviral, antiproliferative and immunomodulatory properties and is used therapeutically in humans with various chronic disorders. IFNa may reduce inflammation by eliminating persistent viral infection, modulating the allergic response or attenuating factors which cause inflammation. In recent years IFNa has been used as a biologic and various techniques have been discovered for the mass production of IFNa and other biologics. The prevailing view is that for IFNa to be effective, sufficient concentrations of the substance must reach the disease site, by means of either local or distal administration of the IFNa. If IFNa is disseminated in the bloodstream, high doses of IFNa would be required to assure that sufficient amounts of IFNa reach the diseased tissue. Such approaches have proven effective in many instances, but high-dose systemic IFNa therapy has the disadvantage of significant side effects in many cases as well as expense. The Company has focused its efforts on the use of IFNa in low doses since such use mimics the way the body naturally produces and utilizes the substance. It has accumulated data that indicate that oral administration of IFNa , at very low doses, can trigger systemic alterations which augment the body's disease-fighting mechanisms. Such oral application of low dose IFNa is without the adverse side effects of high-dose IFNa administration. Moreover, low dose treatment which is administered orally or topically is more economical than treatment by injection of high dose IFNa. 24 The Company has conducted preliminary research on various human and animal indications for the use of low dose oral IFNa therapy and, based upon initial results, intends to focus its development activities on the applications discussed below. HUMAN HEALTH APPLICATIONS Sjogren's Syndrome. Sjogren's syndrome is a chronic autoimmune disorder characterized by severe dryness of the eyes and mouth. It can exist as a primary disorder or in association with other autoimmune diseases such as rheumatoid arthritis, systemic lupus erythematosus and progressive systemic sclerosis. Patients with primary Sjogren's syndrome may have clinical signs such as rash, arthritis, pneumonitis and nephritis. Typical symptoms include burning eyes, dry mouth, stinging tongue, painful throat, swollen glands and dry vagina. Oral candidiasis (a fungus infection of the mouth) may also arise as a result of the absence of naturally occurring anti-yeast substances which are contained in saliva. Although Sjogren's syndrome is not life threatening, it can cause extreme discomfort. The National Institutes of Health ("NIH") estimates that there are approximately two to four million people in the United States who suffer from Sjogren's syndrome. The Company believes that the incidence of Sjogren's syndrome worldwide is similar to its incidence in the United States. Topical use of artificial tears is the prevailing treatment for the dry eye symptom of the disease. Artificial tears must be used on a regular basis. Intensive oral hygiene is prescribed to prevent progressive periodontal problems that may develop as a result of the disease. The Company believes that oral IFNa therapy helps to relieve the dryness associated with Sjogren's syndrome and may effectively supplement or replace the existing treatments. In a study conducted by the Company from October 1994 to January 1996 at two universities, the Company found that oral IFNa therapy administered to Sjogren's syndrome patients led to increased saliva production in six of 14 patients. The Company has filed and there is now in effect an IND for the use of oral IFNa to treat Sjogren's syndrome. The Company intends to spend approximately $4.5 million to conduct and evaluate additional clinical trials of the treatment during the next three years. Oral Mucositis. Oral mucositis is a condition characterized by inflammation and sometimes ulcerations of the mucosal lining of the mouth. It is often associated with the use of chemotherapy or radiation therapy on cancer patients, and in many cases is a dose limiting factor for the chemotherapy treatment cancer patients receive. Current treatments for oral mucositis, including oral hygiene, topical agents and oral rinses, are generally ineffective. The Company has filed and there is now in effect an IND for the use of oral IFNa to treat oral mucositis. The Company sponsored a Phase 1/Phase 2 clinical trial at three oncology research centers. Seven out of ten patients experienced a clinically significant reduction in their oral mucositis when IFNa was given with particular chemotherapy compared to a previous cycle of chemotherapy without IFNa given to the same patients. The Company believes that in the United States approximately 400,000 patients per year will suffer from oral mucositis. The Company intends to spend approximately $3.8 million to conduct and evaluate additional clinical trials during the next three years. Hepatitis. Hepatitis is a family of diseases in which inflammation of the liver occurs. The most common cause of hepatitis is viral infection by one of six distinct viruses. Two of the most common of such viruses are HBV and HCV. Symptoms of acute hepatitis, regardless of which viral agent causes the illness, are similar and include fever, nausea, vomiting and jaundice. While acute viral hepatitis can be debilitating, it is seldom fatal or permanently disabling. However, HBV and HCV can result in a lifelong chronic state. This chronic condition is usually found in two forms. One form is a "chronic carrier" state in which the individual does not have the clinical signs of the disease but is infectious. A chronic carrier can spread the disease for years without being aware of it. The second chronic state is termed "chronic active 25 hepatitis." In this condition, the person is both infectious and has mild to severe hepatitis symptoms. According to the World Health Organization ("WHO"), HBV chronically infects (including both carrier and active states) 300-400 million people worldwide. WHO lists HBV as the ninth leading cause of death, responsible for up to 2 million deaths each year. Hepatitis B HBV is transmitted through blood, blood products and sexual contact. About 6-10% of patients infected with HBV become carriers and 5-8% of all HBV patients develop chronic disease. Currently, the only effective and widely approved treatment for chronic HBV is IFNa administered parenterally in high doses three times per week for 16 to 24 weeks. However, new parenteral IFNa treatment regimens last for up to 48 weeks. Fewer than 40% of HBV patients respond favorably to parenteral IFNa treatment. The therapy has been shown to be almost totally ineffective in carrier cases. High dose parenteral IFNa therapy often results in adverse reactions, including fever, headache, muscular pain, anorexia, fatigue, chills, weakness, nausea, hair loss, depression and personality changes. Parenteral high- dose IFNa treatment is also costly. Moreover, its use requires the additional expense of syringes and needles, and necessitates close medical supervision. Some of the additional required medical expense is in the form of doctor visits and treatment for the adverse effects associated with the parenteral IFNa. While no specific cost estimates are available, the costs are substantial, especially in countries where the health system is already overburdened. The Company believes that low dose oral IFNa therapy for chronic HBV might be as beneficial a treatment for the disease as, and be more economical than, parenteral IFNa. Up to 140 million chronic HBV patients may qualify for low dose oral IFNa therapy worldwide. Since 1990, the Company has been involved in an open-labelled (non-placebo controlled) safety and efficacy study of oral IFNa therapy for chronic HBV patients conducted at two clinical centers in Poland. The therapy appears to have had as beneficial an effect in this patient population as parenteral IFNa and to have produced fewer adverse side effects. Care needs to be taken in the interpretation of the results of the study since it was not placebo-controlled. However, the data generated to date indicate that the low dose oral IFNa therapy would represent significant improvement over parenteral therapy because it is less toxic and less expensive. The Company intends to spend approximately $800,000 to conduct and evaluate clinical trials of oral IFNa treatment in Mexico with the goal of obtaining regulatory approval for marketing in Mexico. The Company has designed a study to be conducted at a hepatitis treatment center in Mexico City, which the Company believes will require approximately two years to complete. The Company is seeking temporary approval to market IFNa for treatment of HBV in China while clinical testing is being conducted. The Company intends to seek permanent marketing approval in China for such treatment after clinical testing has been completed. Hepatitis C HCV is transmitted primarily through blood and blood products and, to a lesser extent, by sexual contact. However, in 20-40% of HCV cases, no source of infection can be identified. Symptoms of the acute phase of the disease are similar to HBV, though usually less severe, with fatigue being the most common complaint. Of individuals infected with HCV, 20-30% will resolve their infection, 20-30% will become chronic carriers and the remaining 40-60% will develop chronic active hepatitis. The latter group is at great risk of developing cirrhosis and/or liver cancer. It is estimated that the number of chronic infections (including carriers) is 60-100 million worldwide, and the number is increasing rapidly. While infection via blood, blood products and sexual contact can be controlled to a certain extent, the 20 to 40% of cases with an unknown method of transmission have resulted in great concern in the international health care community. Because HCV was not identified until 1989, the full extent of the epidemic is still unknown. As with HBV, parenterally administered IFNa is the only widely approved therapy for HCV infection. Current therapy consists of high dosages of IFNa that are administered by injection three times per week for 24 weeks. Relapse after parenteral IFNa administration is common in HCV patients. Of the 30-50% of patients who initially respond to treatment, about half will revert to active disease, leaving only 15-25% of treated patients who experience a lasting benefit from therapy. Parenteral IFNa treatment of HCV is associated with the same high cost and adverse side effects attendant to such therapy for HBV. Costs 26 can be even greater in treating HCV since patients who fail to respond to parenteral IFNa therapy or who relapse after therapy often receive multiple treatment courses, sometimes consisting of even greater doses and/or duration, in an attempt to forestall the frequently life-threatening consequences of long-term chronic HCV. Recent clinical pilot work completed by the Company in association with a university in Canada indicates that chronic HCV patients treated with low-dose oral IFNa followed by a standard course of parenteral IFNa had an initial response rate twice that recorded in patients given parenteral IFNa alone. HBL has provided the Company with data that demonstrates that HCV patients in Japan who were treated with injectable IFNa preceded by low-dose oral IFNa experienced a greater than expected sustained rate of response. It should be noted that these data were generated from open-label treatment and should be interpreted accordingly. The Company has licensed such technology from the Canadian university and intends to use approximately $2,000,000, to prepare an Investigational New Drug submission in Canada and a similar application in Mexico, and, if such applications are approved, to conduct clinical trials in such countries to evaluate, and thereafter develop, oral IFNa pre-treatment as a means of increasing the effectiveness of parenteral IFNa therapy. Approximately two-thirds of the estimated 60-100 million worldwide chronic cases of HCV are believed to be candidates for this treatment. Other Applications and Products. The Company has also filed and there are currently in effect INDs for the use of oral IFNa to treat aphthous stomatitis, fibromyalgia, the common cold and chronic fatigue syndrome in humans. However, the Company does not currently have, nor does it believe that in the foreseeable future it will have, the financial or human resources to actively pursue research and development activities with respect to these or other diseases or conditions. Any such additional activities would require arrangements to be made with strategic partners. There can be no assurance that any such development would occur. In April 1996, the NIH announced that it will be conducting a clinical trial of the use of low dose oral IFNa therapy for the treatment of AIDS-related symptoms. The study will enroll 560 AIDS patients and test three different forms of IFNa , including the form produced by HBL as well as forms produced by two licensees of the Company. While the Company has filed an IND for the use of oral IFNa to treat AIDS, and assisted the NIH in the finalization of the study protocol as well as the coordination of the packaging of clinical supplies for the study, the Company currently plans only limited further development work for this indication until the NIH study has been completed. The extent of further development work undertaken by the Company may depend upon the results of the NIH study. The Company is currently testing IFNa in ointment form for the treatment of genital warts. A pilot study has been conducted in Mexico on eight volunteers. The Company is also conducting laboratory tests on the product at an American university. ANIMAL HEALTH The 1996 American Veterinary Medical Association Membership Directory and Resource Manual reports that there are approximately 51 million dogs in 29 million households and 58 million cats in 29 million households in the United States. The United States Department of Agriculture estimates that the total number of cattle in the United States at the end of last year was 103 million. While the Company does not currently intend to devote significant financial or human resources to animal health, it is testing oral IFNa as a treatment for keratoconjunctivitis sicca ("KCS") in dogs, feline herpesvirus-1 infection ("FVR") in cats and shipping fever and mastitis in cattle. KCS. KCS occurs whenever there is decreased production of tears or increased evaporation or break-up of the tear film. The disease is most common in dogs but occasionally occurs in cats and horses. Current treatment for the condition involves stimulation of tear production by a topical administration of cyclosporine formulation, topical applications or oral administration of antibiotics and use of artificial tear solutions. The Company has conducted a pilot study in which low dose oral IFNa resulted in significantly increased tear production in dogs. FVR. Veterinarians can trace 80 to 90% of all feline upper-respiratory tract infections to two known viruses. Although both viruses cause similar clinical effects, FVR (also known as feline viral rhinotracheitis) usually causes a more severe illness. A cat suffering from infection by the virus may sneeze 27 frequently, become lethargic, salivate excessively and lose its appetite. Some cats also develop conjunctivitis and in some cases, pneumonia. In a pilot study on the use of oral IFNa in the treatment of FVR conducted by the Company at an American university in 1995, cats given IFNa for only two days had a significant benefit over cats given a placebo in terms of reduced nasal discharges, reduced fever and other clinical variables. Shipping Fever. The term "shipping fever" is used to describe the bovine respiratory disease complex observed in cattle after shipment either into feedlots or onto pasture. Affected cattle experience fever, loss of appetite, cough, nasal discharge and irregular breathing. In studies conducted by Dr. Cummins at an American university from 1982 to 1988, human IFNa given orally to calves was found to provide significant reduction in fever, improvement in feed intake, and a decrease in mortality. The Company has filed an INAD and intends to conduct clinical trials with respect to use of oral IFNa as a treatment for shipping fever when a development partner is found. Mastitis. The inflammation of the mammary gland in dairy cows is the most important and costly disease in the dairy industry. Ajinomoto Co., Inc. of Tokyo, Japan has agreed to conduct a pilot study, at its sole expense, on the use of low dose oral IFNa as a treatment for mastitis. STRATEGIC ALLIANCE WITH HBL HBL was established in 1970 to engage in biotechnical research and development. It is a subsidiary of Hayashibara Company Ltd., a privately-owned Japanese holding corporation with diversified subsidiaries. For more than 100 years the Hayashibara Company, Ltd. and its predecessors have been applying microbiological technology in the starch industry for the production of maltose and other sugars. In 1981, HBL established the Fujisaki Institute to accelerate development of industrial methods for the production of biologics and to sponsor clinical trials for such products. In 1985, HBL built the Fujisaki Cell Center to support basic research. In 1987, HBL successfully accomplished the mass production of human cells in an animal host by producing human cells in hamsters. This made it possible to economically produce a natural form of human IFNa and other biologics. HBL also has developed and obtained patents for technology relating to the production of IFNa - containing lozenges by which the stability of the IFNa activity at room temperature can be maintained for up to three years. The Company believes that the use of such lozenges gives it advantages over competitive technologies in terms of cost, taste and ease of handling. In 1989, the Company and HBL entered into a manufacturing and supply agreement pursuant to which HBL granted the Company a license to use and distribute HBL INFa and committed to supply to the Company its requirements of HBL IFNa and the Company agreed to pay HBL perpetual royalties on net sales of products containing IFNa (whether supplied by HBL or others) along with certain fees for the sublicensing of the Company's rights. In March 1992, HBL and the Company terminated the 1989 agreement and entered into a Joint Development and Manufacturing/Supply Agreement (the "Development Agreement") pursuant to which HBL agreed to supply to the Company HBL IFNa at specified prices and granted to the Company an exclusive license to market (with the right to sublicense such rights to others, subject to HBL's approval of the sublicensees) HBL IFNa for low dosage oral use in humans worldwide, except in Japan (where HBL has retained exclusive marketing rights), and for low dosage oral use in animals worldwide. Subject to certain conditions, HBL also agreed to provide to the Company $9,000,000 in research funding. All of such funding was provided to the Company during the three years ended December 31, 1994 and has been expended. The Company also increased HBL's perpetual royalties on net sales by the Company of IFNa -containing products for oral use. Under the Development Agreement, the Company has granted to HBL an exclusive license to use the Company's technology and certain of its patents for the marketing of HBL IFNa for oral use in humans in Japan and HBL agreed to pay to the Company perpetual royalties on net sales of HBL IFNa for oral use by humans in Japan by HBL, its affiliates and licensees. The initial term of the Development Agreement expires in March 1999, but the agreement is automatically renewable for successive three year terms subject to the prior written agreement of the parties. In January 1993, the Company entered into a license agreement with HBL pursuant to which it granted a license to HBL for the marketing by HBL of HBL IFNa for oral use in animals in Japan in exchange for HBL's agreement to pay royalties on net sales of the product for such use in Japan by HBL, its affiliates and licensees. Such agreement terminates in January 2000 but is automatically renewable for successive three year terms subject to the prior written agreement of the parties. 28 In June 1994, the Company and HBL entered into a Manufacturing/Supply Agreement under which HBL granted to the Company an exclusive license to use, formulate, test and market HBL IFNa for non-oral (topical or parenteral) use in both humans and animals in North America and HBL agreed to supply to the Company its IFNa for such purposes. Under the agreement the Company agreed to pay to HBL a specified price for the HBL IFNa it purchases for non-oral use. AGREEMENTS WITH ISI AND OTHERS In October 1989, the Company entered into a Manufacturing and Supply Agreement with ISI, under which ISI granted to the Company an exclusive worldwide license to market ISI IFNa for oral use in animals and agreed to supply ISI IFNa for such use exclusively to the Company. Pursuant to the agreement, ISI receives a specified price for ISI IFNa sold to the Company. ISI is also entitled to receive royalties on net sales as well as a percentage of any license fee, option fee or other payment, except royalty or specific research or patent expense reimbursements, which the Company receives for the assignment or sublicense of the Company's rights under the license agreement. Since 1994, the Company has been required to expend a minimum of $50,000 per year toward development of products under the Manufacturing and Supply Agreement in order to keep it in force. The Company has done so, and currently intends to continue to make such expenditures. The Manufacturing and Supply Agreement will continue for seven years after the Company's first purchase order for Manufactured Products under the Agreement, and will be automatically renewed for successive three-year terms thereafter, subject to termination by the Company, with or without cause, and subject to termination by ISI at any time after the first renewal term, if net sales for a calendar year do not exceed $100,000. The seven-year term has not yet commenced, since the Company has not yet placed an order with ISI for Manufactured Products. "Manufactured Products" is defined in the agreement as ISI IFNa, packaged in accordance with FDA approved dosage forms. The FDA has not yet approved any dosage form within the meaning of the agreement. In October 1989, the Company and ISI entered into a license agreement pursuant to which the Company granted to ISI a license (co-exclusive with the Company) of the Company's patented technology for the use and sale of IFNa containing products for use in humans worldwide, except for Japan (where the Company has granted to HBL an exclusive license), for a royalty on net sales of licensed products made during the term of the agreement. The original term of the license agreement was to expire on October 20, 1994, but ISI extended its term as therein permitted. As amended in April 1995, the agreement will continue in force for the life of the licensed patents, subject only to ISI's right to terminate the agreement with or without cause (in which case ISI must cease any use or sale of the licensed products), and the Company's right to terminate for breach of the agreement by ISI, or upon certain other events. In April 1995, in connection with the settlement of certain patent and infringement litigation brought by the Company in New Zealand against Fernz Corporation Limited, Pharma Pacific Management Pty. Ltd. ("PPM") and certain other companies and certain opposition proceedings brought by PPM against the Company and certain of the Company's licensors in Australia and Europe, the Company entered into a non-exclusive license agreement with PPM. Pursuant to such agreement, the Company licenses to PPM worldwide, except in Japan, the right to use the Company's patented technology for the use and sale of IFNa containing products in humans and PPM is obligated to pay the Company a royalty based on sales of the product in countries where any of the licensed patents has issued. To the Company's knowledge, PPM is not selling products covered by the license in any such country. PPM also paid to the Company $500,000 as a reimbursement of a portion of the Company's research and expenses related to the licensed technology and a $50,000 license fee to be credited against future royalties. In connection with the settlement, ISI and the Company agreed to an amendment of ISI's license from the Company to prohibit any sublicensing by ISI of the licensed technology (except that ISI retained the right to sublicense such technology in connection with the use and sale of ISI IFNa products) and the Company purchased, for $625,000, 312,500 shares of the Common Stock of ISI, a public company. MANUFACTURING The Company depends on HBL and ISI for the production and purification of IFNa for use in clinical trials and intends to rely on them to supply it with IFNa in bulk for formulation in products commercially sold by the Company. HBL 29 produces all of its IFNa (including injectable IFNa and IFNa formulated in lozenges) at its Kibi Pharmaceutical Plant outside Okayama, Japan. The plant has not yet been approved by the FDA for production of IFNa. ISI produces all of its IFNa at an FDA-approved plant in New Brunswick, New Jersey. The Company uses ISI IFNa for oral administration in animal testing. MARKETING AND SALES The Company anticipates that its products eventually will be marketed in all countries where approval to sell such products is obtained. The Company expects to sell products for human use to pharmaceutical distributors who will undertake the marketing of human products. It hopes to sell the products for animal use to animal health distributors who will undertake the marketing of the products. However, the Company does not expect that it will have significant sales for at least three years. In November 1990, the Company entered into an agreement (the "Marketing Agreement") with Mitsubishi Corporation ("Mitsubishi") under which it has appointed Mitsubishi its marketing representative for the Company's low-dose oral IFNa products for human use. The agreement is exclusive worldwide, except for the United States, Japan, Thailand and certain countries in Africa. Pursuant to the Marketing Agreement, Mitsubishi is assisting the Company in developing a global marketing strategy. Mitsubishi will also identify and negotiate with potential licensees where the Company determines that licensing is the most effective method of commercializing a product; establish distribution channels for such products, if any, that may be produced under the Company's own auspices; arrange for shipment and delivery of products to licensees, distributors and customers; and assist the Company in obtaining regulatory approval for the Company's products. For its services, Mitsubishi will receive stated percentages of all license or option fees and stated percentages of any royalties paid to the Company under any license agreements entered into by the Company in Mitsubishi's exclusive market area during the term of the Marketing Agreement or any license agreement entered into within two years after the term with licensees contacted by Mitsubishi or introduced to the Company by Mitsubishi prior to the expiration of the Marketing Agreement. In addition, Mitsubishi is entitled to a percentage commission on the net sales value (as defined in the agreement) of products shipped to any person in Mitsubishi's exclusive marketing area during the same periods discussed above with respect to licenses. The initial term of the Marketing Agreement expires in November 2000, but the term shall automatically be extended for successive three year periods unless either party elects not to extend the agreement by written notice to the other not less than 12 months prior to the end of the term or renewal term. PATENTS AND PROPRIETARY RIGHTS The Company seeks patent protection for its technology and products. It typically files United States patent applications and related foreign patent applications as soon as such technology and products are developed. The Company files foreign patent applications on some of its technology and products in countries where, in the Company's opinion, business considerations warrant such filings. The foreign countries in which the Company files patent applications usually include Japan, Canada, Australia, and countries of the European Economic Community. The Company owns or licenses from HBL and two universities or their affiliates, ten issued United States patents. The Company and its licensors have eight United States patent applications pending relating to oral IFNa. Numerous foreign patent applications which correspond to certain of these United States patent applications have also been filed and are pending. There can be no assurance, however, that either the Company's or its licensors' existing patent applications will mature into issued patents, that the Company will be able to obtain any necessary or desired additional licenses to patents or technologies of others or that the Company will be able to develop its own additional patentable technologies. The Company's license agreements with its licensors provide for the payment to licensors of various license issue fees, percentage royalties on net sales of licensed products by the Company (including certain minimum annual royalties) and stated percentages of license, option or other front-end payments and royalty payments received by the Company from sublicensees. The Company's licenses extend for the life of the licensed patents, subject to earlier termination without cause by the Company or with cause by licensors. 30 The Company believes that the patent position of pharmaceutical companies involves complex legal and factual questions. There can be no assurance that any future patent applications or any patents issued to the Company will provide it with competitive advantages or that the Company's use of its technology will not be challenged as infringing upon the patents or proprietary rights of others, or that the patents or proprietary rights of others will not have an adverse effect on the ability of the Company to do business. Furthermore, there can be no assurance that others will not independently develop similar technology or that others will not design technology to circumvent the Company's existing or future patents or proprietary rights. In the event that the Company's technology were to be deemed to be infringing upon the rights of others, the Company could be subject to damages or enjoined from using such technology or the Company could be required to obtain licenses to utilize such technology. No assurance can be given that any such licenses would be made available on terms acceptable to the Company, or at all. If the Company were to be unable to obtain such licenses, it could encounter significant delays in introducing products to the market while it attempts to design around the patents or rights infringed upon, or the Company's development, manufacture and sale of products requiring such licenses could be foreclosed. In addition, the Company could experience a loss of revenues and may incur substantial costs in defending itself and indemnifying its strategic partners in patent infringement or other actions based on proprietary rights violations brought against it or its strategic partners. The Company could also incur substantial costs in the event it finds it necessary to assert claims against third parties to prevent the infringement of its patents and proprietary rights by others. Roche has asserted to both HBL and ISI that the manufacture, sale and use of their respective forms of IFNa infringe United States Patent 4,503,035 and foreign counterparts thereof owned by Roche relating to IFNa (collectively, the "Roche Patent"). The Roche Patent expires in March 2002 in the United States and at various times in other jurisdictions. HBL has informed the Company that it believes that the claims of the Roche Patent are not applicable to the manufacture and sale of HBL IFNa. HBL has prevailed at the trial level in litigation initiated by Roche in Japan concerning the dispute and Roche has appealed the decision. The Company is not a party to the litigation between Roche and HBL in Japan. The Company believes that it is likely that Roche would commence suit against the Company if the Company were to sell or attempt to sell HBL IFNa for commercial use in the United States or any other country where the Roche Patent has issued with IFNa composition claims and is still in effect. However, under applicable United States patent law, the use of a patented product solely for uses reasonably related to the development and submission of information for seeking FDA approval of a biologic for indicated uses in humans is not an act of infringement. Thus, the Company believes that it is unlikely that it would be sued by Roche prior to commercialization of the Company's IFNa products. Roche would also not assert infringement claims with respect to the Company's sale of ISI IFNa, because in March 1995 ISI entered into a license agreement with Roche pursuant to which ISI was granted a license to use the Roche Patent in exchange for specified royalties. The Company believes that its oral IFNa dosage forms do not infringe any claims of the Roche Patent. However, there can be no assurance that, if the Company sells or attempts to sell HBL IFNa for commercial use in one or more countries in which the Roche Patent has issued, such sale or attempted sale would not be determined to be an infringement of the Roche Patent under applicable law. HBL has agreed to indemnify the Company for litigation expenses incurred in defending suits brought by Roche against the Company for infringement of the Roche Patent and for any damages the Company may be required to pay to Roche in the event that Roche is successful in any such suit. Nevertheless, a determination of infringement could have a material adverse effect on the business and operations of the Company. See "Certain Transactions." The Company relies on proprietary know-how and confidential information and employs various methods, such as entering into confidentiality and noncompete agreements with its current employees and with third parties to whom it has divulged proprietary information, to protect the processes, concepts, ideas and documentation associated with its technologies. Such methods may afford incomplete protection and there can be no assurance that the Company will be able to protect adequately its trade secrets or that other companies will not acquire information which the Company considers to be proprietary. The Company will be materially adversely affected if it cannot maintain its proprietary technologies for its exclusive use. 31 COMPETITION The pharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition. The Company believes that its ability to compete will be dependent in large part upon its ability to continually enhance and improve its products and technologies. In order to do so, the Company must effectively utilize and expand its research and development capabilities and, once developed, expeditiously convert new technology into products and processes which can be commercialized. Competition is based primarily on scientific and technological superiority, technical support, availability of patent protection, access to adequate capital, the ability to develop, acquire and market products and processes successfully, the ability to obtain governmental approvals and the ability to serve the particular needs of commercial customers. Corporations and institutions with greater resources than the Company may, therefore, have a significant competitive advantage. The Company's potential competitors include entities that develop and produce therapeutic agents for treatment of human and animal disease. These include numerous public and private academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things, biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Almost all of these competitors have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources, and experience than the Company. The Company's competitors may succeed in developing products or processes that are more effective or less costly than any that may be developed by the Company, or that gain regulatory approval prior to the Company's products. The Company also expects that the number of its competitors and potential competitors will increase as more IFNa products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful than the Company in manufacturing, marketing and distributing its products. There can be no assurance that the Company will be able to compete successfully. GOVERNMENT REGULATION The Company's research and development activities are subject to comprehensive regulation by numerous governmental authorities in the United States and other countries. If the Company is able to produce and market products, such production and marketing will place the Company under continued regulation. Among the applicable regulations in the United States, pharmaceutical products are subject to the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, other federal statutes and regulations, and certain state and local regulations. These statutes and regulations govern the development, testing, formulation, manufacture, labeling, storage, record keeping, quality control, advertising, promotion, sale, distribution and approval of pharmaceutical products. Failure to comply with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production, refusal by the government to approve marketing of the product and criminal prosecution. A new drug may not be legally marketed for commercial use in the United States without FDA approval. In addition, upon approval, a drug may only be marketed for the indications, in the formulations and at the dosage levels approved by the FDA. The FDA also has the authority to withdraw approval of drugs in accordance with applicable statutes and regulations. Analogous foreign regulators impose similar approval requirements relating to commercial marketing of a drug in their respective countries and may impose similar restrictions and limitations after approval. In order to obtain FDA approval of a new product, the Company and its strategic partners, if any, must submit proof of safety, efficacy, purity, and stability, and the Company must demonstrate validation of its manufacturing process. The testing and application process is expensive and time consuming, often taking years to complete. There is no assurance that the FDA will act favorably or quickly in reviewing applications. With respect to patented products, processes or technologies, delays imposed or caused by the governmental approval process may materially reduce the period during which the Company will have the exclusive right to exploit them. Delays could also affect the commercial advantages derived from proprietary processes. There is no assurance that the regulatory agencies will find present or future submissions of the Company to be adequate. The FDA approval process for a pharmaceutical product such as oral IFNa includes review of (i) preclinical laboratory and animal studies to enable FDA review of an Investigational New Drug Application ("IND") or Investigational New Animal Drug Notice ("INAD"), (ii) initial clinical studies to define safety and 32 dose parameters and (iii) well-controlled clinical trials to demonstrate product efficacy and safety, followed by submission and FDA approval of a Product License Application ("PLA") concerning biologics and a New Drug Application ("NDA") with respect to drugs. FDA approval of the NDA and/or PLA is required prior to any commercial sale or shipment of the product, except as to certain exports. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the safety of the product. The results of the preclinical tests are submitted to the FDA as part of the IND or INAD application and are reviewed by the FDA. Unless the FDA objects to an IND, the application will become effective 30 days following its receipt by the FDA. INADs need only be filed prior to the shipment of the drug or biologic for testing. There can be no certainty that the FDA will not object to the commencement of clinical studies concerning any drug or biologic. Human clinical trials are typically conducted in three sequential phases with some amount of overlap allowed. Phase 1 trials normally consist of testing the product in a small number of patient volunteers for establishing safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. In Phase 2, the continued safety and initial efficacy of the product are evaluated in a somewhat larger patient population, and appropriate dosage amounts and treatment intervals are determined. Phase 3 trials typically involve more definitive testing of the appropriate dose for safety and clinical efficacy in an expanded patient population at multiple clinical testing centers. A clinical plan, or "protocol," accompanied by the approval of the institution participating in the trials, must be submitted to the FDA prior to commencement of each clinical trial. Each clinical study must be conducted under the auspices of an Institutional Review Board ("IRB") at the institution performing the clinical study. An IRB may require changes in a protocol, and there can be no assurance that an IRB will permit any given study to be initiated or completed. In addition, the FDA may order the temporary or permanent discontinuation of clinical trials at any time. In light of this process, the Company must necessarily rely on other persons and institutions to conduct studies. The Company cannot guarantee that such persons and institutions will conduct studies properly. There also can be no assurance that Phase 1, Phase 2 and Phase 3 testing of the Company's products will be completed successfully within any specified time period, if at all. All the results of the preclinical and clinical studies on a pharmaceutical product are submitted to the FDA in the form of a PLA or NDA, for approval to commence commercial distribution. Submission of a PLA or NDA does not assure FDA approval for marketing. The application review process takes more than two years on average to complete. However, the process may take substantially longer if the FDA has questions or concerns about a product or studies regarding the product. In general, the FDA requires at least two adequate and well-controlled clinical studies demonstrating efficacy with sufficient levels of statistical assurance. However, additional support may be required. The FDA also may request additional information relating to safety or efficacy, such as long- term toxicity studies. In responding to a PLA or NDA, the FDA may grant marketing approval, require additional testing and/or information or deny the application. Accordingly, there can be no assurance about any specific time frame for approval, if any, of products by the FDA. The FDA also may require post-marketing testing and surveillance to monitor the safety record of a product and its continued compliance with regulatory requirements. The facilities of each pharmaceutical manufacturer must be registered with and approved by the FDA as compliant with the agency's good manufacturing practice regulations ("GMP"). For biologics, except certain well-characterized ones, this requires the filing of an establishment license application ("ELA") that must be approved by the FDA for the facility in which the product is maintained. While the ELA and PLA are separate documents, they must be submitted at the same time and both documents must be approved before the sale of the biologic. Continued registration also requires compliance with the FDA's GMP. Products must be formulated in accordance with the FDA's GMP requirements and preclinical tests must be conducted by laboratories that comply with FDA regulations governing the testing of drugs in humans and animals. In order to comply with GMP, manufacturers must continue to expend time, money and effort in production, record keeping and quality control. In addition, manufacturers must comply with regulations promulgated by the United States Drug Enforcement Administration and similar state and local regulatory authorities if they handle controlled substances, and they must be registered with the United States Environmental Protection Agency and similar state and local regulatory authorities if they generate toxic or dangerous waste streams. Other regulatory agencies, such as the Occupational Safety and Health Administration, also 33 monitor manufacturing facilities for compliance with workplace safety regulations. Each of these organizations conducts periodic establishment inspections to confirm continued compliance with its regulations. Failure to comply with any of these regulations could mean fines, interruption of production and even criminal prosecution. For foreign markets, a pharmaceutical company is subject to regulatory requirements, review procedures and product approvals which, generally, may be as extensive, if not more extensive, as those in the United States. Although the technical descriptions of the clinical trials are different, the trials themselves are often substantially the same as those in the United States. Approval of a product by regulatory authorities of foreign countries must be obtained prior to commencing commercial product marketing in those countries, regardless of whether FDA approval has been obtained. The time and cost required to obtain market approvals in foreign countries may be greater than required for FDA approval and may be subject to delay. There can be no assurance that regulatory authorities of foreign countries will grant approval. RESEARCH AND DEVELOPMENT During the years ended December 31,1994 and 1995 and the three months ended March 31, 1996, the Company incurred expenses of $1,364,042, $875,093 and $134,209, respectively, resulting from Company- sponsored research and development activities. Research and development is expected to remain a significant component of the Company's business. In the short term, the Company expects to concentrate on the Primary Development Projects and intends to use approximately $6,350,000 of the estimated net proceeds of this offering and other funds, to the extent they are, or may become, available, for such projects. However, the Company may abandon or deemphasize its research and development activities with respect to the Primary Development Projects and expand research and development of other products as circumstances warrant. The Company has contracted out substantially all of its clinical research and intends to continue to do so while utilizing its staff for monitoring such research. PROPERTY The Company's executive and administrative offices are located at 800 West 9th Avenue, Amarillo, Texas in a 5,200 square foot facility owned by the Company. The building contains offices, meeting rooms and a biologic storage area. The Company believes that the facility is adequate for its present and anticipated uses. EMPLOYEES The Company currently has eight full-time employees, three of whom are executive officers, three of whom assist in the design and monitoring of clinical trials and the conduct of regulatory affairs for such trials, and two of whom are clerical staff. The Company believes that its relations with its employees are good. None are covered by a collective bargaining agreement with the Company. 34 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The current directors and executive officers of the Company are as follows:
Name Age Position - ---- --- -------- Joseph Cummins, DVM, PhD (1) . 53 Chairman of the Board, President, Chief Executive Officer and Director Charles Hughes .............. 56 Vice President--Finance and Administration, Chief Financial Officer and Treasurer Alan Richards, PhD .......... 46 Director of Clinical and Regulatory Affairs Edward L. Morris ............ 51 Secretary Stephen Chen, PhD (2) ....... 47 Director James Cook (1)(3) ........... 61 Director Katsuaki Hayashibara (2) .... 52 Director Dennis Moore, DVM (1)(3) .... 49 Director James Page, MD (2) .......... 69 Director
- ------ (1) Member of the Executive Committee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. Joseph Cummins has been the Chairman of the Board of the Company since he founded it in June 1984. Dr. Cummins has also served as President of the Company since December 1994 and from June 1984 to September 1992. He received a PhD degree in veterinary microbiology from the University of Missouri in 1978 and a doctor of veterinary medicine degree from Ohio State University in 1966. Dr. Cummins has been conducting research concerning IFN since 1969. Charles Hughes has been Vice President -- Finance and Administration, Chief Financial Officer and Treasurer of the Company since April 1993. From August 1991 to March 1993 he was a Vice President of First National Bank of Amarillo, and from July 1989 to July 1991 he was Vice President of Finance and Administration of the Cattlemen's Beef Promotion and Research Board, an industry organization. From September 1985 to July 1989, he was a financial consultant and from May 1979 to September 1985 he was the Chief Financial Officer of Friona Industries, Inc., a public company engaged in agribusiness. Mr. Hughes is a certified public accountant. Alan Richards has served the Company in various capacities since June 1990, most recently as Director of Clinical and Regulatory Affairs. From 1986 to 1990, Dr. Richards was a member of the faculty of Campbell University teaching microbiology, immunology, genetics and biotechnology. He received a PhD degree in veterinary microbiology and immunology from Texas A&M University in 1984. Edward Morris has served as Secretary of the Company since 1986. Since 1983, Mr. Morris has been a partner in the law firm of Morris, Moore, Moss & Douglass, P.C., which firm provides legal services to the Company. Stephen Chen has been a director of the Company since February 1996. He has been President and Chief Executive Officer of STC International, Inc., a healthcare investment firm, since May 1992. From August 1989 to May 1992 he was Director of Pharmaceutical Research and Development for the Ciba Consumer Pharmaceuticals Division of Ciba-Geigy. James Cook has been a director of the Company since 1988. He has been the President and Chief Executive Officer of the First National Bank of Arvada since January 1992 and from April 1987 to December 1991 he was Executive Vice President of First National Bank of Amarillo. Katsuaki Hayashibara has been a director of the Company since 1994. Since 1988, Mr. Hayashibara has been the Director of Research and Development for HBL. 35 Dennis Moore has been a director of the Company since 1986. Dr. Moore has been a doctor of veterinary medicine since 1972 and was in private practice from 1972 to 1995. James Page has been a director of the Company since February 1996. Prior to retiring in 1991 as a Vice President with Adria Laboratories, Inc., a pharmaceutical company specializing in therapy given to cancer and AIDS patients, Dr. Page held various upper management level positions with Carter Wallace, Inc., Merck Sharpe & Dohme Research Laboratories and Wyeth Laboratories. The Company's directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. The Company pays directors who are not employees of the Company a fee of $1,000 per regularly scheduled Board meeting attended (or $250 for participation in a regularly scheduled Board meeting by conference telephone). The Company reimburses all directors for their expenses in connection with their attendance at such meetings. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. The Company has agreed, for a period of five years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Company's officers and directors and substantially all of its existing shareholders have agreed to vote their shares of Common Stock in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. The Company is the owner and beneficiary of a $2,000,000 insurance policy on the life of Dr. Joseph Cummins. EXECUTIVE COMPENSATION The following table sets forth for the three years ended December 31, 1995 compensation paid by the Company to its Chairman of the Board, President and Chief Executive Officer. None of the Company's other executive officers had annual compensation in excess of $100,000 for services rendered during any of the three years ended December 31, 1995. SUMMARY COMPENSATION TABLE
Annual Compensation ----------------------------------- Other Annual Compensation Name and Principal Position Year Salary($) Bonus($) ($) - --------------------------- ---- --------- -------- ------------- Dr. Joseph Cummins, Chairman of the Board, President and Chief Executive Officer .. 1995 $120,000 $ 500 $ -- 1994 120,000 -- -- 1993 120,000 27,308 30,000(1)
- ------ (1) Represents the amount allocated to Mr. Cummins of contributions made by the Company to employees under the Company's Profit Sharing Plan which was discontinued in 1995. EMPLOYMENT AGREEMENTS Joseph Cummins, the Chairman of the Board, President and Chief Executive Officer of the Company, is employed under an employment agreement entered into by the parties in March 1994, as amended in May 1996. As amended, the agreement provides for a term expiring on December 31, 1999. Pursuant to the agreement Dr. Cummins is required to devote his full time to the affairs of the Company and receives an annual salary of $120,000. The agreement also contains provisions (i) prohibiting disclosure of confidential information, (ii) granting to the Company rights to intellectual property developed by Dr. Cummins that relate to the Company's business and are developed in the course of his employment by the Company, and (iii) prohibiting competition with the Company during, and for a period of three years after, Dr. Cummins' employment by the Company. The employment agreement also sets forth the amended terms of a restricted stock 36 grant awarded to Dr. Cummins by the Company. In accordance with and in full satisfaction of such terms, simultaneously with the sale of the Common Stock offered hereby, the Company will issue to Dr. Cummins 30,000 shares of Common Stock and use $90,000 to satisfy withholding tax obligations arising as a result of such issuance. See "Certain Transactions." Alan Richards, the Company's Director of Clinical and Regulatory Affairs, and Charles Hughes, its Vice President - Finance and Administration and Chief Financial Officer, respectively, are employed pursuant to employment agreements entered into in March 1994 and June 1994, respectively. Pursuant to the agreements, Dr. Richards and Mr. Hughes each is required to devote his full time to the affairs of the Company and receive annual salaries of $87,500 and $74,000, respectively. The employment agreements contain the same provisions regarding confidentiality, non-competition and ownership of intellectual property rights as contained in Dr. Cummins' employment agreement. The employment agreements were amended in May 1996 to modify the terms of certain restricted stock grants previously awarded to the employees. In accordance with and in full satisfaction of the amended terms of the restricted stock grants, simultaneously with the sale of the Common Stock offered hereby, the Company will issue 30,000 and 19,000 shares of Common Stock, respectively, to Dr. Richards and Mr. Hughes and use an aggregate of $145,000 to satisfy withholding tax obligations relating to such issuances. Each employment agreement is for an indefinite term, but is terminable by either party upon six months prior written notice to the other. See "Certain Transactions." For a period of three years after the date of this Prospectus, the Company may not, without the prior written consent of the Underwriter, increase the compensation of Messrs. Cummins, Richards or Hughes. Such approval shall be predicated upon, among other things, the performance of the Company, the performance of the employee, inflationary trends and other economic conditions. SCIENTIFIC ADVISORY BOARD The Company's Scientific Advisory Board (the "Advisory Board") was organized to review and evaluate the Company's research and development programs and to advise the Company generally in addressing various scientific issues. The Company generally selects for membership persons who are experts in infectious diseases. Members of the Advisory Board ("Advisors") may meet as a group or individually with management of the Company. They are not employed by the Company and may have commitments to, or consulting or advisory agreements with, other entities that may limit their availability to the Company. These entities may also be competitors of the Company. The Company is not aware of any conflict of interest between work performed by Advisors on behalf of the Company and work performed by them on behalf of other parties. The Company requires each Advisor to execute a confidentiality agreement upon the commencement of his or her relationship with the Company. The agreements generally provide that all confidential information made known to the individual during the term of the relationship is the exclusive property of the Company and shall be kept confidential and not disclosed to third parties. The current members of the Advisory Board are as follows:
Steven L. Berk, M.D. Michael Lange, M.D. Chairman of the Scientific Advisory Board Associate Chief of Infectious Diseases Professor and Chairman of Medicine St. Luke's-Roosevelt Hospital Center East Tennessee State University New York, New York Masashi Kurimoto Jun Minowada, M.D., DMS Member of Executive Executive Director of HBL, Director of Board of HBL, Director of Fujisaki Cell Center Fujisaki Institute Wayne A. Tompkins, Ph.D. James Page, M.D. Professor of Immunology and Director Director of the Company of Graduate Programs, North Carolina State University
The Company has entered into consulting agreements with each Advisor. Each agreement is for a one year term. Under each agreement the Company is required to pay the Advisor $1,200 per day for consultation services requested by the Company and performed by such person. Advisors also receive reimbursement of travel expenses connected with Company business and stock options and related stock appreciation rights under the Director Plan. Consultation services include 37 assisting the Company in the development of a research plan to elucidate the biological effects, safety and efficacy of the Company's products and assisting the Company in analyzing data from research trials and other studies concerning the Company's products. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's By-laws provide for the Company to indemnify each director and officer of the Company against liabilities imposed upon him (including reasonable amounts paid in settlement) and expenses incurred by him in connection with any claim made against him or any action, suit or proceeding to which he may be a party by reason of his being or having been a director or officer of the Company. The Company has also entered into Indemnification Agreements with each officer and director pursuant to which the Company will, in general, indemnify such persons to the maximum extent permitted by the Company's By-Laws and the laws of the State of Texas against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding to which such director or officer is made or threatened to be made a party by reason of the fact that such person is or was a director or officer of the Company. The foregoing provisions may reduce the likelihood of derivative litigation against directors and may discourage or deter shareholders or management from suing directors for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its shareholders. STOCK OPTION PLANS In May 1996, the Board of Directors adopted and the shareholders of the Company approved both the 1996 Employee Stock Option Plan (the "Employee Plan") and the Outside Director and Advisor Stock Plan (the "Director Plan" and together with the Employee Plan, the "Plans"). EMPLOYEE PLAN The purpose of the Employee Plan is to serve as an incentive to employees for continuous employment with the Company, to maintain competitive compensation levels for employees and to more closely align the interests of shareholders and employees of the Company. Awards under the Employee Plan shall be in the form of incentive stock options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of 1986, as amended. Limited stock appreciation rights ("Limited Rights") relating to such ISOs may also be granted. An aggregate of 150,000 shares of Common Stock are reserved for issuance upon the exercise of ISOs granted under the Employee Plan. The Employee Plan is administered by a committee of at least two directors of the Company (the "Committee") which has the authority, in its sole discretion, to grant ISOs and Limited Rights to eligible employees, to determine the timing and amount of such awards, to impose limitations, restrictions and conditions upon such awards and to interpret the Employee Plan and related rules and agreements. All ISOs granted to employees who do not possess more than 10% of the total combined voting power of all classes of stock of the Company will be exercisable at a price equal to 100% of the fair market value of a share of Common Stock on the date of grant and will vest at the rate of 20% per year, commencing on the first anniversary of the date of grant. All ISOs granted to 10% shareholders will be exercisable at a price equal to 110% of the fair market value of a share of Common Stock on the date of grant and will vest at the rate 25% per year, commencing on the first anniversary of the date of grant. The aggregate fair market value of the shares covered by ISOs granted under the Employee Plan that become exercisable by a holder for the first time in any calendar year is subject to a $100,000 limit. The maximum number of shares of Common Stock with respect to which ISOs may be granted in any one year to any employee shall not exceed 50,000. ISOs granted to employees who are not 10% shareholders must be exercised prior to the expiration of ten years from the date of grant and ISOs granted to 10% shareholders must be exercised prior to the expiration of five years from the date of grant. ISOs are exercisable only during the holder's employment, and, in the case of a involuntary termination of the employee, for a period of up to 90 days after the termination of such holder's employment to the extent the ISOs were exercisable at the date of termination or become exercisable within the 90 days after termination of employment. However, in the case of the termination of an optionee's employment by reason of his disability or retirement, the ISOs held by him may be exercised for a period of 36 months after such termination to the extent the ISOs were exercisable at the date of termination. In the case of the death of an optionee, any ISO exercisable on the date of the employee's death may be exercised by the employee's estate of 38 beneficiaries if such exercise occurs within the remaining term of the option but in no event after one year after the employee's death. ISOs may not be transferred other than by will or the laws of descent and distribution, or pursuant to certain qualified domestic relations orders. Concurrently with or subsequent to the award of any ISO, the Committee may award a Limited Right with respect to each ISO permitting the optionee to be paid the appreciation on the Common Stock in lieu of (but not in addition to) exercising the ISO. A Limited Right is fully exercisable and must be exercised immediately preceding or simultaneously with a Change in Control (as defined in the Employee Plan), except that if a Change of Control occurs without notice to the holder of the Limited Right or an opportunity by the holder of the Limited Right to exercise it, the Limited Right must be exercised as soon as practicable after the Change of Control occurs. Any shares of Common Stock subject to an option which has been terminated unexercised or expires shall again be available for issuance under the Employee Plan, except that shares subject to an option which are not issued because the optionee has elected to be paid upon the exercise of a related Limited Right shall not again be available for issuance under the Employee Plan. In May 1996, the Company granted ISOs to purchase 7,500 shares of Common Stock at an exercise price of $5.00 per share to each of Joseph Cummins, Charles Hughes and Alan Richards. DIRECTOR PLAN The purpose of the Director Plan is to provide an incentive to outside directors and members of the Company's Scientific Advisory Board ("Advisors") for continuous association with the Company and to reinforce the relationship between participants' rewards and shareholder gains. Awards under the Director Plan are in the form of so-called non-qualified stock options and Limited Rights relating to such options. An aggregate of 100,000 shares of Common Stock are reserved for issuance upon exercise of options granted under the Director Plan. Options under the Director Plan may be granted only to directors or Advisors who are not officers or employees of the Company. The Director Plan is administered by a committee of at least two directors of the Company which has the authority, in its sole discretion, to interpret the Plan, to adopt, amend and rescind rules and regulations relating to the Plan and to otherwise administer the Plan. However, all options and Limited Rights granted under the Plan are automatic and non-discretionary. The Director Plan provides that on the day following the date of this Prospectus or, if later, the date a person first becomes an outside director of or Advisor to the Company, each outside director or Advisor shall be awarded options to purchase an aggregate of 10,000 and 5,000 shares, respectively, of Common Stock, except any outside director who is an Advisor shall be granted options to purchase 10,000 shares of Common Stock as a director and shall not be granted any options as an Advisor. Concurrently with the award of options, each director and Advisor shall also be awarded an equal number of Limited Rights. All options granted under the Director Plan will be exercisable at a price equal to 100% of the fair market value of a share of Common Stock on the date of grant and will vest at the rate of 20% per year, commencing on the first anniversary of the date of grant. Options must be exercised prior to the expiration of ten years from the date of grant. The provisions of the Director Plan relating to exercisability of outstanding options after the optionee's termination of association with the Company by virtue of his death, disability or the involuntary termination of the optionee's employment and the exercise of Limited Rights are the same as the provisions of the Employee Plan relating thereto. Options under the Director Plan may not be transferred other than by will or the laws of descent and distribution. On the day after the date of this Prospectus, options to purchase an aggregate of 10,000 shares of Common Stock at an exercise price of $5.00 per share will be granted to each of Stephen Chen, James Cook, Katsuaki Hayashibara, Dennis Moore and James Page, each of whom is a director of the Company, and options to purchase an aggregate of 5,000 shares of Common Stock at an exercise price of $5.00 per share will be granted to each of Steven Berk, Masashi Kurimoto, Wayne Tompkins, Michael Lange and Jun Minowada, each of whom is an Advisor. 39 PRINCIPAL SHAREHOLDERS The following table sets forth information as of the date of this Prospectus and as adjusted to reflect the sale of 2,000,000 shares offered hereby, based upon information obtained from the persons named below, relating to the beneficial ownership of shares of Common Stock by (i) each person known to the Company to own five percent or more of the outstanding Common Stock, (ii) each director of the Company and (iii) all officers and directors of the Company as a group.
Amount and Nature of Beneficial Percentage of Shares Owned ---------------------------- Name and Address Ownership Before After of Beneficial Owner Before Offering (1) Offering Offering(2) ------------------------- ......................... ----------------- ---------- ----------- Hayashibara Biochemical Laboratories, Inc. 2-3, Shimoishii 1-chome Okayama 700, Japan ................................ 1,032,756 34.0% 31.9%(3) Dr. Joseph Cummins 800 West 9th Avenue Amarillo, Texas 79101 ............................. 666,804(4) 22.0% 13.6% Mesa Operating Limited Partnership P.O. Box 2009 Amarillo, Texas 79189-2009 ........................ 315,120 10.4% 6.2% Dr. Dennis Moore P.O. Box 1553 Hamilton, Montana 59840 ........................... 149,616 4.9% 2.9% Katsuaki Hayashibara Hayashibara Biochemical Laboratories, Inc. 1-2-3, Shimoishii Okayama 700, Japan ................................ 48,240(5) 1.6% * Dr. Stephen Chen 6 Persimmon Court East Brunswick, New Jersey 08816 .................. -- -- -- James Cook 13711 Basalt Court Broomfield, Colorado 80020 ........................ 66,600(6) 2.2% 1.3% Dr. James Page 103 Clubhouse Lane Naples, Florida 33942 ............................. -- -- -- All officers and directors as a group (nine persons) 931,860 30.7% 19.8%
- ------ * Less than 1% (1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date of this Prospectus have been exercised. Except as otherwise indicated, the Company believes that each of the persons named has sole voting and investment power with respect to the shares shown as beneficially owned by him. (2) Gives effect to the issuance of 30,000 shares of Common Stock to Joseph Cummins and an aggregate of 49,000 shares of Common Stock to two officers simultaneously with the consummation of the sale of the Common Stock offered hereby - See "Management-Employment Agreements" and "Certain Transactions." (3) Gives effect to the purchase by HBL of 600,000 of the 2,000,000 shares offered hereby. HBL may purchase fewer than 600,000 shares if one or more of its designees purchase the balance of such shares. (4) Includes an aggregate of 337,666 shares of Common Stock held by Joseph Cummins as trustee under certain trusts for the benefit of his children and 360 shares owned by Dr. Cummins wife. (5) Does not include 1,032,756 shares owned by HBL. (6) All of such shares are owned jointly with Mr. Cook's wife. Joseph Cummins and HBL may be deemed "parents" of the Company and Joseph Cummins may be deemed a "promoter" of the Company, as such terms are defined under the federal securities laws. 40 CERTAIN TRANSACTIONS The Company has relied significantly on HBL, the principal shareholder of the Company, for a substantial portion of its capital requirements. From 1989 to the date of this Prospectus, HBL has provided an aggregate of $9,000,000 of funding pursuant to the Development Agreement, purchased from the Company an aggregate of 461,520 shares of Common Stock for a total purchase price of $1,443,800 and made loans to the Company aggregating $3,000,000, of which $1,000,000 loaned after March 31, 1996 will be repayable simultaneously with the consummation of this offering. As of March 31, 1996, the outstanding amount of the Company's indebtedness to HBL (including accrued interest) was $2,483,699. HBL has agreed that it and/or its designees will purchase 600,000 shares of Common Stock in the offering made pursuant to this Prospectus. Giving effect to the sale of 2,000,000 shares of the Company's Common Stock pursuant to this offering, including 600,000 shares to HBL, HBL will own approximately 31.9% of the Company's Common Stock. In addition to the Development Agreement, HBL and the Company are parties to various license and manufacturing and supply agreements pursuant to which the Company licenses certain technology to or from HBL and HBL supplies formulations of its IFNa to the Company. In May 1996, the Company amended the employment agreements of three officers to provide that in lieu of issuing an aggregate of 126,000 shares of Common Stock that were originally to be issued to such persons as a result of their satisfying certain criteria under which the Common Stock becomes issuable, the Company will issue an aggregate of 79,000 shares and use $235,000 of the proceeds of this offering to satisfy withholding tax obligations relating to such issuances. The amended employment agreement between the Company and Dr. Cummins provides for the term of Dr. Cummins' employment agreement to be extended to December 31, 1999. See "Management --Employment Agreements." Pursuant to a Contract Termination and Severance Agreement with Edward Sherwood, a former President of the Company, in January 1995 the Company issued to Mr. Sherwood an aggregate of 29,640 shares of Common Stock and satisfied the withholding tax obligations relating to such issuance. During the year ended December 31, 1995, the Company accrued an aggregate of $68,700 for legal services rendered by Morris, Moore, Moss and Douglas, P.C. Edward Morris, the Secretary of the Company, is a member of such firm. Effective upon the consummation of the sale of Common Stock offered hereby, HBL has agreed to indemnify the Company and its officers, directors, employees and agents for litigation expenses, losses, damages and amounts paid in settlement arising out of litigation which may be brought by Roche or its affiliates relating to the Roche Patent. 41 DESCRIPTION OF COMMON STOCK The Company is authorized to issue 10,000,000 shares of Common Stock, par value $.01 per share. As of the date of this Prospectus, there are 3,035,232 shares outstanding (not including an aggregate of 79,000 shares to be issued to three officers simultaneously with the sale of the Common Stock offered hereby) which are held by 135 holders of record. The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors in its discretion, out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in the assets of the Company, if any, legally available for distribution to them after payment of debts and liabilities of the Company and after provision has been made for each class of stock, if any, having liquidation preference over the Common Stock. Holders of shares of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be, when issued upon payment of the consideration set forth in this Prospectus, fully paid and non-assessable. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. REPORTS TO SHAREHOLDERS The Company intends to furnish its shareholders annual reports containing audited financial statements and such other periodic reports as the Company may determine to be appropriate or as may be required by law. The Company has agreed, subject to the sale of the shares offered hereby, that on or before the date of this Prospectus, it will register its Common Stock under the provisions of Section 12(g) of the Exchange Act and has agreed with the Underwriter that it will use its best efforts to maintain such registration for five years. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company will have 5,114,232 shares of Common Stock outstanding (assuming no exercise of the Underwriter's over-allotment option or other outstanding options). Up to 600,000 of the 2,000,000 shares offered hereby will be purchased by HBL and will be subject to certain restrictions on sale imposed under the federal securities laws. The remaining shares of Common Stock being offered hereby will be immediately tradeable without restriction or further registration under the Securities Act. All of the 3,035,232 shares of Common Stock outstanding as of the date of this Prospectus are, and all of the 79,000 shares to be issued to three officers of the Company simultaneously with the consummation of the sale of the Common Stock offered hereby will be, deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, in that such shares were acquired by the shareholders of the Company in transactions not involving a public offering, and, as such, may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144, or pursuant to another exemption under the Securities Act. Of such 3,114,232 restricted shares of Common Stock, an aggregate of 1,040,976 shares are immediately eligible for sale, without registration, under Rule 144 (subject to the contractual restrictions described below). An additional 1,964,616 shares will become eligible for sale (subject to the volume limitations prescribed in Rule 144 and such contractual restrictions) commencing 90 days after the date of this Prospectus. The balance of such shares will become so eligible at various times commencing in January 1997. Notwithstanding the foregoing, stockholders of the Company owning of record more than 99% of the Common Stock outstanding as of the date of this Prospectus, have agreed not to sell or otherwise dispose of any shares of Common Stock beneficially owned by them for a period of 12 months from the date of this Prospectus without the Underwriter's prior written consent. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of the issuer's com mon stock or the average weekly trading volume during the four 42 calendar weeks preceding such sale, provided that certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. Affiliates will be subject to the provisions of Rule 144, except that the holding period requirement does not apply to sales by affiliates of shares which are not restricted securities. A person who is not an affiliate, has not been an affiliate within three months prior to sale, and has beneficially owned the restricted shares for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. UNDERWRITING Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase 2,000,000 shares of Common Stock from the Company. The Underwriter is committed to purchase and pay for all of the Common Stock offered hereby if any of such securities are purchased. The shares of Common Stock are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the Common Stock to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriter may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess of $ per share of Common Stock, of which not in excess of $ per share of Common Stock may be reallowed to other dealers who are members of the NASD. The Company has granted to the Underwriter an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriter may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the shares of Common Stock offered hereby. The Company has agreed to pay to the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of this offering (including gross proceeds received as a result of the exercise of the Underwriter's over-allotment option), of which $50,000 has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the shares of Common Stock offered hereby for sale under the laws of such states as the Underwriter may designate, including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to sell to the Underwriter and its designees for an aggregate of $200, warrants (the "Underwriter's Warrants") to purchase up to 200,000 shares of Common Stock at a purchase price of $7.00 per share. The Underwriter's Warrants may not be sold, transferred, assigned or hypothecated for one year from the date of this Prospectus, except to the officers and partners of the Underwriter and members of the selling group, and are exercisable during the four-year period commencing one year after the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Company's Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants or the underlying shares of Common Stock may be deemed additional underwriting compensation. Subject to certain limitations and exclusions, the Company has agreed, at the request of 43 the holders of a majority of the Underwriter's Warrants, at the Company's expense, to register the Underwriter's Warrants and the shares of Common Stock issuable upon exercise of the Underwriter's Warrants under the Securities Act on one occasion during the Warrant Exercise Term and to include the Underwriter's Warrants and all such underlying securities in any appropriate Registration Statement which is filed by the Company during the seven years following the date of this Prospectus. The Company has agreed for a period of five years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company, or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Underwriter has not yet exercised its right to designate such a person. In addition, the Company has agreed to retain the Underwriter as a financial consultant for a period of two years from the consummation of this offering at an annual fee of $30,000, the entire $60,000 payable in full, in advance, upon the consummation of this offering. The consulting agreement will not require the consultant to devote a specific amount of time to the performance of its duties thereunder. It is anticipated that these consulting services will be provided by principals of the Underwriter and/or members of the Underwriter's corporate finance department who, however, have not been designated as of the date hereof. In the event that the Underwriter originates a financing or a merger, acquisition, joint venture or other transaction to which the Company is a party, the Underwriter will be entitled to receive a finder's fee in consideration for origination of such transaction. The Underwriter has informed the Company that it does not expect sales made to discretionary accounts to exceed 1% of the securities offered hereby. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act. All of the officers and directors and shareholders of the Company owning of record more than 99% of the Common Stock outstanding as of the date of this Prospectus, have agreed that they will not sell any shares of Common Stock of the Company for a period of 12 months after the date of this Prospectus without the prior written consent of the Underwriter. Prior to this offering, there has been no public trading market for the Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiation between the Company and the Underwriter and is not necessarily related to the Company's asset value, net worth or other established criteria of value. Among the factors considered in determining the offering price were the Company's financial condition and prospects, management, market prices of similar securities of comparable publicly-traded companies, certain financial and operating information of companies engaged in activities similar to those of the Company and the general condition of the securities market. LEGAL MATTERS The legality of the Common Stock offered hereby will be passed upon for the Company by Lowenthal, Landau, Fischer & Bring, P.C., New York, New York. Certain legal matters have been passed upon for the Underwriter by Tenzer Greenblatt LLP, New York, New York. EXPERTS The consolidated financial statements of the Company and its subsidiaries (companies in the development stage) at December 31, 1995 and for each of the two years in the period ended December 31, 1995, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in auditing and accounting. 44 ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Securities Act with respect to the Common Stock offered by this Prospectus. This Prospectus, filed as a part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be inspected without charge at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at the Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60601-2511, and at the New York Regional Office, 7 World Trade Center, New York, New York 10048. Copies of the Registration Statement may be obtained from the Commission's Public Reference Section upon payment of prescribed fees. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, where the contract or other document has been filed as an exhibit to the Registration Statement, each statement is qualified in all respects by reference to the applicable document filed with the Commission. 45 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors ...................................................................... F-2 Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) .................. F-3 Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the unaudited three months ended March 31, 1995 and 1996 and cumulative from June 25, 1984 (inception) through March 31, 1996 (unaudited) ..................................................... F-4 Consolidated Statements of Shareholders' Deficit for the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996 (unaudited) and cumulative from June 25, 1984 (inception) through March 31, 1996 (unaudited) ................................................................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the unaudited three months ended March 31, 1995 and 1996 and cumulative from June 25, 1984 (inception) through March 31, 1996 (unaudited) ......................................................................... F-6 Notes to Consolidated Financial Statements .......................................................... F-8
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Amarillo Biosciences, Inc. We have audited the accompanying consolidated balance sheet of Amarillo Biosciences, Inc. and subsidiaries (companies in the development stage) as of December 31, 1995, and the related consolidated statements of operations, shareholders' deficit and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amarillo Biosciences, Inc. and subsidiaries at December 31, 1995, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas February 1, 1996, except for Note 13, as to which the date is May 14, 1996 F-2 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED BALANCE SHEETS
December 31, March 31, 1995 1996 ---------------- --------------- (Unaudited) Assets Current assets: Cash and cash equivalents ......................................... $ 1,108,527 $ 724,280 Prepaid expenses .................................................. 26,395 16,229 ----------- ----------- Total current assets ...................................... 1,134,922 740,509 Property and equipment, net (Note 2) ................................ 114,593 114,110 Patent license, net of accumulated amortization of $59,118 and $60,946 at December 31, 1995 and March 31, 1996 (unaudited), respectively Note 5) ........................................................... 65,882 64,054 Organizational costs, net of accumulated amortization of $6,335 and $6,667 at December 31, 1995 and March 31, 1996 (unaudited), respectively ...................................................... 663 331 Investment in ISI common stock (Note 12) ............................ 475,000 505,000 ----------- ----------- Total assets ........................................................ $ 1,791,060 $ 1,424,004 =========== =========== Liabilities and Shareholders' Deficit Current liabilities: Deferred contract revenues (Note 4) ............................... $ 417,140 $ 14,566 Accounts payable .................................................. 148,274 100,175 Accrued interest expense .......................................... 453,699 483,699 Accrued restricted stock grants ................................... 114,844 124,687 Other accrued expenses ............................................ 19,000 19,967 ----------- ----------- Total current liabilities ................................. 1,152,957 743,094 Notes payable to related party (Note 3) ............................. 2,000,000 2,000,000 ----------- ----------- Total liabilities ................................................... 3,152,957 2,743,094 ----------- ----------- Commitments and contingencies (Notes 4, 5, 6, and 10) Shareholders' deficit (Notes 7 and 13): Common stock, $.01 par value: Authorized shares - 10,000,000 Issued shares - 3,048,672 ......................................... 30,487 30,487 Additional paid-in capital ........................................ 3,589,591 3,589,591 Deficit accumulated during the development stage .................. (4,955,975) (4,943,168) Unrealized gain on marketable securities .......................... -- 30,000 Treasury stock - 13,440 shares, at cost ........................... (26,000) (26,000) ----------- ----------- Total shareholders' deficit ......................................... (1,361,897) (1,319,090) ----------- ----------- Total liabilities and shareholders' deficit ......................... $ 1,791,060 $ 1,424,004 =========== ===========
See accompanying notes. F-3 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative from June 25, 1984 (Inception) Year ended Three months ended through December 31, December 31, March 31, March 31, March 31, 1994 1995 1995 1996 1996 ---------------- ---------------- --------------------------- ------------------ (Unaudited) (Unaudited) (Unaudited) Revenues: Contract revenues (Note 4) ....... $2,480,093 $1,361,395 $ 618,266 $ 402,574 $ 8,985,434 Interferon sales ................. 40,525 -- -- 2,000 415,773 Interest income .................. 132,713 94,867 28,803 11,154 520,430 Sublicense fees (Note 12) ........ -- 50,000 -- -- 108,334 Royalty income ................... -- -- -- -- 31,544 Other (Note 12) .................. -- 500,000 -- -- 509,371 ---------- ---------- ----------- ----------- ----------- 2,653,331 2,006,262 647,069 415,728 10,570,886 Expenses: Research and development expenses. . 1,364,042 875,093 247,978 134,209 6,585,071 Selling, general, and administrative expenses ...................... 1,298,528 1,322,748 444,025 238,712 8,408,162 Interest expense ................. 120,000 120,000 30,000 30,000 485,821 ---------- ---------- ----------- ----------- ----------- 2,782,570 2,317,841 722,003 402,921 15,479,054 ---------- ---------- ----------- ----------- ----------- Income (loss) before income taxes .. (129,239) (311,579) (74,934) 12,807 (4,908,168) Income tax expense (Note 9) ........ -- -- -- -- 35,000 ---------- ---------- ----------- ----------- ----------- Net income (loss) .................. $ (129,239) $ (311,579) $ (74,934) $ 12,807 $ (4,943,168) ========= ========== =========== ========== ============ Income (loss) per share ............ $ (.04) $ (.10) $ (.02) $ -- ========= ========== =========== ========== Weighted average shares outstanding . 3,005,592 3,034,339 3,031,609 3,035,232 ========= ========== =========== ==========
See accompanying notes. F-4 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) THROUGH DECEMBER 31, 1996
Common Stock Issuance ------------------------- Additional Price Shares Issued Amount Paid-in Capital ----------- ------------- -------- --------------- 1984: Initial issuance for cash .................... $.29 84,000 $ 840 $ 23,660 Initial issuance in exchange for legal fees .. .29 30,000 300 8,450 Initial issuance in exchange for services and research and development costs .............. .01 1,086,000 10,860 (9,955) 1985: Issuance for cash ............................ .83 102,000 1,020 83,980 Issuance in exchange for professional fees, salaries, and research services ............. .83 10,800 108 8,892 1986: Issuance in exchange for professional fees, salaries, and services ...................... .83 22,800 228 18,772 Treasury stock purchase, 11,040 shares at cost -- -- -- Issuance for cash ............................ .83 -1.25 182,352 1,824 154,626 Issuance in exchange for professional fees, salaries, and research services ............. .83 19,020 190 15,660 1987: Issuance for cash ............................ 1.25 - 2.08 309,648 3,096 445,974 Treasury stock purchase, 2,400 shares at cost -- -- -- 1988: Issuance for cash ............................ 1.88 120,972 1,210 225,613 1989: Issuance for cash ............................ 2.08 2,568 26 5,324 Issuance for cash ............................ 2.50 227,748 2,277 567,093 1990: Issuance for cash ............................ 1.72 - 2.50 592,584 5,926 1,108,634 Issuance for cash ............................ 4.17 174,000 1,740 723,260 Issuance in exchange for note receivable from shareholder ................................. 2.50 54,540 545 135,805 1991: Repayment of note receivable from shareholder -- -- -- Net loss cumulative from June 25, 1984 (inception) through December 31, 1991 ....... -- -- -- 1992: Net loss for year ended December 31, 1992 .... -- -- -- --------- ------ ---------- Balance at December 31, 1992 ................. 3,019,032 30,190 3,515,788 1993: Net loss for year ended December 31, 1993 .... -- -- -- --------- ------ ---------- Balance at December 31, 1993 ................. 3,019,032 30,190 3,515,788 1994: Net loss for year ended December 31, 1994 .... -- -- -- Adjustment to unrealized losses on marketable securities .................................. -- -- -- --------- ------ ---------- Balance at December 31, 1994 ................. 3,019,032 30,190 3,515,788 1995: Issuance for stock grant ..................... 2.50 29,640 297 73,803 Net loss for year ended December 31, 1995 .... -- -- -- Adjustment to unrealized losses on marketable securities .................................. -- -- --------- ------ ---------- Balance at December 31, 1995 ................. 3,048,672 30,487 3,589,591 1996: Net income for three months ended March 31, 1996 (unaudited) ............................ -- -- -- Adjustment to unrealized gain on marketable securities (unaudited) ...................... -- -- -- --------- ------- ---------- Balance at March 31, 1996 (unaudited) ........ 3,048,672 $30,487 $3,589,591 ========= ======= ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Deficit Accumulated Unrealized Note During the Gain (Loss) on Receivable Total Development Marketable From Treasury Shareholders' Stage Securities Shareholder Stock Deficit -------------- ------------ --------------- ----------- -------------- 1984: Initial issuance for cash .................... $ -- $ -- $ -- $ -- $ 24,500 Initial issuance in exchange for legal fees .. -- -- -- -- 8,750 Initial issuance in exchange for services and research and development costs .............. -- -- -- -- 905 1985: Issuance for cash ............................ -- -- -- -- 85,000 Issuance in exchange for professional fees, salaries, and research services ............. -- -- -- -- 9,000 1986: Issuance in exchange for professional fees, salaries, and services ...................... -- -- -- -- 19,000 Treasury stock purchase, 11,040 shares at cost -- -- -- (22,500) (22,500) Issuance for cash ............................ -- -- -- -- 156,450 Issuance in exchange for professional fees, salaries, and research services ............. -- -- -- -- 15,850 1987: Issuance for cash ............................ -- -- -- -- 449,070 Treasury stock purchase, 2,400 shares at cost -- -- -- (3,500) (3,500) 1988: Issuance for cash ............................ -- -- -- -- 226,823 1989: Issuance for cash ............................ -- -- -- -- 5,350 Issuance for cash ............................ -- -- -- -- 569,370 1990: Issuance for cash ............................ -- -- -- -- 1,114,560 Issuance for cash ............................ -- -- -- -- 725,000 Issuance in exchange for note receivable from shareholder ................................. -- -- (136,350) -- -- 1991: Repayment of note receivable from shareholder.. -- -- 136,350 -- 136,350 Net loss cumulative from June 25, 1984 (inception) through December 31, 1991 ....... (3,901,236) -- -- -- (3,901,236) 1992: Net loss for year ended December 31, 1992 .... (505,558) -- -- -- (505,558) ----------- -------- --------- -------- ----------- Balance at December 31, 1992 ................. (4,406,794) -- -- (26,000) (886,816) 1993: Net loss for year ended December 31, 1993 .... (108,363) -- -- -- (108,363) ----------- -------- --------- -------- ----------- Balance at December 31, 1993 ................. (4,515,157) -- -- (26,000) (995,179) 1994: Net loss for year ended December 31, 1994 .... (129,239) -- -- -- (129,239) Adjustment to unrealized losses on marketable securities .................................. -- (57,316) -- -- (57,316) ----------- -------- --------- -------- ----------- Balance at December 31, 1994 ................. (4,644,396) (57,316) -- (26,000) (1,181,734) 1995: Issuance for stock grant ..................... -- -- -- -- 74,100 Net loss for year ended December 31, 1995 .... (311,579) -- -- -- (311,579) Adjustment to unrealized losses on marketable securities .................................. -- 57,316 -- -- 57,316 ----------- -------- --------- -------- ----------- Balance at December 31, 1995 ................. (4,955,975) -- -- (26,000) (1,361,897) 1996: Net income for three months ended March 31, 1996 (unaudited) ............................ 12,807 -- -- -- 12,807 Adjustment to unrealized gain on marketable securities (unaudited) ...................... -- 30,000 -- -- 30,000 ----------- -------- --------- -------- ----------- Balance at March 31, 1996 (unaudited) ........ $(4,943,168) $ 30,000 $ -- $(26,000) $(1,319,090)
See accompanying notes. F-5 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative from June 25, 1984 (Inception) Year ended Three months ended through December 31, December 31, March 31, March 31, March 31, 1994 1995 1995 1996 1996 ------------ ------------ --------- --------- ----------- (Unaudited) (Unaudited) (Unaudited) Operating Activities Net income (loss) ............................... $ (129,239) $ (311,579) $ (74,934) $ 12,807 $(4,943,168) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization .............. 29,282 23,652 6,387 5,110 204,830 Discount on investment in ISI .............. -- 150,000 -- -- 150,000 Recognition of deferred sublicense fees .... -- -- -- -- (32,844) Organization costs ......................... -- -- -- -- (9,953) Gain on sale of equipment, net ............. -- -- -- -- (8,375) Common stock issued for stock grant ........ -- 74,100 74,100 -- 74,100 Common stock issued for services ........... -- -- -- -- 53,505 Changes in operating assets and liabilities: Other current assets .................. (26,323) 5,000 (12,983) 10,166 (16,229) Accounts payable ...................... 25,692 7,282 (82,643) (48,099) 100,175 Accrued expenses ...................... 246,926 98,126 (20,634) 40,810 628,353 Deferred contract revenue ............. (980,092) (1,361,395) (618,266) (402,574) 14,566 ----------- ----------- ----------- ----------- ----------- Net cash used in operating activities ........... (833,754) (1,314,814) (728,973) (381,780) (3,785,040) Investing Activities ............................ Sale (purchase) of marketable securities ........ (1,999,336) 1,999,336 -- -- -- Capital expenditures ............................ (2,468) -- -- (2,467) (253,442) Proceeds from the sale of equipment ............. -- -- -- -- 13,445 Purchase of patent license ...................... -- -- -- -- (125,000) Investment in ISI ............................... -- (625,000) -- -- (625,000) Deposits ........................................ (85,000) 85,000 -- -- -- ----------- ----------- ----------- ----------- ----------- Net cash provided by (used in) investing activities (2,086,804) 1,459,336 -- (2,467) (989,997) Financing Activities ............................ Receipt of sublicense fees ...................... $ -- $ -- $ -- $ -- $ 32,844 Proceeds from notes payable ..................... -- -- -- -- 2,000,000 Repayment of note receivable from shareholder for purchase of common stock ...................... -- -- -- -- 136,350 Issuance of common stock ........................ -- -- -- -- 3,356,123 Acquisition of treasury stock ................... -- -- -- -- (26,000) ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities ....... -- -- -- -- 5,499,317 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (2,920,558) 144,522 (728,973) (384,247) 724,280 Cash and cash equivalents at beginning of period . 3,884,563 964,005 964,005 1,108,527 -- ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period ...... $ 964,005 $ 1,108,527 $ 235,032 $ 724,280 $ 724,280 Supplemental Disclosure of Cash Flow Information Cash paid for income taxes ...................... $ 7,084 $ -- $ -- $ -- $ 37,084 =========== =========== =========== =========== ===========
See accompanying notes. F-6 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Amarillo Biosciences, Inc. (the Company), formerly Amarillo Cell Culture Company, Inc. (Note 13), is a development stage company incorporated on June 25, 1984, for the purpose of developing and marketing, within the United States and internationally, eight patents and eight pending applications relating to low dosage oral and non-oral natural interferon alpha used in the treatment of human and animal diseases. The Company has obtained certain patent rights through licensing agreements (see Note 5) and is currently conducting clinical studies as part of the process of obtaining regulatory approval from the United States Food and Drug Administration (FDA), so that commercial marketing can begin in the United States. The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. All of the Company's products will require significant additional development, laboratory and clinical testing and investment prior to obtaining regulatory approval to commercially market its product(s). Accordingly, for at least the next few years, the Company will continue to incur research and development and general and administrative expenses and likely will not generate sufficient revenues from product sales to support its operations. The Company has been dependent upon financing from its shareholders. The Company's development- stage-through-1991 activities were financed primarily through the issuance of common stock. Since 1991, such activities have been financed under agreements (described in Note 4) with a major shareholder. The Company anticipates, based on its currently proposed plans and expectations relating to its operations (including expectations regarding the progress of its research and development and the timing and costs associated therewith), that its existing capital resources together with the proceeds from a $1,000,000 loan expected from a major shareholder, will be sufficient to satisfy the Company's estimated cash requirements through December 31, 1996. However, the Company estimates that an aggregate of $11,100,000 will be needed over the next three years to complete its primary research and development projects. The Company has no current arrangements with respect to further sources of financing and there can be no assurance that any of its officers, directors or shareholders (including the major shareholder) will provide any portion of the Company's future financing requirements. The possible inability to obtain further financing would have a material adverse effect on the Company, including possibly requiring the Company to cease operations. Principles of Consolidation The accompanying consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, Amarillo Cell of Canada, Inc. (a Texas corporation), Veldona Africa, Inc. (a Texas corporation), Veldona, Inc. (A Canada corporation), Veldona Poland, Inc., Veldona USA, Inc. and Vanguard Biosciences, Inc. (Texas corporations). All significant intercompany balances and transactions have been eliminated in consolidation. The effect of translation of foreign currencies is not material. Marketable Securities Marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, with any unrealized gain or loss reported as a separate component of shareholders' equity. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-7 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements - (Continued) 1. Organization and Summary of Significant Accounting Policies - (Continued) Property and Equipment Property and equipment are stated at cost. Depreciation is calculated using methods that approximate the declining balance method over the estimated useful lives of the assets. Patent License The patent license represents payments made under one of the license agreements described in Note 5. The agreement remains in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over 17 years using the straight-line method. Organizational Costs Organizational costs are amortized using the straight-line method over five years. Income Taxes The Company files a consolidated income tax return with its domestic subsidiaries, Amarillo Cell of Canada, Inc., Veldona Africa, Inc., Veldona Poland, Inc., Veldona USA, Inc., and Vanguard Biosciences, Inc. Veldona, Inc. files a separate income tax return in Canada. On January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). As permitted by the new rules, prior years' financial statements have not been restated. The effect of adopting Statement No. 109 was not material. Revenue Recognition Contract revenue for research and development performed under the manufacturing and supply agreement with Hayashibara Biochemical Laboratories, Inc. (HBL) (see Note 4) is recorded as earned based on research and administrative costs incurred. Amounts received in advance of services to be performed are recorded as deferred revenue until expenses are incurred. Research and Development Research and development costs are expensed as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock Split In May 1993, the Company approved a ten-for-one stock split for all issued and outstanding shares. As described in Note 13, during 1996 a six-for-five stock split was effected. All references to common stock and per share data have been restated to give effect to these splits. F-8 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements - (Continued) 2. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and consist of the following: December 31, 1995 ----------------- Land .............................. $ 8,000 Building .......................... 94,532 Furniture and equipment ........... 114,354 -------- 216,886 Less accumulated depreciation ...... 102,293 -------- $114,593 ======== 3. NOTES PAYABLE In September 1991, the Company borrowed $1,000,000 under a note payable agreement with HBL. In September 1992, the Company borrowed an additional $1,000,000 under a similar note agreement with HBL. The unsecured notes accrue interest at a rate of 6%, and the entire principal and interest is due on September 16, 1996 and September 25, 1997, respectively, provided that the principal and accrued interest be paid only from 10% of the Company's gross revenues from sales of interferon. All payments are to be applied first to accrued interest. As repayment of the notes is dependent on future sales, management is unable to estimate the fair value of the notes at December 31, 1995. Because material amounts of sales are not expected in the next twelve months, the notes continue to be classified as non-current liabilities. 4. MANUFACTURING AND SUPPLY AGREEMENTS The Company was a party to the following manufacturing and supply agreements at December 31, 1995: On March 13, 1992, the Company entered into a Joint Development and Manufacturing/ Supply Agreement with HBL (the "Development Agreement"), a major shareholder (see Note 7), under which HBL will formulate, manufacture, and supply HBL interferon for the Company or any sublicensee. In exchange, HBL is entitled to receive a transfer fee, specified royalties and a portion of any payment received by the Company for sublicense of rights under this agreement. The agreement further provides that the Company sublicense to HBL the right to market HBL interferon for oral use in humans and in nonhuman, warm-blooded species in Japan, in exchange for the Company receiving a royalty fee based on net sales. On June 1, 1994, HBL entered into an additional agreement with HBL to make the Company HBL's exclusive agent for the development of HBL interferon for non-oral use in humans and in nonhuman, warm-blooded species in North America. In exchange, HBL is entitled to receive a transfer fee based on units of interferon supplied. Under the Development Agreement, HBL has provided $9,000,000 in research funding to the Company as follows: $3,500,000 in 1992, $4,000,000 in 1993, and $1,500,000 in 1994. The agreement also provides that a royalty fee be paid to HBL. The initial term of the agreement is for seven years, but will be renewed automatically for successive three-year terms subject to prior written agreement. HBL can terminate the agreement at any time after the end of the first renewal term if certain conditions are not met. On October 20, 1989, the Company entered into a manufacturing and supply agreement with Interferon Sciences, Inc. (ISI), a 2% shareholder of the Company, under which ISI will manufacture and utilize ISI interferon to formulate and supply interferon-containing compositions to the Company for use in nonhuman species. Under the Agreement, ISI is entitled to receive certain transfer fees, manufacturing and supply fees, and a portion of any payments received by the Company related to the use of ISI interferon. The initial five-year term of the agreement has been extended to October 20, 1996, and may be terminated or further extended if certain conditions are met. F-9 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements - (Continued) 4. Manufacturing and Supply Agreements - (Continued) On October 1, 1991, Veldona, Inc. entered into an agreement with a Canadian pharmaceutical firm which is to manufacture interferon tablets. As of December 31, 1995, minimum purchase requirements have not been established pending completion of validation trials. If the agreement is terminated, Veldona, Inc. is required to purchase any finished product, raw materials, or packaging components in possession of the manufacturer. The agreement is effective until December 31, 1996, with one year renewal options beyond that date. 5. LICENSE AND SUBLICENSE AGREEMENTS The Company holds patent rights for which the Company has paid certain license fees under three license agreements. Under these agreements, the Company will pay the licensor a portion of any sublicense fee received by the Company with respect to the manufacturing, use or sale of a licensed product, as well as a royalty fee based on the net selling price of licensed products, subject to a minimum annual royalty. The Company has also entered into various sublicense agreements under which the Company is entitled to receive royalties based on the net sales value of licensed products. 6. RESEARCH AGREEMENTS The Company contracts with third parties throughout the world to conduct research, including studies and clinical trials. These agreements are generally less than one year in duration. At December 31, 1995, the Company had commitments to provide additional funding of approximately $76,000 under these agreements. 7. COMMON STOCK In May 1993, the shareholders of the Company approved an amendment to the Articles of Incorporation to increase the total number of authorized shares of common stock of the Company from one million shares to ten million shares. The shareholders also approved a ten-for-one stock split for the currently issued and outstanding shares of the Company. Since 1984, the Company has issued common stock in exchange for various professional, research, and consulting services. The stock issued for noncash consideration was assigned a value based on the fair value of the services received. In December 1989, the Company issued 218,400 shares of stock to HBL for $2.50 per share. In February 1990, an additional 174,000 shares were issued to HBL for $4.17 per share, and in November 1990, an additional 69,120 shares were issued to HBL for $2.50 per share. These shares, combined with purchases from various other shareholders, give HBL control of 34% of the outstanding common stock, or 1,032,756 shares at December 31, 1995. In July 1992, the Board of Directors approved restricted stock grants to three employees which would allow the Company to issue, under certain conditions, up to 180,000 shares of its authorized but unissued shares of common stock. In May 1994, the Board of Directors approved restricted stock grants to an additional employee which would allow the Company to issue, under certain conditions, up to 30,000 shares of its authorized but unissued shares of common stock. In January 1995, 29,640 shares of common stock (net of required federal withholdings of 12,360 shares) were issued to a former employee under a Contract Termination and Severance Agreement. The issuance and withholding were in full satisfaction of the employee's original 84,000 shares in stock grants. Under a stock purchase agreement with a shareholder, Mesa Inc. (Mesa), the Company is prohibited from repurchasing or redeeming any of its issued and outstanding shares without the prior written approval of Mesa unless such redemption or repurchase is offered pro rata to all shareholders. F-10 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements - (Continued) 8. EMPLOYEE BENEFIT PLAN The Company discontinued a defined contribution retirement plan for eligible employees in August 1995. Profit sharing expense for the years ended December 31, 1994 and 1995, and cumulative from June 25, 1984 (inception) through March 31, 1996 was approximately $0, $0, and $154,500, respectively. 9. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. Significant components of the Company's deferred tax liabilities and assets are as follows at December 31, 1995: Deferred tax liabilities: Prepaid expenses ................................... $ 8,975 ----------- Total deferred tax liabilities ....................... 8,975 Deferred tax assets: Net operating loss and AMT carryforwards ........ 1,277,286 Accrued interest ................................ 154,258 Depreciation and amortization ................... 59,192 Deferred revenue ................................ 141,828 Accrued stock grants ............................ 39,047 Other ........................................... 56,873 ----------- 1,728,484 Valuation allowance for deferred tax assets .......... (1,719,509) ----------- Total deferred tax assets, net of valuation allowance . 8,975 ----------- Net deferred taxes ................................... $ -- =========== At December 31, 1995, the Company has net operating loss carryforwards of approximately $3,292,000 for federal income tax purposes expiring in 2006 through 2010. The ability of the Company to utilize these carryforwards may be limited should changes in shareholder ownership occur in the future. At December 31, 1995, the Company had approximately $36,000 of alternative minimum tax credits which may be carried forward indefinitely. The difference between the reported income tax provision and the benefit normally expected by applying the statutory rate to the loss before income taxes results primarily from the inability of the Company to recognize its tax losses. 10. CONTINGENCIES Hoffmann La-Roche, Inc. ("Roche") has asserted to HBL that the manufacture, sale and use of its form of IFNa infringes United States Patent 4,503,035 and foreign counterparts thereof owned by Roche relating to IFNa (collectively, the "Roche Patent"). The Roche Patent expires in March 2002 in the United States and at various times in other jurisdictions. HBL has informed the Company that it believes that the claims of the Roche Patent are not applicable to the manufacture and sale of HBL IFNa. HBL has prevailed at the trial level in litigation initiated by Roche in Japan concerning the dispute and Roche has appealed the decision. The Company is not a party to the litigation between Roche and HBL in Japan. The Company is not a party to any litigation related to these issues; however, there is a possibility of litigation against the Company regarding these matters at some point in the future. Management of the Company believes that litigation which might result from these disputes will not have an adverse F-11 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements - (Continued) 10. Contingencies - (Continued) effect on current operations, as the Company is not currently selling or attempting to sell HBL interferon in any country where Roche has a patent. However, since the Company currently has no interferons under license except ISI interferon and HBL interferon, an ultimate determination adverse to the Company could impact future expansion of the Company's sales. 11. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company has and expects to have transactions with related parties, including shareholders. In addition to the transactions disclosed elsewhere in these financial statements, such related party transactions included legal fees of approximately $50,400 and $68,700 paid to Morris, Moore, Moss and Douglass, P.C., a member of which is an officer and shareholder of the Company, in 1994 and 1995, respectively. The Company also employs various shareholders as researchers and consultants and pays fees based on contractual agreements. 12. SETTLEMENT OF LITIGATION Commencing in 1993, the Company was the plaintiff in litigation involving a patent infringement action in New Zealand. In May 1995, a settlement was reached whereby the Company: (1) amended its manufacturing and supply agreement with ISI to allow the sublicense of certain products previously exclusively licensed to ISI and purchased 312,500 shares of ISI common stock for $625,000, or $2 per share, representing the quoted market price of ISI stock at that time; and (2) received $550,000 cash from the defendant in the lawsuit, comprising $50,000 in exchange for a sublicense of the technology that was the subject of the lawsuit and $500,000 as a payment toward research and development costs incurred by the Company. As a result of restrictions on the sale by the Company of its ISI stock until May 1997, the Company has discounted the ISI stock (quoted price of $1.875 per share at December 31, 1995) to a carrying value of $475,000 at December 31, 1995, and as a result charged $150,000 to selling, general, and administrative expenses. The ISI stock is classified as available-for-sale. The $500,000 contribution toward research and development costs has been recorded as other revenue in 1995. 13. SUBSEQUENT EVENTS On May 14, 1996, the shareholders of the Company approved a name change from Amarillo Cell Culture Company, Inc. to Amarillo Biosciences, Inc. and approved a six-for-five stock split to be effected through a 20% stock dividend on the issued and outstanding shares of the Company at the record date of April 16, 1996. All references to common stock and per share data have been restated to give effect to the split. During May 1996, the Company executed two notes with HBL under which it expects to borrow $500,000 on May 31, 1996 and $500,000 on June 28, 1996. The notes bear interest at 4% per annum and mature one year after the borrowing date. If the Company successfully consummates an initial public offering, the notes are payable in full from the proceeds of such offering. 14. UNAUDITED INFORMATION The unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The unaudited interim financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the financial position, results of operations, and cash flows as of and for the periods presented. The unaudited interim financial information should be read in conjunction with the audited financial statements and related notes thereto. The results for the interim periods presented are not necessarily indicative of results to be expected for the full year. F-12 ===============================================================================
No dealer, salesperson or any other individual has been authorized to give any information or to make any representation not contained in this Prospectus in connection with the offer made by this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer 2,000,000 Shares to sell, or a solicitation of an offer to buy, any securities other than the securities offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any security by any person in any jurisdiction in which such AMARILLO offer or solicitation is unlawful. Neither the delivery of this Prospectus nor BIOSCIENCES, INC. any sale made hereunder shall, under any circumstances, imply that the information in this Prospectus is correct as of any time subsequent to the date of this Prospectus. [LOGO] ------ TABLE OF CONTENTS Page ---- Prospectus Summary ...................................... 3 Glossary ................................................ 6 Common Stock Risk Factors ............................................ 8 Use of Proceeds ......................................... 17 Dividend Policy ......................................... 18 Dilution ................................................ 19 Capitalization .......................................... 20 Selected Financial Data ................................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........... 22 Business ................................................ 24 ------ Management .............................................. 35 PROSPECTUS Principal Shareholders .................................. 40 ------ Certain Transactions .................................... 41 Description of Capital Stock ............................ 42 Shares Eligible for Future Sale ......................... 42 Underwriting ............................................ 43 Legal Matters ........................................... 44 Experts ................................................. 44 Additional Information .................................. 45 Index to Financial Statements ........................... F-1 Until , 1996 (25 days after the date of this Prospectus), all dealers WHALE SECURITIES CO., L.P. effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when , 1996 acting as underwriters and with respect to their unsold allotments or subscriptions.
=============================================================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article 2.02-1 of the Texas Business Corporation Act (the "Texas Corporation Law") empowers a Texas corporation to indemnify any person who was, is or is threatened to be made a named defendant or respondent in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in any such action, suit or proceeding and any inquiry or investigation that could lead to such an action, suit or proceeding (individually, a "Proceeding") by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against reasonable expenses (including court costs and attorneys' fees), judgments, penalties (including excise and similar taxes), fines and amounts paid in settlement actually incurred by him in connection with such Proceeding if he conducted himself in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon plea of nolo contendere, or its equivalent, is not, of itself, determinative that the person did not act in good faith and in a manner which he 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 reasonable cause to believe that his conduct was lawful. A person may be indemnified in respect of a Proceeding (a) in which the person is found liable on the basis that personal benefit was improperly received by him whether or not the benefit resulted from an action taken in the person's official capacity or (b) in which the person is found liable to the corporation. However, indemnification in the foregoing circumstances is limited to reasonable expenses actually incurred by the person in connection with the Proceeding. In no event shall any indemnification be made in respect of a Proceeding in which the person shall have been liable for willful or intentional misconduct in the performance of his duty to the corporation. A person shall be deemed to have been found liable in respect of any claim, issue or matter only after the person shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses incurred by a director, officer, employee or agent of a Texas corporation who was, is, or is threatened to be made a named defendant or respondent in a Proceeding may be paid or reimbursed by the corporation, in advance of the final disposition of the Proceeding, after the corporation receives a written affirmation by the director of his good faith belief that he has met the standard of conduct necessary for indemnification under the Texas Corporation Law and a written undertaking by or on behalf of the person to repay the amount paid or reimbursed if it is ultimately determined that he has not met that standard or if it is ultimately determined that indemnification of the person against expenses incurred by him in connection with that Proceeding is prohibited by the Texas Corporation Law. If, upon application of a person, a court of competent jurisdiction determines, after giving any notice the court considers necessary, that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, the court may order the indemnification that the court determines is proper and equitable. Article 2.02-1 of the Texas Corporation Law further provides that, subject to restrictions on the circumstances in which indemnification is required which may be set forth in the corporation's articles of incorporation, a Texas corporation is required to indemnify a director or officer against reasonable expenses incurred by him in connection with any Proceeding in which he is a named defendant or respondent because he is or was a director or officer, if he has been successful on the merits or otherwise in the defense of the Proceeding; that a corporation may also, consistent with law, indemnify and advance expenses to persons as may be provided in the corporation's articles of incorporation, bylaws or by general or specific action of the corporation's board of directors, or contract or as permitted or required under common law; and empowers the corporation to purchase and maintain insurance or another arrangement on behalf II-1 of any person who is or was a director, officer, employee or agent of the corporation or who is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or any other enterprise against any such liability asserted against him and incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against liability under Article 2.02-1. A Texas corporation may provide indemnification only as authorized in the specific case upon a determination that person has met the applicable standard of conduct. Such determination is to be made (i) by the members of the board of directors by a majority vote of a quorum consisting of directors who were not named defendants or respondents in the Proceeding, or (ii) if such a quorum is not obtainable, by a majority vote of a committee of the board of directors designated to act in the matter by a majority vote of all directors, consisting solely of two or more directors who are not named defendants or respondents in the Proceeding or (iii) by special legal counsel selected by the board of directors or a committee thereof. Article IV of the By-Laws of the Company also provides for indemnification of current or former directors and officers of the Company and any person who has served at the request of the Company as a director or officer of another corporation in which the Company owns shares of capital stock or of which it is a creditor against liabilities imposed upon him and expenses reasonably incurred by him in connection with any claim made against him, or any action, suit or proceeding to which he may be a party by reason of his being or having been such director or officer; provided that no director or officer shall be indemnified with respect to matters as to which he shall be adjudged liable for negligence or misconduct in performance of his duty or with respect to matters for which such indemnification could be against public policy. Indemnification of such a person is also authorized against such sums as independent legal counsel selected by the board of directors shall deem reasonable payment in settlement of claims primarily with a view of avoiding expenses of litigation. The Company has entered into indemnification agreements with each of its directors and executive officers whereby the Company will, in general, indemnify such directors and executive officers, to the extent permitted by the Company's Certificate of Incorporation or the laws of the State of Texas, against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding to which such director or officer is made or threatened to be made a party by reason of the fact that such person is or was a director or officer of the Company. The Company has obtained liability insurance for each director and officer for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the Company. The Underwriting Agreement, which is filed as Exhibit 1.1, provides for indemnification of the directors and certain officers of the Company by the Underwriter against certain civil liabilities, including liabilities under the Securities Act of 1933. Effective upon the consummation of the offering made pursuant to this Registration Statement, HBL has agreed to indemnify the Company and its officers and directors for litigation expenses, losses, damages and amounts paid in settlement arising out of litigation which may be brought by Roche or its affiliates relating to the Roche Patent. II-2 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth an itemized statement of all expenses in connection with the issuance and distribution of the securities being registered (all of which are estimated other than the filing fees of the Securities and Exchange Commission, NASDAQ and the National Association of Securities Dealers, Inc. and the consulting fee to the Underwriter), other than underwriting discounts and commissions and the Underwriter's non-accountable expense allowance: Securities and Exchange Commission filing fee ............ $ 4,449 NASDAQ fee ............................................... $ 10,415 National Association of Securities Dealers, Inc. filing fee $ 1,791 Printing and engraving expenses .......................... $ * Legal Fees and expenses .................................. $ * Registrar and transfer agent fees ........................ $ * Accounting fees and expenses ............................. $ * Blue sky fees and expenses ............................... $ * Consulting fee to Underwriter ............................ $ * Miscellaneous ............................................ $ * -------- Total ............................................... $525,000 ======== - ------ * To be completed by amendment. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. On May 24, 1993 the Company issued 2,264,274 shares of Common Stock to effect a 10 for 1 stock split. The shares issued in the stock split did not require registration under the Securities Act in that the stock split was not a "sale," "offer for sale" or "offer" as such terms are defined in the Securities Act. On January 12, 1995 the Company issued to a former employee 29,640 shares of Common Stock pursuant a Contract Termination and Severance Agreement between the Company and such person. The issuance was in consideration of the settlement of certain obligations of the Company to the employee. The employee did not pay any cash to the Company for the shares. All of the shares were issued pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(2) of the Securities Act. On May 6, 1996 the Company made a 20% stock dividend to all holders of record of its Common Stock as of April 16, 1996. The Company issued 505,872 shares in connection with the stock dividend. The shares issued in the stock dividend did not require registration under the Securities Act in that the stock dividend was not a "sale," "offer for sale" or "offer" as such terms are defined in the Securities Act. On the date this Registration Statement is declared effective by the Securities Exchange Commission the Company shall issue to Joseph Cummins, Alan Richards and Charles Hughes 30,000, 30,000 and 19,000 shares, respectively, of the Company's Common Stock in accordance with the terms of conditional stock grants awarded by the Company to Messrs. Cummins and Richards in July 1992 and Mr. Hughes in June 1994. All of the shares were issued pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(2) of the Securities Act. II-3 ITEM 27. EXHIBITS
Number Description ----- ----------- *1.1 Form of Underwriting Agreement. *3.1 Restated Articles of Incorporation of the Company. *3.2 Articles of Amendment of Restated Articles of Incorporation of the Company. *3.3 Bylaws of the Company. **4.1 Specimen Common Stock Certificate. *4.2 Form of Underwriter's Warrant. **5.1 Opinion of Lowenthal, Landau, Fischer & Bring, P.C. *10.1 Agreement dated as of April 1, 1984 between University Patents, Inc. and the Company. *10.2 License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System. *10.3 License Agreement dated October 20, 1989 between the Company and ISI.*** *10.4 Manufacturing and Supply Agreement dated October 20, 1989 between the Company and ISI.*** *10.5 Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 between the Company and HBL, as amended.*** *10.6 Amended and Restated Agreement dated as of November 24, 1992 between Mitsubishi and the Company. *10.7 Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL.*** *10.8 Employment Agreement dated as of March 4, 1994 between the Company and Dr. Alan B. Richards, as amended. *10.9 Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M. Cummins, as amended. *10.10 Employment Agreement dated as of June 1, 1994 between the Company and Charles Hughes, as amended. *10.11 Manufacturing/Supply Agreement dated June 1, 1994 between the Company and HBL. *10.12 Settlement Agreement dated April 27, 1995 among the Company, ISI, Pharma Pacific Management Pty. Ltd. ("PPM"), Pharma Pacific Pty. Ltd., Pharma Pacific Ltd., and Fernz Corporation Limited. *10.13 Amendment of ACC/ISI License Agreement dated April 27, 1995 between the Company and ISI. *10.14 PPM/ACC Sub-license Agreement dated April 27, 1995 between PPM and the Company.*** *10.15 License and Supply Agreement dated July 10, 1995 between Veldona Africa, Inc. ("VAF") and Innovative Therapeutics, Ltd. ("ITL").*** *10.16 Pricing Amendment, dated December 5, 1995 between VAF and ITL.*** *10.17 License Agreement dated September 25, 1995 between McGill University and the Company. *10.18 Form of Consulting Agreement between the Company and the Underwriter. *10.19 Research Agreement dated March 25, 1996 between the Company and Ajinomoto Co., Inc. *10.20 1996 Employee Stock Option Plan *10.21 1996 Outside Director and Advisor Stock Option Plan *10.22 Form of Indemnification Agreement between the Company and officers and directors of the Company. **10.23 Indemnification Agreement between HBL and the Company.
II-4
Number Description ----- ----------- **23.1 Consent of Lowenthal, Landau, Fischer & Bring, P.C. to be included in Exhibit 5.1. *23.2 Consent of Ernst & Young LLP *24.1 Powers of Attorney (contained on signature page of Registration Statement).
- ------ * Filed herewith. ** To be filed by amendment. *** Confidential treatment has been requested with respect to portions of this document. Omitted portions have been filed separately with the Securities and Exchange Commission. ITEM 28. UNDERTAKINGS. The Company hereby undertakes that: it will file, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (a) Include any prospectus required under Section 10(a) of the Securities Act; (b) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (c) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described under Item 24 above, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted against the Company by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that (i) for purposes of determining liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this Registration Statement as of the time it was declared effective; and (ii) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Amarillo, State of Texas, on May 23, 1996. AMARILLO BIOSCIENCES, INC. By: /s/ Joseph M. Cummins ------------------------------- Joseph M. Cummins, Chairman of the Board POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Joseph M. Cummins, Charles H. Hughes and Edward L. Morris, or any of them acting singly, as his lawful attorney-in-fact and agent with full power of substitution and resubstitution for him and in his name, place and stead in any and all capacities to execute in the name of each such person who is then an officer or director of the registrant any and all amendments (including post-effective amendments) to this registration statement and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises as fully as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
Signature Title Date --------- ----- ---- /s/ Joseph M. Cummins -------------------------- Chairman of the Board and President (Chief Executive Joseph M. Cummins Officer) and Director May 23, 1996 /s/ Charles H. Hughes Vice President-Finance and Administration and -------------------------- Treasurer (Chief Financial Officer and Chief Charles H. Hughes Accounting Officer) May 23, 1996 /s/ Edward L. Morris Secretary -------------------------- Edward L. Morris May 23, 1996 /s/ Stephen Chen Director -------------------------- Stephen Chen May 23, 1996 /s/ Katsuaki Hayashibara Director -------------------------- Katsuaki Hayashibara May 23, 1996 /s/ Dennis Moore Director -------------------------- Dennis Moore May 23, 1996 /s/ James Page Director -------------------------- James Page May 23, 1996 /s/ James Cook Director -------------------------- James Cook May 23, 1996
II-6 EX-1.1 2 UNDERWRITING AGREEMENT AMARILLO BIOSCIENCES, INC. 2,000,000 Shares of Common Stock ($.01 Par Value) UNDERWRITING AGREEMENT Whale Securities Co., L.P. New York, New York 650 Fifth Avenue ___________, 1996 New York, New York 10019 Dear Sirs: Amarillo Biosciences, Inc., a Texas corporation (the "Company"), proposes to issue and sell to Whale Securities Co., L.P. (the "Underwriter") 2,000,000 shares of common stock, par value $.01 per share (the "Offered Shares"), which Offered Shares are presently authorized but unissued shares of the common stock, par value $.01 per share (individually a "Common Share" and collectively the "Common Shares"), of the Company. In addition, the Underwriter, in order to cover over-allotments in the sale of the Offered Shares, may purchase for its own account an aggregate of not more than 300,000 Common Shares (the "Optional Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes collectively referred to as the "Shares"). The Shares are described in the Registration Statement, as defined below. The Company also proposes to issue and sell to the Underwriter for its own account and the accounts of its designees, warrants to purchase an aggregate of 200,000 Common Shares at an exercise price of $7.00 per share (the "Underwriter's Warrants"), which sale will be consummated in accordance with the terms and conditions of the form of Underwriter's Warrant filed as an exhibit to the Registration Statement. The Company hereby confirms its agreement with the Underwriter as follows: 1. Purchase and Sale of Offered Shares. On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company hereby agrees to sell the Offered Shares to the Underwriter, and the Underwriter agrees to purchase the Offered Shares from the Company, at a purchase price of $4.50 per share. The Underwriter plans to offer the Shares to the public at a public offering price of $5.00 per share. 2. Payment and Delivery. (a) Payment for the Offered Shares will be made to the Company by certified or official bank check or checks payable to its order in New York Clearing House funds, at the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019, against delivery of the Offered Shares to the Underwriter. Such payment and delivery will be made at , New York City time, on the fifth business day following the Effective Date as defined below, the date and time of such payment and delivery being herein called the "Closing Date." The certificates representing the Offered Shares to be delivered will be in such denominations and registered in such names as the Underwriter may request not less than three full business days prior to the Closing Date, and will be made available to the Underwriter for inspection, checking and packaging at the office of the Company's transfer agent or correspondent in New York City, American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005 not less than one full business day prior to the Closing Date. (b) On the Closing Date, the Company will sell the Underwriter's Warrants to the Underwriter or to its designees (limited to officers of the Underwriter). The Underwriter's Warrants will be in the form of, and in accordance with, the provisions of the Underwriter's Warrant attached as an exhibit to the Registration Statement. The aggregate purchase price for the Underwriter's Warrants is $200. The Underwriter's Warrants will be restricted from sale, transfer, assignment or hypothecation for a period of one year from the Effective Date, except to officers and partners of the Underwriter and members of the selling group and/or their officers or partners. Payment for the Underwriter's Warrants will be made to the Company by check or checks payable to its order on the Closing Date against delivery of the certificates representing the Underwriter's Warrants. The certificates representing the Underwriter's Warrants will be in such denominations and such names as the Underwriter may request prior to the Closing Date. 3. Option to Purchase Optional Shares. (a) For the purposes of covering any overallotments in connection with the distribution and sale of the Offered Shares as contemplated by the Prospectus as defined below, the Underwriter is hereby granted an option to purchase all or any part of the Optional Shares from the Company. The purchase price to be paid for the Optional Shares will be the same price per Optional Share as the price per Offered Share set forth in Section 1 hereof. The option granted hereby may be exercised by the Underwriter as to all or any part of the Optional Shares at any time within 45 days after the Effective Date. The Underwriter will not be under any obligation to purchase any Optional Shares prior to the exercise of such option. 2 (b) The option granted hereby may be exercised by the Underwriter by giving oral notice to the Company, which must be confirmed by a letter, telex or telegraph setting forth the number of Optional Shares to be purchased, the date and time for delivery of and payment for the Optional Shares and stating that the Optional Shares referred to therein are to be used for the purpose of covering over-allotments in connection with the distribution and sale of the Offered Shares. If such notice is given prior to the Closing Date, the date set forth therein for such delivery and payment will not be earlier than either two full business days thereafter or the Closing Date, whichever occurs later. If such notice is given on or after the Closing Date, the date set forth therein for such delivery and payment will not be earlier than five full business days thereafter. In either event, the date so set forth will not be more than 15 full business days after the date of such notice. The date and time set forth in such notice is herein called the "Option Closing Date." Upon exercise of such option, the Company will become obligated to convey to the Underwriter, and, subject to the terms and conditions set forth in Section 3(d) hereof, the Underwriter will become obligated to purchase, the number of Optional Shares specified in such notice. (c) Payment for the Optional Shares will be made to the Company by certified or official bank check or checks pay-able to its order in New York Clearing House funds, at the office of the Underwriter, against delivery of the Optional Shares to the Underwriter. The certificates representing the Optional Shares to be delivered will be in such denominations and registered in such names as the Underwriter requests not less than two full business days prior to the Option Closing Date, and will be made available to the Underwriter for inspection, checking and packaging at the aforesaid office of the Company's transfer agent or correspondent not less than one full business day prior to the Option Closing Date. (d) The obligation of the Underwriter to purchase and pay for any of the Optional Shares is subject to the accuracy and completeness (as of the date hereof and as of the Option Closing Date) of and compliance in all material respects with the representations and warranties of the Company herein, to the accuracy and completeness of the statements of the Company or its officers made in any certificate or other document to be delivered by the Company pursuant to this Agreement, to the performance in all material respects by the Company of its obligations hereunder, to the satisfaction by the Company of the conditions, as of the date hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery to the Underwriter of opinions, certificates and letters dated the Option Closing Date substan- 3 tially similar in scope to those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares" and "Closing Date" to be, respectively, to the Optional Shares and the Option Closing Date. 4. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriter that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, with full power and authority, corporate and other, to own or lease and operate its properties and to conduct its business as described in the Registration Statement and to execute, deliver and perform this Agreement and the Underwriter's Warrants and to consummate the transactions contemplated hereby and thereby. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, results of operations, business or properties of the Company. Other than the companies listed on Schedule A to this Agreement (the "Subsidiaries"), the Company has no subsidiaries. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, with full power and authority, corporate and other, to own or lease and operate its properties and to conduct its business as described in the Registration Statement. Each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, results of operations, business or properties of such Subsidiary The Company owns all of the issued and outstanding shares of capital stock of each Subsidiary, free and clear of any security interests, liens, encumbrances, claims and charges, and all of such shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no options or warrants for the purchase of, or other rights to purchase, or outstanding securities convertible into or exchangeable for, any capital stock or other securities of any Subsidiary. (b) Each of this Agreement and the Consulting Agreement described in Section 5(s) hereof (the "Consulting Agreement") has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, and the Underwriter's Warrants, when executed and delivered by the 4 Company on the Closing Date, will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. The execution, delivery and performance of this Agreement, the Consulting Agreement and the Underwriter's Warrants by the Company, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms of this Agreement, the Consulting Agreement and the Underwriter's Warrants have been duly authorized by all necessary corporate action and do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of the certificate of incorporation or by-laws of the Company; (ii) result in a breach of or conflict with any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to any indenture, mortgage, note, contract, commitment or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of its their respective properties or assets is or may be bound or affected; (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties or business; or (iv) have any effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate its properties and to conduct its business or the ability of the Company to make use thereof. (c) No authorization, approval, consent, order, registration, license or permit of any court or governmental agency or body, other than under the Securities Act of 1933, as amended (the "Act"), the Regulations (as hereinafter defined) and applicable state securities or Blue Sky laws, is required for the valid authorization, issuance, sale and delivery of the Shares to the Underwriter, and the consummation by the Company of the transactions contemplated by this Agreement, the Consulting Agreement or the Underwriter's Warrants. (d) The conditions for use of a registration statement on Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied with respect to the Company, the transactions contemplated herein and in the Registration Statement. The Company has prepared in conformity with the requirements of the Act and the rules and regulations (the "Regulations") of the Securities and Exchange Commission (the "Commission") and filed with the Commission a registration statement (File No. 333) on Form SB-2 and has filed one or more amendments thereto, covering the registration of the Shares under the Act, including the related 5 preliminary prospectus or preliminary prospectuses (each thereof being herein called a "Preliminary Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was endorsed with the legend required by Item 501(a)(5) of Regulation S-B of the Regulations and, if applicable, Rule 430A of the Regulations. Such registration statement including any documents incorporated by reference therein and all financial schedules and exhibits thereto, as amended at the time it becomes effective, and the final prospectus included therein are herein, respectively, called the "Registration Statement" and the "Prospectus," except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term "Prospectus" will also include the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement is amended or such Prospectus is supplemented after the effective date of the Registration Statement (the "Effective Date") and prior to the Option Closing Date, the terms "Registration Statement" and "Prospectus" shall include the Registration Statement as amended or supplemented. (e) Neither the Commission nor, to the best of the Company's knowledge, any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus or has instituted or, to the best of the Company's knowledge, threatened to institute any proceedings with respect to such an order. (f) The Registration Statement when it becomes effective, the Prospectus (and any amendment or supplement thereto) when it is filed with the Commission pursuant to Rule 424(b), and both documents as of the Closing Date or the Option Closing Date referred to below, will contain all statements which are required to be stated therein in accordance with the Act and the Regulations and will in all material respects conform to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, on such dates, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company in connection with the Registration Statement or Prospectus or any amendment or supplement thereto by the Underwriter expressly for use therein. (g) The Company had at the date or dates indicated in the Prospectus a duly authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus. Based on the assumptions stated in the Registration Statement and the Prospectus, the Company will have on the Closing Date the 6 adjusted stock capitalization set forth therein. Except as set forth in the Registration Statement or the Prospectus, on the Effective Date and on the Closing Date, there will be no options to purchase, warrants or other rights to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell shares of the Company's capital stock or any such warrants, convertible securities or obligations. Except as set forth in the Prospectus, no holders of any of the Company's securities has any rights, "demand," "piggyback" or otherwise, to have such securities registered under the Act. (h) The descriptions in the Registration Statement and the Prospectus of contracts and other documents are accurate and present fairly the information required to be disclosed, and there are no contracts or other documents required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement under the Act or the Regulations which have not been so described or filed as required. (i) Ernst & Young LLP, the accountants who have certified certain of the consolidated financial statements filed and to be filed with the Commission as part of the Registration Statement and the Prospectus, are independent public accountants within the meaning of the Act and Regulations. The consolidated financial statements and schedules and the notes thereto filed as part of the Registration Statement and included in the Prospectus are complete, correct and present fairly the financial position of the Company as of the dates thereof, and the results of operations and changes in financial position of the Company for the periods indicated therein, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved except as otherwise stated in the Registration Statement and the Prospectus. The selected financial data set forth in the Registration Statement and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited and unaudited financial statements included in the Registration Statement and the Prospectus. (j) The Company and each Subsidiary has filed with the appropriate federal, state and local governmental agencies, and all foreign countries and political subdivisions thereof, all tax returns, including franchise tax returns, which are required to be filed or has duly obtained extensions of time for the filing thereof and has paid all taxes shown on such returns and all assessments received by it to the extent that the same have become due; and the provisions for income taxes payable, if any, shown on the consolidated financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid foreign and domestic taxes, whether or not disputed, and for all 7 periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriter, neither the Company nor any Subsidiary has executed or filed with any taxing authority, foreign or domestic, any agreement extending the period for assessment or collection of any income taxes and is not a party to any pending action or proceeding by any foreign or domestic governmental agency for assessment or collection of taxes; and no claims for assessment or collection of taxes have been asserted against the Company or any Subsidiary. (k) The outstanding Common Shares and outstanding options to purchase Common Shares have been duly authorized and validly issued. The outstanding Common Shares are fully paid and nonassessable. The outstanding options and warrants to purchase Common Shares constitute the valid and binding obligations of the Company, enforceable in accordance with their terms. None of the outstanding Common Shares and options to purchase Common Shares has been issued in violation of the preemptive rights of any shareholder of the Company. None of the holders of the outstanding Common Shares is subject to personal liability solely by reason of being such a holder. The offers and sales of the outstanding Common Shares and outstanding options to purchase Common Shares were at all relevant times either registered under the Act and the applicable state securities or Blue Sky laws or exempt from such registration requirements. The authorized Common Shares and outstanding options to purchase Common Shares conform to the descriptions thereof contained in the Registration Statement and Prospectus. Except as set forth in the Registration Statement and the Prospectus, on the Effective Date and the Closing Date, there will be no outstanding options or warrants for the purchase of, or other outstanding rights to purchase, Common Shares or securities convertible into Common Shares. (l) No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by, or under common control with the Company within the three years prior to the date hereof, except as disclosed in the Registration Statement. (m) The issuance and sale of the Shares have been duly authorized and, when the Shares have been issued and duly delivered against payment therefor as contemplated by this Agreement, the Shares will be validly issued, fully paid and nonassessable, and the holders thereof will not be subject to personal liability solely by reason of being such holders. The Shares will not be subject to preemptive rights of any shareholder of the Company. (n) The issuance and sale of the Common Shares 8 issuable upon exercise of the Underwriter's Warrants have been duly authorized and, when such Common Shares have been duly delivered against payment therefor, as contemplated by the Underwriter's Warrants, such Common Shares will be validly issued, fully paid and nonassessable. Holders of Common Shares issuable upon the exercise of the Underwriter's Warrants will not be subject to personal liability solely by reason of being such holders. Neither the Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will be subject to preemptive rights of any shareholder of the Company. The Common Shares issuable upon exercise of the Underwriter's Warrants have been duly reserved for issuance upon exercise of the Underwriter's Warrants in accordance with the provisions of the Underwriter's Warrants. The Underwriter's Warrants conform to the descriptions thereof contained in the Registration Statement and Prospectus. (o) Neither the Company nor any Subsidiary is in violation of, or in default under, (i) any term or provision of its Certificate of Incorporation, as amended, or By-Laws; (ii) any material term or provision or any financial covenants of any indenture, mortgage, contract, commitment or other agreement or instrument to which it is a party or by which it or any of its property or business is or may be bound or affected; or (iii) any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of the Company's or any Subsidiary's properties or business. The Company and each Subsidiary owns, possesses or has obtained all governmental and other (including those obtainable from third parties) licenses, permits, certifications, registrations, approvals or consents and other authorizations necessary to own or lease, as the case may be, and to operate its properties, whether tangible or intangible, and to conduct any of the business or operations of the Company as presently conducted and all such licenses, permits, certifications, registrations, approvals, consents and other authorizations are outstanding and in good standing, and there are no proceedings pending or, to the best of the Company's knowledge, threatened, or any basis therefor, seeking to cancel, terminate or limit such licenses, permits, certifications, registrations, approvals or consents or other authorizations. (p) Except as set forth in the Prospectus, there are no claims, actions, suits, proceedings, arbitrations, investigations or inquiries before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, pending, or, to the best of the Company's knowledge, threatened against the Company or any Subsidiary or involving its or any Subsidiary's properties or business which, if determined adversely to the Company or any Subsidiary, would, individually or 9 in the aggregate, result in any material adverse change in the financial position, shareholders' equity, results of operations, properties, business, management or affairs or business prospects of the Company or any Subsidiary or which question the validity of the capital stock of the Company or this Agreement or of any action taken or to be taken by the Company pursuant to, or in connection with, this Agreement; nor, to the best of the Company's knowledge, is there any basis for any such claim, action, suit, proceeding, arbitration, investigation or inquiry. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal naming the Company or any Subsidiary and enjoining the Company or any Subsidiary from taking, or requiring the Company or any Subsidiary to take, any action, or to which the Company or any Subsidiary or the Company's or any Subsidiary's properties or businesses is bound or subject. (q) Neither the Company nor any of its affiliates has incurred any liability for any finder's fees or similar payments in connection with the transactions herein contemplated. (r) The Company and each of the Subsidiaries owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, service marks, copyrights, rights, trade secrets, confidential information, processes and formulations used or proposed to be used in the conduct of their businesses as described in the Prospectus (collectively the "Intangibles"); to the best of the Company's knowledge, neither the Company nor any Subsidiary has infringed or is infringing with the rights of others with respect to Intangibles; and neither the Company nor any Subsidiary has received any notice of conflict with the asserted rights of others with respect to Intangibles which could, singly or in the aggregate, materially adversely affect its business as presently conducted or prospects, financial condition or results of operations of the Company or any Subsidiary, and the Company knows of no basis therefor; and, to the best of the Company's knowledge, no others have infringed upon the Intangibles of the Company or any Subsidiary. (s) Since the respective dates as of which information is given in the Registration Statement and the Prospectus and the Company's latest consolidated financial statements, neither the Company nor any Subsidiary has incurred any material liability or obligation, direct or contingent, or entered into any material transaction, whether or not in the ordinary course of business, and has not sustained any material loss or interference with its business from fire, storm, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and since the respective dates as of which information is given in the Registration Statement and the Prospectus, there have not been, and 10 prior to the Closing Date referred to below there will not be, any changes in the capital stock or any material increases in the long-term debt of the Company or any material adverse change in or affecting the general affairs, management, financial condition, shareholders' equity, results of operations or prospects of the Company or any Subsidiary, otherwise than as set forth or contemplated in the Prospectus. (t) The Company and each Subsidiary has good and marketable title in fee simple to all real property and good title to all personal property (tangible and intangible) owned by it, free and clear of all security interests, charges, mortgages, liens, encumbrances and defects, except such as are described in the Registration Statement and Prospectus or such as do not materially affect the value or transferability of such property and do not interfere with the use of such property made, or proposed to be made, by the Company or any Subsidiary. The leases, licenses or other contracts or instruments under which the Company and each Subsidiary leases, holds or is entitled to use any property, real or personal, are valid, subsisting and enforceable only with such exceptions as are not material and do not interfere with the use of such property made, or proposed to be made, by the Company or any Subsidiary, and all rentals, royalties or other payments accruing thereunder which became due prior to the date of this Agreement have been duly paid, and neither the Company nor any Subsidiary, nor, to the best of the Company's knowledge, any other party is in default thereunder and, to the best of the Company's knowledge, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. Neither the Company nor any Subsidiary has received notice of any violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties. The Company and each Subsidiary has adequately insured its properties against loss or damage by fire or other casualty and maintains, in adequate amounts, such other insurance as is usually maintained by companies engaged in the same or similar businesses located in its geographical area. (u) Each contract or other instrument (however characterized or described) to which the Company or any Subsidiary is a party or by which its property or business is or may be bound or affected and to which reference is made in the Prospectus has been duly and validly executed, is in full force and effect in all material respects and is enforceable against the parties thereto in accordance with its terms, and none of such contracts or instruments has been assigned by the Company or any Subsidiary, and neither the Company nor any Subsidiary, nor, to the best of the Company's knowledge, any other party is in default thereunder and, to the best of the Company's knowledge, no event has occurred which, with the lapse of time or the giving of notice, or both, 11 would constitute a default thereunder. None of the material provisions of such contracts or instruments violates any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court having jurisdiction over the Company or any of its subsidiaries or any of their respective assets or businesses, including, without limitation, those relating to the production, development, research, marketing or commercialization of biologics. (v) The employment, consulting, confidentiality and non-competition agreements between the Company and between each Subsidiary and their respective officers, employees and consultants, described in the Registration Statement, are binding and enforceable obligations upon the respective parties thereto in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws or arrangements affecting creditors' rights generally and subject to principles of equity. (w) Except as set forth in the Prospectus, the Company has no employee benefit plans (including, without limitation, profit sharing and welfare benefit plans) or deferred compensation arrangements that are subject to the provisions of the Employee Retirement Income Security Act of 1974. (x) Except as set forth in the Prospectus, neither the Company nor any subsidiary manufactures, fabricates or markets any product or performs any service which is subject to regulation by the federal Food and Drug Administration (the "FDA"), or to any provision of the Food, Drug and Cosmetic Act, as amended (the "FDA Act"), or any rule or regulation promulgated thereunder. To the best of the Company's knowledge, with respect to the products manufactured, fabricated or marketed by the Company and/or any subsidiary and the services performed by them which are subject to such regulation, the Company and each subsidiary are in compliance with the provisions of the FDA Act and the rules and regulations promulgated thereunder. (y) To the best of the Company's knowledge, no labor problem exists with any of the Company's or any Subsidiary's employees or is imminent which could adversely affect the Company or any Subsidiary. (z) The Company has not, directly or indirectly, at any time (i) made any contributions to any candidate for political office, or failed to disclose fully any such contribution in violation of law or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged 12 with similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. The Company's internal accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. (aa) Shares have been approved for listing on the Automated Quotation System of the National Association of Securities Dealers, Inc. ("NASDAQ") and, if so qualified, on the National Market System of NASDAQ. (ab) The Company's response to the Corporate Review Memorandum of Tenzer Greenblatt LLP, counsel to the Underwriter ("Underwriter's Counsel"), dated March 13, 1996, is true, accurate and complete. (ac) Amarillo Cell of Canada, Inc., a subsidiary of the Company, is inactive and conducts no business. Any certificate signed by an officer of the Company or of any subsidiary and delivered to the Underwriter or to counsel for the Underwriter shall be deemed to be a representation and warranty by the Company to the Underwriter as to the matters covered thereby. 5. Certain Covenants of the Company. The Company covenants with the Underwriter as follows: (a) The Company will not at any time, whether before the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with the sales of the Shares by the Underwriter or a dealer, file or publish any amendment or supplement to the Registration Statement or Prospectus of which the Underwriter has not been previously advised and furnished a copy, or to which the Underwriter shall object in writing. (b) The Company will use its best efforts to cause the Registration Statement to become effective and will advise the Underwriter immediately, and, if requested by the Underwriter, confirm such advice in writing, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement or any supplemented Prospectus is filed with the Commission; (ii) of the receipt of any comments from the Commission; (iii) of any request of the Commission for amendment or supplementation of the Registration Statement or Prospectus or for additional information; and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus, or of the suspension of the qualification of the Shares 13 for offering or sale in any jurisdiction, or of the initiation of any proceedings for any of such purposes. The Company will use its best efforts to prevent the issuance of any such stop order or of any order preventing or suspending such use and to obtain as soon as possible the lifting thereof, if any such order is issued. (c) The Company will deliver to the Underwriter, without charge, from time to time until the Effective Date, as many copies of each Preliminary Prospectus as the Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the Act. The Company will deliver to the Underwriter, without charge, as soon as the Registration Statement becomes effective, and thereafter from time to time as requested, such number of copies of the Prospectus (as supplemented, if the Company makes any supplements to the Prospectus) as the Underwriter may reasonably request. The Company has furnished or will furnish to the Underwriter two signed copies of the Registration Statement as originally filed and of all amendments thereto, whether filed before or after the Registration Statement becomes effective, two copies of all exhibits filed therewith and two signed copies of all consents and certificates of experts. (d) The Company will comply with the Act, the Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder so as to permit the continuance of sales of and dealings in the Offered Shares and in any Optional Shares which may be issued and sold. If, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event occurs as a result of which the Registration Statement and Prospectus as then amended or supplemented would include an 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, or if it shall be necessary to amend or supplement the Registration Statement and Prospectus to comply with the Act or the regulations thereunder, the Company will promptly file with the Commission, subject to Section 5(a) hereof, an amendment or supplement which will correct such statement or omission or which will effect such compliance. (e) The Company will furnish such proper informa- tion as may be required and otherwise cooperate in qualifying the Shares for offering and sale under the securities or Blue Sky laws relating to the offering or for sale in such jurisdictions as the Underwriter may reasonably designate, provided that no such qualification will be required in any jurisdiction where, solely as a result thereof, the Company would be subject to service of general process or to taxation or qualification as a foreign corporation doing business in such jurisdiction. 14 (f) The Company will make generally available to its security holders, in the manner specified in Rule 158(b) under the Act, and deliver to the Underwriter as soon as practicable and in any event not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earning statement meeting the requirements of Rule 158(a) under the Act covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement. (g) For a period of five years from the Effective Date, the Company will deliver to the Underwriter and to Underwriter's Counsel on a timely basis (i) a copy of each report or document, including, without limitation, reports on Forms 8-K, 10-C, 10-K, 10-K SB and 10-Q, 10-Q SB and exhibits thereto, filed or furnished to the Commission, any securities exchange or the National Association of Securities Dealers, Inc. (the "NASD") on the date each such report or document is so filed or furnished; (ii) as soon as practicable, copies of any reports or communications (financial or other) of the Company mailed to its security holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from time to time; (iv) monthly statements setting forth such information regarding the Company's results of operations and financial position (including balance sheet, profit and loss statements and data regarding outstanding purchase orders) as is regularly prepared by management of the Company; and (v) such additional information concerning the business and financial condition of the Company as the Underwriter may from time to time reasonably request and which can be prepared or obtained by the Company without unreasonable effort or expense. The Company will furnish to its shareholders annual reports containing audited financial statements and such other periodic reports as it may determine to be appropriate or as may be required by law. (h) Neither the Company nor any person that con- trols, is controlled by or is under common control with the Company will take any action designed to or which might be reasonably expected to cause or result in the stabilization or manipulation of the price of the Common Stock. (i) If the transactions contemplated by this Agreement are consummated, the Underwriter shall retain the $50,000 previously paid to it, and the Company will pay or cause to be paid the following: all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to, the fees and expenses of accountants and counsel for the Company, the preparation, printing, mailing and filing of the Registration Statement (including financial statements and exhibits), Preliminary Prospectuses and the 15 Prospectus, and any amendments or supplements thereto, the printing and mailing of the Selected Dealer Agreement, the issuance and delivery of the Shares to the Underwriter; all taxes, if any, on the issuance of the Shares; the fees, expenses and other costs of qualifying the Shares for sale under the Blue Sky or securities laws of those states in which the Shares are to be offered or sold, the cost of printing and mailing the "Blue Sky Survey" and fees and disbursements of counsel in connection therewith, including those of such local counsel as may have been retained for such purpose; the filing fees incident to securing any required review by the NASD; the cost of furnishing to the Underwriter copies of the Registration Statement, Preliminary Prospectuses and the Prospectus as herein provided; the costs of placing "tombstone advertisements" in any publications which may be selected by the Underwriter, and all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 5(i). In addition, at the Closing Date or the Option Closing Date, as the case may be, the Underwriter will deduct from the payment for the Offered Shares or the Optional Shares three percent (3%) of the gross proceeds of the offering (less the sum of $50,000 previously paid to the Underwriter), as payment for the Underwriter's non-accountable expense allowance relating to the transactions contemplated hereby, which amount will include the fees and expenses of counsel for the Underwriter. (j) If the transactions contemplated by this Agreement or related hereto are not consummated for any reason, then the Underwriter may retain only an amount equal to its accountable out-of-pocket expenses up to the sum of $50,000 previously paid to it; provided, however, that if the Company shall terminate this Agreement pursuant to Section 10(a) hereof or if the Underwriter shall terminate this Agreement pursuant to Sections 6 (except Section 6(g) and except if the failure to satisfy the conditions set forth in Section 6 results from the failure of the underwriting arrangements to satisfy the requirements of the NASD or from objection thereto by the Commission or the NASD), 10(b)(i) or 10(b)(ii) hereof, then the Company will reimburse the Underwriter only for its accountable out-of-pocket expenses up to a maximum of $75,000, less such $50,000. In no event, however, will the Underwriter, in the event the offering is terminated, be entitled to retain or receive more than an amount equal to its actual accountable out-of-pocket expenses. (k) The Company intends to apply the net proceeds from the sale of the Shares for the purposes set forth in the Prospectus. No portion of the net proceeds from the sale of the Shares will be used to repay any indebtedness other than the repayment of $1,000,000 to Hayashibara Biochemical Labaratories, 16 Inc. The Company will file with the Commission all required reports on Form SR in accordance with the provisions of Rule 463 promulgated under the Act and will provide a copy of each such report to the Underwriter and its counsel. (l) During the period of twelve (12) months from the date hereof, none of the Company's officers, directors or security holders, will offer for sale or sell or otherwise dispose of, directly or indirectly, any Securities of the Company, in any manner whatsoever, whether pursuant to Rule 144 of the Regulations or otherwise, without the prior written consent of the Underwriter. The Company will deliver to the Underwriter the undertakings as of the date hereof of its officers, directors and security holders to this effect. (m) The Company will not file any registration statement relating to the offer or sale of any of the Company's securities, including any registration statement on Form S-8, during the twelve (12) months following the date hereof without the Underwriter's prior written consent. (n) The Company maintains and will continue to maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (o) The Company will use its best efforts to maintain the listing of the Shares on NASDAQ and, if so qualified, on the National Market System of NASDAQ for so long as the Shares are qualified for such listing. (p) The Company will, concurrently with the Effective Date, register the class of equity securities of which the Shares are a part under Section 12(g) of the Exchange Act and the Company will maintain the registration for a minimum of five years after the Effective Date. (q) Subject to the sale of the Offered Shares, the Underwriter and its successors will have the right to designate a nominee for election, at its or their option, either as a member of or a non-voting advisor to the Board of Directors of the Company, and the Company will use its best efforts to cause such nominee to 17 be elected and continued in office as a director of the Company or as such advisor until the expiration of five years from the Effective Date. Each of the Company's current officers, directors and [security holders] [Principal Shareholders] agrees to vote all of the Common Shares owned by such person so as to elect and continue in office such nominee of the Underwriter. Following the election of such nominee as a director or advisor, such person shall receive no more or less compensation than is paid to other non-officer directors of the Company for attendance at meetings of the Board of Directors of the Company and shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings including, but not limited to, food, lodging and transportation. The Company agrees to indemnify and hold such director or advisor harmless, to the maximum extent permitted by law, against any and all claims, actions, awards and judgments arising out of his service as a director or advisor and, in the event the Company maintains a liability insurance policy affording coverage for the acts of its officers and directors, to include such director or advisor as an insured under such policy. The rights and benefits of such indemnification and the benefits of such insurance shall, to the extent possible, extend to the Underwriter insofar as it may be or may be alleged to be responsible for such director or advisor. The Company will deliver to the Underwriter the undertakings as of the date hereof of its current officers, directors and security holders to vote their shares of Common Stock in accordance with the provisions of this Section 5(q). If the Underwriter does not exercise its option to designate a member of or advisor to the Company's Board of Directors, the Underwriter shall nonetheless have the right to send a representative (who need not be the same individual from meeting to meeting) to observe each meeting of the Board of Directors. The Company agrees to give the Underwriter notice of each such meeting and to provide the Underwriter with an agenda and minutes of the meeting no later than it gives such notice and provides such items to the directors. (r) The Company agrees to employ the Underwriter or a designee of the Underwriter as a financial consultant on a non-exclusive basis for a period of three years from the Closing Date, pursuant to a separate written consulting agreement between the Company and the Underwriter and/or such designee, at an annual rate of Thirty Thousand Dollars ($30,000) (exclusive of any accountable out-of-pocket expenses) payable in full in advance, with the first payment to be made on the Closing Date. In addition, the consulting agreement shall provide that the Company will pay the Underwriter a finder's fee in the event that the Underwriter originates a merger, acquisition, joint venture or other transaction to which the Company is a party. The Company further 18 agrees to deliver a duly and validly executed copy of said consulting agreement, in form and substance acceptable to the Underwriter, on the Closing Date. (s) The Company shall retain a transfer agent for the Common Shares, reasonably acceptable to the Underwriter, for a period of five years following the Effective Date. In addition, for a period of five years from the Effective Date, the Company, at its own expense, shall cause such transfer agent to provide the Underwriter, if so requested in writing, with copies of the Company's daily transfer sheets and when requested by the Underwriter, a current list of the Company's security holders, including a list of the beneficial owners of securities held by a depository trust company and other nominees. (t) The Company hereby agrees, at its sole cost and expense, to supply and deliver to the Underwriter, within a reasonable period from the date hereof, four bound volumes, including the Registration Statement, as amended or supplemented, all exhibits to the Registration Statement, the Prospectus and all other underwriting documents. (u) The Company shall, as of the date hereof, have applied for listing in Standard & Poor's Corporation Records Service (including annual report information) or Moody's Industrial Manual (Moody's OTC Industrial Manual not being sufficient for these purposes) and shall use its best efforts to have the Company listed in such manual at or prior to the Effective Date and shall maintain such listing for a period of five years from the Effective Date. (v) For a period of five years from the Effective Date, the Company shall provide the Underwriter, on a not less than annual basis, with internal forecasts setting forth projected results of operations for each quarterly and annual period in the two fiscal years following the respective dates of such forecasts. Such forecasts shall be provided to the Underwriter more frequently than annually if prepared more frequently by management, and revised forecasts shall be prepared and provided to the Underwriter when required to reflect more current information, revised assumptions or actual results that differ materially from those set forth in the forecasts. (w) For a period of five (5) years from the Effective Date, or until such earlier time as the Common Shares are listed on the New York Stock Exchange or the American Stock Exchange, the Company shall cause its legal counsel to provide the Underwriter with a list, to be updated at least annually, of those states in which the Common Shares may be traded in non-issuer transactions under the Blue Sky laws of the 50 states. 19 (x) For a period of five years from the Effective Date, the Company shall continue to retain Ernst & Young LLP (or such other nationally recognized accounting firm acceptable to the Underwriter) as the Company's independent public accountants. (aa) For a period of five years from the Effective Date, the Company, at its expense, shall cause its independent certified public accountants, as described in Section 5(y) above, to review (but not audit) the Company's financial statements for each of the first three fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's 10-QSB quarterly report and the mailing of quarterly financial information to stockholders. (ab) For a period of three (3) years following the Effective Date, the Company will not, without the Underwriter's prior written consent, increase or authorize an increase in the compensation of Joseph Cummins, Charles Hughes or Alan Richards without the prior written approval of the Underwriter, which such approval shall be predicated upon, among other things (i) the performance of the Company, (ii) the performance of the employee, and (iii) inflationary trends and other economic conditions; further, the Company and Joseph Cummins shall have entered into an amendment to his employment agreement extending its term to a date which is at least three (3) years after the Effective Date; (ac) For a period of twenty-five days from the Effective Date, the Company will not issue press releases or engage in any other publicity without the Underwriter's prior written consent, other than normal and customary releases issued in the ordinary course of the Company's business or those releases required by law. (ad) The Company will retain a financial public relations firm reasonably acceptable to the Underwriter; (ae) For a period of three (3) years following the Effective Date, the Company will promptly submit to the Underwriter copies of all accountants' management reports and similar correspondence between the Company's accountants and the Company; (af) For a period of three (3) years following the Effective Date, the Company will not offer or sell any of its securities pursuant to Regulation S without the prior written consent of the Underwriter; and (ag) For a period of four (4) years following the Effective Date, the Company will provide to the Underwriter ten (10) days written notice prior to any issuance by the Company of 20 any equity securities or securities exchangeable for or convertible into equity securities of the Company, except for (i) shares of Common Stock issuable upon exercise of currently outstanding options and warrants or conversion of currently outstanding convertible securities and (ii) options available for future grant pursuant to any stock option plan in effect on the Effective Date. 6. Conditions of the Underwriter's Obligation to Purchase Shares from the Company. The obligation of the Underwriter to purchase and pay for the Offered Shares which it has agreed to purchase from the Company is subject (as of the date hereof and the Closing Date) to the accuracy of and compliance in all material respects with the representations and warranties of the Company herein, to the accuracy of the statements of the Company or its officers made pursuant hereto, to the performance in all material respects by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement will have become effective not later than ____.M., New York City time, on the day following the date of this Agreement, or at such later time or on such later date as the Underwriter may agree to in writing; prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement will have been issued and no proceedings for that purpose will have been initiated or will be pending or, to the best of the Underwriter's or the Company's knowledge, will be contemplated by the Commission; and any request on the part of the Commission for additional information will have been complied with to the satisfaction of Underwriter's Counsel. (b) At the time that this Agreement is executed and at the Closing Date, there will have been delivered to the Underwriter a signed opinion of Lowenthal, Landau, Fischer & Bring, P.C., counsel for the Company ("Company Counsel"), dated as of the date hereof or the Closing Date, as the case may be (and any other opinions of counsel referred to in such opinion of Company Counsel or relied upon by Company Counsel in rendering their opinion), reasonably satisfactory to Underwriter's Counsel, to the effect that: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, with full power and authority, corporate and other, and all licenses, permits, certifications, registrations, approvals, consents and franchises to own or lease and operate its properties and to conduct its business as described in the Registration Statement. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, 21 results of operations, business or properties of the Company. To the best of Company Counsel's knowledge, other than the Subsidiaries the Company has no subsidiaries. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, with full power and authority, corporate and other, and all licenses, permits, certifications, registrations, approvals, consents and franchises to own or lease and operate its properties and to conduct its business as described in the Registration Statement. Each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, results of operations, business or properties of such Subsidiary. The Company owns all of the issued and outstanding shares of capital stock of each Subsidiary, free and clear of any security interests, liens, encumbrances, claims and charges, and all of such shares have been duly authorized and validly issued and are fully paid and nonassessable. (ii) The Company has full power and authority, corporate and other, to execute, deliver and perform this Agreement, the Consulting Agreement and the Underwriter's Warrants and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, the Consulting Agreement and the Underwriter's Warrants by the Company, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms of this Agreement, the Consulting Agreement and the Underwriter's Warrants have been duly authorized by all necessary corporate action, and each of this Agreement and the Consulting Agreement has been duly executed and delivered by the Company. of this Agreement and the Consulting Agreement is (assuming for the purposes of this opinion that it is valid and binding upon the other party thereto) and, when executed and delivered by the Company on the Closing Date, the Underwriter's Warrants will be, valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies and except that enforceability of the indemnification provisions set forth in Section 7 hereof and the contribution provisions set forth in Section 8 hereof may be limited by the federal securities laws or public policy underlying such laws. (iii) The execution, delivery and performance of this Agreement, the Consulting Agreement and the 22 Underwriter's Warrants by the Company, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms of this Agreement, the Consulting Agreement and the Underwriter's Warrants do not, and will not, with or without the giving of notice or the lapse of time, or both, (A) result in a violation of the certificate of incorporation or by-laws of the Company, (B) result in a breach of or conflict with any terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to any indenture, mortgage, note, contract, commitment or other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of the Company's or any Subsidiary's properties or assets are or may be bound or affected; (C) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of the Company's or any Subsidiary's properties or business; or (D) have any effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate its properties and to conduct its business or the ability of the Company to make use thereof. The opinions described in clauses (B) and (D) of this Section 6(b)(iii) may be given to the best of Company Counsel's knowledge. (iv) To the best of Company Counsel's knowledge, no authorization, approval, consent, order, registration, license or permit of any court or governmental agency or body (other than under the Act, the Regulations and applicable state securities or Blue Sky laws) is required for the valid authorization, issuance, sale and delivery of the Shares or the Underwriter's Warrants to the Underwriter, and the consummation by the Company of the transactions contemplated by this Agreement, the Consulting Agreement or the Underwriter's Warrants. (v) The Registration Statement has become effective under the Act; to the best of Company Counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending, threatened or contemplated under the Act or applicable state securities laws. (vi) The Registration Statement and the Prospectus, as of the Effective Date, and each amendment or supplement thereto as of its effective or issue date (except for the financial statements and other financial data included therein or omitted therefrom, as to which Company Counsel need not express an 23 opinion) comply as to form in all material respects with the requirements of the Act and Regulations; and the conditions for use of a registration statement on Form SB-2 have been satisfied by the Company. (vii) The descriptions in the Registration Statement and the Prospectus of statutes, regulations, government classifications, contracts and other documents (including opinions of such counsel); and the response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and, based upon such review, are accurate in all material respects and present fairly the information required to be disclosed, and there are no material statutes, regulations or government classifications, or, to the best of Company Counsel's knowledge, material contracts or documents, of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement, which are not so described or filed as required. None of the material provisions of the contracts or instruments described above violates any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court having jurisdiction over the Company or any Subsidiary or any of their assets or businesses, including, without limitation, those relating to the production, development, research, marketing or commercialization of biologics. (viii) The outstanding Common Shares and outstanding options to purchase Common Shares have been duly authorized and validly issued. The outstanding Common Shares are fully paid and nonassessable. The outstanding options and warrants to purchase Common Shares constitute the valid and binding obligations of the Company, enforceable in accordance with their terms. None of the outstanding Common Shares, options to purchase Common Shares has been issued in violation of the preemptive rights of any shareholder of the Company. None of the holders of the outstanding Common Shares is subject to personal liability solely by reason of being such a holder. The offers and sales of the outstanding Common Shares and outstanding options to purchase Common Shares were at all relevant times either registered under the Act and the applicable state securities or Blue Sky laws or exempt from such registration requirements. The authorized Common Shares and outstanding options to purchase Common Shares conform to the description thereof contained in the Registration Statement and Prospectus. To the best of Company Counsel's knowledge, except as set forth in the Prospectus, no holders of any of the Company's securities has any rights, "demand", "piggyback" or otherwise, to have such securities registered under the Act. (ix) The issuance and sale of the Shares 24 have been duly authorized and, when the Shares have been issued and duly delivered against payment therefor as contemplated by this Agreement, the Shares will be validly issued, fully paid and nonassessable, and the holders thereof will not be subject to personal liability solely by reason of being such holders. The Shares are not subject to preemptive rights of any shareholder of the Company. The certificates representing the Shares are in proper legal form. (x) The issuance and sale of the Common Shares issuable upon exercise of the Underwriter's Warrants have been duly authorized and, when such Common Shares have been duly delivered against payment therefor, as contemplated by the Under- writer's Warrants, such Common Shares will be validly issued, fully paid and nonassessable. Holders of Common Shares issuable upon exercise of the Underwriter's Warrants will not be subject to personal liability solely by reason of being such holders. Neither the Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will be subject to preemptive rights of any shareholder of the Company. The Common Shares issuable upon exercise of the Underwriter's Warrants have been duly reserved for issuance upon exercise of the Underwriter's Warrants in accordance with the provisions of the Underwriter's Warrants. (xi) Upon delivery of the Offered Shares to the Underwriter against payment therefor as provided in this Agreement, the Underwriter (assuming it is a bona fide purchaser within the meaning of the Uniform Commercial Code) will acquire good title to the Offered Shares, free and clear of all liens, encumbrances, equities, security interests and claims. (xii) Assuming that the Underwriter exer- cises the over-allotment option to purchase the Optional Shares and makes payment therefor in accordance with the terms of this Agreement, upon delivery of the Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a bona fide purchaser within the meaning of the Uniform Commercial Code) will acquire good title to the Optional Shares, free and clear of any liens, encumbrances, equities, security interests and claims. (xiii) To the best of Company Counsel's knowledge, there are no claims, actions, suits, proceedings, arbitrations, investigations or inquiries before any governmental agency, court or tribunal, foreign or domestic, or before any private arbitration tribunal, pending or threatened against the Company or any Subsidiary, or involving the Company's or any Subsidiary's properties or business, other than as described in the Prospectus, such description being accurate, and other than litigation incident to the kind of business conducted by the Company which, individually and in the aggregate, is not material. 25 (xiv) The Company and each Subsidiary each owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, service marks, copyrights, rights, trade secrets, confidential information, processes and formulations used or proposed to be used in the conduct of its business as described in the Prospectus (collectively the "Intangibles"); to the best of Company Counsel's knowledge, neither the Company nor any Subsidiary has infringed or is infringing with the rights of others with respect to Intangibles; and, to the best of Company Counsel's knowledge, neither the Company nor any Subsidiary has received any notice of conflict with the asserted rights of others with respect to Intangibles which might, singly or in the aggregate, materially adversely affect its business, results of operations or financial condition and such counsel is not aware of any licenses with respect to the Intangibles which are required to be obtained by the Company. The opinions described in this Section 6(b)(xiv) may be given by Company Counsel in reliance on the opinion of an attorney, reasonably acceptable to Underwriter's Counsel, practicing in the patent area. (xv) Company Counsel has participated in reviews and discussions in connection with the preparation of the Registration Statement and the Prospectus, and in the course of such reviews and discussions and such other investigation as Company Counsel deemed necessary, no facts came to its attention which lead it to believe that (A) the Registration Statement (except as to the financial statements and other financial data contained therein, as to which Company Counsel need not express an opinion), on the Effective Date, contained any untrue statement of a material fact required to be stated therein or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or that (B) the Prospectus (except as to the financial statements and other financial data contained therein, as to which Company Counsel need not express an opinion) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering its opinion, Company Counsel may rely upon (A) opinions of local counsel acceptable to Underwriter's Counsel with respect to matters relating to the laws of any jurisdiction other than New York or the United States of America; and (B) the certificates of government officials and officers of the Company as to matters of fact, provided that Company Counsel shall state that they have no reason to believe, and do not believe, that they are not justified in relying upon such opinions 26 or such certificates of government officials and officers of the Company as to matters of fact, as the case may be. The opinion letter delivered pursuant to this Section 6(b) shall state that any opinion given therein qualified by the phrase "to the best of our knowledge" is being given by Company Counsel after due investigation of the matters therein discussed. (c) At the Closing Date, there will have been delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing Date, to the effect that the opinions delivered pursuant to Section 6(b) hereof appear on their face to be appropriately responsive to the requirements of this Agreement, except to the extent waived by the Underwriter, specifying the same, and with respect to the incorporation and legal existence of the Company, the validity of the Shares sold by the Company, the validity of this Agreement (subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies and except that enforceability of the indemnification provisions set forth in Section 7 hereof and the contribution provisions set forth in Section 8 hereof may be limited by the federal securities laws or public policy underlying such laws) and such other related matters as the Underwriter may require. (d) At the Closing Date (i) the Registration State- ment and the Prospectus and any amendments or supplements thereto will contain all material statements which are required to be stated therein in accordance with the Act and the Regulations and will conform in all material respects to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there will not have been any material adverse change in the financial condition, results of operations or general affairs of the Company from that set forth or contemplated in the Registration Statement and the Prospectus, except changes which the Registration Statement and the Prospectus indicates might occur after the Effective Date; (iii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no material transaction, contract or agreement entered into by the Company, other than in the ordinary course of business, which would be required to be set 27 forth in the Registration Statement and the Prospectus, other than as set forth therein; and (iv) no action, suit or proceeding at law or in equity will be pending or, to the best of the Company's knowledge, threatened against the Company which is required to be set forth in the Registration Statement and the Prospectus, other than as set forth therein, and no proceedings will be pending or, to the best of the Company's knowledge, threatened against the Company before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially adversely affect the business, property, financial condition or results of operations of the Company, other than as set forth in the Registration Statement and the Prospectus. At the Closing Date, there will be delivered to the Underwriter a certificate signed by the Chairman of the Board or the President or a Vice President of the Company, dated the Closing Date, evidencing compliance with the provisions of this Section 6(d) and stating that the representations and warranties of the Company set forth in Section 4 hereof were accurate and complete in all material respects when made on the date hereof and are accurate and complete in all material respects on the Closing Date as if then made; that the Company has performed all covenants and complied with all conditions required by this Agreement to be performed or complied with by the Company prior to or as of the Closing Date; and that, as of the Closing Date, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or, to the best of his knowledge, are contemplated or threatened. In addition, the Underwriter will have received such other and further certificates of officers of the Company as the Underwriter or Underwriter's Counsel may reasonably request. (e) At the time that this Agreement is executed and at the Closing Date, the Underwriter will have received a signed letter from Ernst & Young LLP, dated the date such letter is to be received by the Underwriter and addressed to it, confirming that it is a firm of independent public accountants within the meaning of the Act and Regulations and stating that: (i) insofar as reported on by them, in their opinion, the financial statements of the Company included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable Regulations; (ii) on the basis of procedures and inquiries (not constituting an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus and the latest available unaudited interim financial statements of the Company, if more recent than that appearing in the Registration Statement and Prospectus, inquiries of officers of the Company responsible for financial and accounting matters as to the transactions and events subsequent to the date of the latest 28 audited financial statements of the Company, and a reading of the minutes of meetings of the shareholders, the Board of Directors of the Company and any committees of the Board of Directors, as set forth in the minute books of the Company, nothing has come to their attention which, in their judgment, would indicate that (A) during the period from the date of the latest financial statements of the Company appearing in the Registration Statement and Prospectus to a specified date not more than three business days prior to the date of such letter, there have been any decreases in net current assets or net assets as compared with amounts shown in such financial statements or decreases in net sales or increases in total or per share net loss compared with the corresponding period in the preceding year or any change in the capitalization or long-term debt of the Company, except in all cases as set forth in or contemplated by the Registration Statement and the Prospectus, and (B) the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus, do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles and practices on a basis substantially consistent with the audited financial statements included in the Registration Statement or the Prospectus; and (iii) they have compared specific dollar amounts, numbers of shares, numerical data, percentages of revenues and earnings, and other financial information pertaining to the Company set forth in the Prospectus (with respect to all dollar amounts, numbers of shares, percentages and other financial information contained in the Prospectus, to the extent that such amounts, numbers, percentages and information may be derived from the general accounting records of the Company, and excluding any questions requiring an interpretation by legal counsel) with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter, and found them to be in agreement. (f) There shall have been duly tendered to the Underwriter certificates representing the Offered Shares to be sold on the Closing Date. (g) The NASD shall have indicated that it has no objection to the underwriting arrangements pertaining to the sale of the Shares by the Underwriter. (h) No action shall have been taken by the Commission or the NASD the effect of which would make it improper, at any time prior to the Closing Date or the Option Closing Date, as the case may be, for any member firm of the NASD to execute 29 transactions (as principal or as agent) in the Shares, and no proceedings for the purpose of taking such action shall have been instituted or shall be pending, or, to the best of the Underwriter's or the Company's knowledge, shall be contemplated by the Commission or the NASD. The Company represents at the date hereof, and shall represent as of the Closing Date or Option Closing Date, as the case may be, that it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. (i) The Company meets the current and any existing proposed criteria for inclusion of the Shares in NASDAQ. (j) All proceedings taken at or prior to the Closing Date or the Option Closing Date, as the cas may be, in connection with the authorization, issuance and sale of the Shares shall be reasonably satisfactory in form and substance to the Underwriter and to Underwriter's Counsel, and such counsel shall have been furnished with all such documents, certificates and opinions as they may request for the purpose of enabling them to pass upon the matters referred to in Section 6(c) hereof and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any covenants of the Company, or the compliance by the Company with any of the conditions herein contained. If any of the conditions specified in this Section 6 have not been fulfilled, this Agreement may be terminated by the Underwriter on notice to the Company. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless the Underwriter, each officer, director, partner, employee and agent of the Underwriter, and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions in respect thereof), to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Underwriter and each such person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented) or (ii) in any application or other document executed 30 by the Company, or based upon written information furnished by or on behalf of the Company, filed in any jurisdiction in order to qualify the Shares under the securities laws thereof (hereinafter "application"), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, unless such untrue statement or omission was made in such Registration Statement, Preliminary Prospectus, Prospectus or application in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Underwriter or any such person through the Underwriter expressly for use therein; provided, however, that the indemnity agreement contained in this Section 7(a) with respect to any Preliminary Prospectus will not inure to the benefit of the Underwriter (or to the benefit of any other person that may be indemnified pursuant to this Section 7(a)) if (A) the person asserting any such losses, claims, damages, expenses or liabilities purchased the Shares which are the subject thereof from the Underwriter or other indemnified person; (B) the Underwriter or other indemnified person failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares to such person; and (C) the Prospectus did not contain any untrue statement or alleged untrue statement or omission or alleged omission giving rise to such cause, claim, damage, expense or liability. (b) The Underwriter agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions in respect thereof), to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented) or (ii) in any application (including any application for registration of the Shares under state securities or Blue Sky laws), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the 31 circumstances under which they were made, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Underwriter expressly for use therein. (c) Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against any indemnifying party under this Section 7, the indemnified party will notify the indemnifying party in writing of the commencement thereof, and the indemnifying party will, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel satisfactory to the indemnified party and the payment of expenses) insofar as such action relates to an alleged liability in respect of which indemnity may be sought against the indemnifying party. After notice from the indemnifying party of its election to assume the defense of such claim or action, the indemnifying party shall no longer be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if, in the reasonable judgment of the indemnified party or parties, it is advisable for the indemnified party or parties to be represented by separate counsel, the indemnified party or parties shall have the right to employ a single counsel to represent the indemnified parties who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the indemnified parties thereof against the indemnifying party, in which event the fees and expenses of such separate counsel shall be borne by the indemnifying party. Any party against whom indemnification may be sought under this Section 7 shall not be liable to indemnify any person that might otherwise be indemnified pursuant hereto for any settlement of any action effected without such indemnifying party's consent, which consent shall not be unreasonably withheld. 8. Contribution. To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 7 hereof (subject to the limitations thereof) and it is finally determined, by a judgment, order or decree not subject to further appeal, that such claim for indemnification may not be enforced, even though this Agreement expressly provides for indemnification in such case; or (ii) any indemnified or indemnifying party seeks contribution under the Act, the Exchange Act, or otherwise, then the Company (including, for this purpose, any contribution made by or on behalf of any director of the Company, any officer of the Company who signed the Registration Statement and any controlling person of the Company) as one entity and the Underwriter (including, for this purpose, any contribution by or on behalf of each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or 32 Section 20(a) of the Exchange Act and each officer, director, partner, employee and agent of the Underwriter) as a second entity, shall contribute to the losses, liabilities, claims, damages and expenses whatsoever to which any of them may be subject, so that the Underwriter is responsible for the proportion thereof equal to the percentage which the underwriting discount per Share set forth on the cover page of the Prospectus represents of the initial public offering price per Share set forth on the cover page of the Prospectus and the Company is responsible for the remaining portion; provided, however, that if applicable law does not permit such allocation, then, if applicable law permits, other relevant equitable considerations such as the relative fault of the Company and the Underwriter in connection with the facts which resulted in such losses, liabilities, claims, damages and expenses shall also be considered. The relative fault, in the case of an untrue statement, alleged untrue statement, omission or alleged omission, shall be determined by, among other things, whether such statement, alleged statement, omission or alleged omission relates to information supplied by the Company or by the Underwriter, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement, alleged statement, omission or alleged omission. The Company and the Underwriter agree that it would be unjust and inequitable if the respective obligations of the Company and the Underwriter for contribution were determined by pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages and expenses or by any other method of allocation that does not reflect the equitable considerations referred to in this Section 8. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee and agent of the Underwriter will have the same rights to contribution as the Under-writer, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who has signed the Registration Statement and each director of the Company will have the same rights to contribution as the Company, subject in each case to the provisions of this Section 8. Anything in this Section 8 to the contrary notwithstanding, no party will be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 8 is intended to supersede, to the extent permitted by law, any right to contribution under the Act or the Exchange Act or otherwise available. 9. Survival of Indemnities, Contribution, Warranties and Representations. The respective indemnity and contribution 33 agreements of the Company and the Underwriter contained in Sections 7 and 8 hereof, and the representations and warranties of the Company contained herein shall remain operative and in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of the Underwriter, the Company or any of its directors and officers, or any controlling person referred to in said Sections, and shall survive the delivery of, and payment for, the Shares. 10. Termination of Agreement. (a) The Company, by written or telegraphic notice to the Underwriter, or the Underwriter, by written or telegraphic notice to the Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M., New York City time, on the first full business day after the Effective Date; or (ii) the time when the Underwriter, after the Registration Statement becomes effective, releases the Offered Shares for public offering. The time when the Underwriter "releases the Offered Shares for public offering" for the purposes of this Section 10 means the time when the Underwriter releases for publication the first newspaper advertisement, which is subsequently published, relating to the Offered Shares, or the time when the Underwriter releases for delivery to members of a selling group copies of the Prospectus and an offering letter or an offering telegram relating to the Offered Shares, whichever will first occur. (b) This Agreement, including without limitation, the obligation to purchase the Shares and the obligation to purchase the Optional Shares after exercise of the option referred to in Section 3 hereof, are subject to termination in the absolute discretion of the Underwriter, by notice given to the Company prior to delivery of and payment for all the Offered Shares or the Optional Shares, as the case may be, if, prior to such time, any of the following shall have occurred: (i) the Company withdraws the Registration Statement from the Commission or the Company does not or cannot expeditiously proceed with the public offering; (ii) the representations and warranties in Section 4 hereof are not materially correct or cannot be complied with; (iii) trading in securities generally on the New York Stock Exchange or the American Stock Exchange will have been suspended; (iv) limited or minimum prices will have been established on either such Exchange; (v) a banking moratorium will have been declared either by federal or New York State authorities; (vi) any other restrictions on transactions in securities materially affecting the free market for securities or the payment for such securities, including the Offered Shares or the Optional Shares, will be established by either of such Exchanges, by the Commission, by any other federal or state agency, by action of the Congress or by Executive Order; (vii) trading in any securities of the Company shall have been suspended or halted 34 by any national securities exchange, the NASD or the Commission; (viii) there has been a materially adverse change in the condition (financial or otherwise), prospects or obligations of the Company; (ix) the Company will have sustained a material loss, whether or not insured, by reason of fire, flood, accident or other calamity; (x) any action has been taken by the government of the United States or any department or agency thereof which, in the judgment of the Underwriter, has had a material adverse effect upon the market or potential market for securities in general; or (xi) the market for securities in general or political, financial or economic conditions will have so materially adversely changed that, in the judgment of the Underwriter, it will be impracticable to offer for sale, or to enforce contracts made by the Underwriter for the resale of, the Offered Shares or the Optional Shares, as the case may be. (c) If this Agreement is terminated pursuant to Section 6 hereof or this Section 10 or if the purchases provided for herein are not consummated because any condition of the Underwriter's obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company to comply with any of the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to or does not perform all of its obligations under this Agreement, the Company will not be liable to the Underwriter for damages on account of loss of anticipated profits arising out of the transactions covered by this Agreement, but the Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this Agreement. 11. Information Furnished by the Underwriter to the Company. It is hereby acknowledged and agreed by the parties hereto that for the purposes of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8 hereof, the only information given by the Underwriter to the Company for use in the Prospectus are the statements set forth in the last sentence of the last paragraph on the cover page, the statement appearing in the last paragraph on page __ with respect to stabilizing the market price of Shares, the information in the __ paragraph on page __ with respect to concessions and reallowances, and the information in the ___ paragraph on page ___ with respect to the determination of the public offering price, as such information appears in any Preliminary Prospectus and in the Prospectus. 12. Notices and Governing Law. All communications here- under will be in writing and, except as otherwise provided, will be delivered at, or mailed by certified mail, return receipt requested, or telegraphed to, the following addresses: if to the Underwriter, to 650 Fifth Avenue, New York, New York 10019, Attention: William G. Walters, with a copy to Tenzer Greenblatt 35 LLP, Attention: Robert J. Mittman, Esq., 405 Lexington Avenue, New York, New York 10174; if to the Company, addressed to it at 800 West 9th Avenue, Amarillo, Texas 79101, Attention: Dr. Joseph Cummins, with a copy to Lowenthal, Landau, Fischer & Bring, 250 Park Avenue, New York, New York 10177, Attention: Robert E. Fischer, Esq. This Agreement shall be deemed to have been made and delivered in New York City and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York. The Company (1) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (2) waives any objection which the Company may have now or hereafter to the venue of any such suit, action or proceeding, and (3) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. The Company further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agrees that service of process upon the Company mailed by certified mail to the Company's address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding. 13. Parties in Interest. This Agreement is made solely for the benefit of the Underwriter, the Company and, to the extent expressed, any person controlling the Company or the Underwriter, each officer, director, partner, employee and agent of the Underwriter, the directors of the Company, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns, and, no other person will acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" will not include any purchaser of the Shares from the Underwriter, as such purchaser. 36 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement between the Company and the Underwriter in accordance with its terms. Very truly yours, AMARILLO BIOSCIENCES, INC. By_______________________ Name: Title: Confirmed and accepted in New York, N.Y., as of the date first above written: WHALE SECURITIES CO., L.P. By: Whale Securities Corp., General Partner By__________________________ Name: William G. Walters Title: Chairman Each of the undersigned hereby accepts and agrees to be bound by the provisions of Sections 5(l) of this Agreement, as the same may be applicable to such person as an officer, director or shareholder of the Company. ________________________________________ ________________________________________ ________________________________________ ________________________________________ 37 EX-3.1 3 RESTATED ARTICLES OF INCORPORATION AMARILLO CELL CULTURE COMPANY, INCORPORATED RESTATED ARTICLES OF INCORPORATION ARTICLE I AMARILLO CELL CULTURE COMPANY, INCORPORATED, pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts Restated Articles of Incorporation which accurately copy the Articles of Incorporation and all amendments thereto that are in effect to date and as further amended by such Restated Articles of Incorporation as hereinafter set forth and which contain no other change in any provision thereof. ARTICLE II The Articles of Incorporation of the Corporation are amended by the Restated Articles of Incorporation as follows: Article Four is amended in its entirety, to read as follows: "ARTICLE FOUR The Corporation shall have authority to issue ten million (10,000,000) shares of capital stock, one cent ($.01) par value. No holder of shares of any class of the Corporation shall have the preemptive right to subscribe for or acquire additional shares of the Corporation of the same or any other class, whether such shares shall be hereby or hereafter authorized; and no holder of shares of any class of the Corporation shall have any right to acquire any shares which may be held in the Treasury of the Corporation. All such additional or Treasury shares may be sold for such consideration, at such time, and to such person or persons as the Board of Directors may from time to time determine. The Corporation may purchase, directly or indirectly, its own shares to the extent of the aggregate of unrestricted capital surplus available therefor and unrestricted reduction surplus available therefor." ARTICLE III The amendment made by these Restated Articles of Incorporation has been effected in conformity with the provisions of the Texas Business Corporation Act and such Restated Articles of Incorporation and the amendment made by the Restated Articles of Incorporation were duly adopted by the Shareholders of the Corporation on the 11th day of May, 1993. ARTICLE IV The number of shares of the Corporation outstanding at the time of such adoption was 250,466; and the number of shares entitled to vote thereon was 250,466. The number of shares voted for such amendment was 233,802, and the number of shares voted against such amendment was zero. ARTICLE V The amendment, as adopted by the Shareholders of the Corporation, provides for an exchange of issued shares, on a ten-for-one basis, to be effected in the following manner: Upon filing of the Restated Articles of Incorporation with the Secretary of State of the State of Texas, the Corporation shall notify each Shareholder of such filing, and shall request that each Shareholder return to the Corporation all certificates evidencing shares of stock in the Corporation. Upon receipt by the Corporation from each Shareholder of the certificate or certificates evidencing that Shareholder's stock in the Corporation (or in lieu thereof, upon receipt of a properly executed and notarized Affidavit of Loss and Indemnity, in form acceptable to the Corporation), the Corporation shall re-issue to that Shareholder a certificate evidencing a number of shares which shall equal ten times the number of shares evidenced by the surrendered certificate(s). The amendment effects no change in the par value of the authorized stock of the Corporation. ARTICLE VI The amendment effects a change in the amount of stated capital of the Corporation, as the amendment increases the amount of stated capital of the Corporation to an amount which is ten times the pre-amendment amount. The amount of stated capital, as changed by such amendment, is $25,046.60. -2- ARTICLE VII The Articles of Incorporation and all amendments and supplements thereto are hereby superseded by the following Restated Articles of Incorporation which accurately copy the entire text thereof and as amended as above set forth: ARTICLE ONE The name of the Corporation is AMARILLO CELL CULTURE COMPANY, INCORPORATED. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose or purposes for which the Corporation is organized are: (1) To transact all lawful business of every kind and character for which a Corporation may be incorporated under the Texas Business Corporate Act. (2) To prepare, write, make, provide, record, transcribe, computerize, and/or generate data, information, articles, papers, forms, projections, figures, and the application of the same, as well as to disseminate and publish such materials and documentation thereof, and to market and sell the same. (3) To develop, write, make, buy, file, prepare, license, sublicense patents related to medicine, veterinary medicine, and/or agriculture and to market and sell the same. (4) To make, have made, use, sell or otherwise transfer substances intended for human or nonhuman administration which, or the use or manufacture of which, is covered in whole or in part by a claim of a Licensed Patent in the country of manufacture,use, or sale. (5) To engage for profit in the business of professional consultations in such form and manner as will serve the medical, veterinary medical, agricultural and/or livestock industries, as well as related industries. (6) To purchase, own, hold, operate, rent, lease, sell, convey and deal in real property, personal property and services incidental to the purposes of the Corporation, subject to Part Four, Texas Miscellaneous Corporation Laws Act. ARTICLE FOUR The Corporation shall have authority to issue ten million (10,000,000) shares of capital stock, one cent ($.01) par value. No holder of shares of any class of the Corpo- ration shall have the preemptive right to subscribe -3- for or acquire additional shares of the Corporation of the same or any other class, whether such shares shall be hereby or hereafter authorized; and no holder of shares of any class of the Corporation shall have any right to acquire any shares which may be held in the Treasury of the Corporation. All such additional or Treasury shares may be sold for such consideration, at such time, and to such person or persons as the Board of Directors may from time to time determine. The Corporation may purchase, directly or indirectly, its own shares to the extent of the aggregate of unrestricted capital surplus available therefor and unrestricted reduction surplus available therefor. ARTICLE FIVE The Corporation will not commence business until it has received for the issuance of its shares a consideration of the value of One Thousand Dollars ($1,000), consisting of money, labor done or property actually received. ARTICLE SIX The address of the Corporation's registered office is 6666 Amarillo Boulevard West, Amarillo, Texas 79106, Potter County, Texas, and the name of its registered agent at such address is JOSEPH M. CUMMINS. DATED this ____ day of May, 1993. AMARILLO CELL CULTURE COMPANY, INCORPORATED By: /s/ Edward Sherwood ------------------------------- Edward Sherwood, President THE STATE OF TEXAS ss. COUNTY OF POTTER ss. BEFORE ME, a notary public, on this day personally appeared EDWARD SHERWOOD, known to me to be the person whose name is subscribed to the foregoing document and, being by me first duly sworn, declares that the statements therein contained are true and correct. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of __________________, 1993. /s/ ------------------------------- Notary Public, State of Texas My Commission Expires:_________ -4- EX-3 4 EXHIBIT 3.2 AMARILLO CELL CULTURE COMPANY, INCORPORATED RESTATED ARTICLES OF INCORPORATION ARTICLE I AMARILLO CELL CULTURE COMPANY, INCORPORATED, pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts Restated Articles of Incorporation which accurately copy the Articles of Incorporation and all amendments thereto that are in effect to date and as further amended by such Restated Articles of Incorporation as hereinafter set forth and which contain no other change in any provision thereof. ARTICLE II The Articles of Incorporation of the Corporation are amended by the Restated Articles of Incorporation as follows: Article One is amended in its entirety, to read as follows: "ARTICLE ONE The name of the Corporation is AMARILLO BIOSCIENCES, INC." Article Four is amended, by adding the following as the last paragraph of said Article Four: "The right to cumulate votes in the election of Directors is expressly pro- hibited." Article Six is amended in its entirety, to read as follows: "ARTICLE SIX The address of the Corporation's registered office is 800 West 9th Street, Amarillo, Texas 79101, and the name of its registered agent at such address is Joseph M. Cummins." ARTICLE III The amendment made by these Restated Articles of Incorporation has been effected in conformity with the provisions of the Texas Business Corporation Act and such Restated Articles of Incorporation and the amendment made by the Restated Articles of Incorporation were duly adopted by the Shareholders of the Corporation on the 14th day of May, 1996. -1- ARTICLE IV The number of shares of the Corporation outstanding at the time of such adoption was 3,035,232; and the number of shares entitled to vote thereon was 3,035,232. The number of shares voted for such amendment was 2,170,524, and the number of shares voted against such amendment was 317,520. ARTICLE V The amendment effects no change in the amount of stated capital of the Corporation. ARTICLE VI A new Article Seven is added to the Articles of Incorporation, stating the current names and addresses of the Directors of the Corporation, which Article VII shall read as follows: "ARTICLE VII The names and addresses of the Directors of the Corporation are: NAME ADDRESS Joseph M. Cummins 800 W. 9th Amarillo, TX 79101 Katsuaki Hayashibara 800 W. 9th Amarillo, TX 79101 James Cook 800 W. 9th Amarillo, TX 79101 Dennis Moore 800 W. 9th Amarillo, TX 79101 Steve Chen 800 W. 9th Amarillo, TX 79101 Dr. James Page 800 W. 9th Amarillo, TX 79101 ARTICLE VII The Articles of Incorporation and all amendments and supplements thereto are hereby superseded by the following Restated Articles of Incorporation which accurately copy the entire text thereof and as amended as above set forth: -2- ARTICLE ONE The name of the Corporation is AMARILLO BIOSCIENCES, INC. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose or purposes for which the Corporation is organized are: (1) To transact all lawful business of every kind and character for which a Corporation may be incorporated under the Texas Business Corporate Act. (2) To prepare, write, make, provide, record, transcribe, computerize, and/or generate data, information, articles, papers, forms, projections, figures, and the application of the same, as well as to disseminate and publish such materials and documentation thereof, and to market and sell the same. (3) To develop, write, make, buy, file, prepare, license, sublicense patents related to medicine, veterinary medicine, and/or agriculture and to market and sell the same. (4) To make, have made, use, sell or otherwise transfer substances intended for human or nonhuman administration which, or the use or manufacture of which, is covered in whole or in part by a claim of a Licensed Patent in the country of manufacture,use, or sale. (5) To engage for profit in the business of professional consultations in such form and manner as will serve the medical, veterinary medical, agricultural and/or livestock industries, as well as related industries. (6) To purchase, own, hold, operate, rent, lease, sell, convey and deal in real property, personal property and services incidental to the purposes of the Corporation, subject to Part Four, Texas Miscellaneous Corporation Laws Act. ARTICLE FOUR The Corporation shall have authority to issue ten million (10,000,000) shares of capital stock, one cent ($.01) par value. No holder of shares of any class of the Corporation shall have the preemptive right to subscribe for or acquire additional shares of the Corporation of the same or any other class, whether such shares shall be hereby or hereafter authorized; and no holder of shares of any class of the Corporation shall have any right to acquire any shares which may be held in the Treasury of the Corporation. All such additional or Treasury shares may be sold for such consideration, at such time, and to such person or persons as the Board of Directors may from time to time determine. -3- The Corporation may purchase, directly or indirectly, its own shares to the extent of the aggregate of unrestricted capital surplus available therefor and unrestricted reduction surplus available therefor. The right to cumulate votes in the election of directors is expressly prohibited. ARTICLE FIVE The Corporation will not commence business until it has received for the issuance of its shares a consideration of the value of One Thousand Dollars ($1,000), consisting of money, labor done or property actually received. ARTICLE SIX The address of the Corporation's registered office is 800 West 9th Street, Amarillo, Texas 79101, and the name of its registered agent at such address is JOSEPH M. CUMMINS. ARTICLE SEVEN The names and addresses of the Directors of the Corporation are: NAME ADDRESS Joseph M. Cummins 800 W. 9th Amarillo, TX 79101 Katsuaki Hayashibara 800 W. 9th Amarillo, TX 79101 James Cook 800 W. 9th Amarillo, TX 79101 Dennis Moore 800 W. 9th Amarillo, TX 79101 Steve Chen 800 W. 9th Amarillo, TX 79101 Dr. James Page 800 W. 9th Amarillo, TX 79101 DATED this 16th day of May, 1996. AMARILLO BIOSCIENCES, INC. By:/s/ Joseph M. Cummins ---------------------------- Joseph M. Cummins, President -4- THE STATE OF TEXAS ss. COUNTY OF POTTER ss. BEFORE ME, a notary public, on this day personally appeared JOSEPH M. CUMMINS, known to me to be the person whose name is subscribed to the foregoing document and, being by me first duly sworn, declares that the statements therein contained are true and correct. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 16th day of May, 1996. /s/ Mary Sehorn ------------------------------- Notary Public, State of Texas My Commission Expires: 6-1-97 -5- EX-3.3 5 BYLAWS BYLAWS OF AMARILLO CELL CULTURE COMPANY, INCORPORATED ARTICLE I SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of shareholders shall be held on the 2nd Tuesday in May of each year at 10:00 A.M. if not a legal holiday, and if a legal holiday, then on the next succeeding business day, or at such other time or on such other date as may be fixed by resolution of the Board of Directors, for the purpose of electing directors. Any business may be transacted at an annual meeting, except as otherwise provided by law or by these Bylaws. Section 2. Special Meeting. A special meeting of shareholders may be called at any time by the holders of at least ten percent (10%) of the outstanding stock entitled to be voted at such meeting, by the Board of Directors, by the Chairman of the Board, if any, or by the President. Only such business shall be transacted at a special meeting as may be stated or indicated in the notice of such meeting. Section 3. Place. The annual meeting of shareholders may be held at any place within or without the State of Texas designated by the Board of Directors. Special meetings of shareholders may be held at any place within or without the State of Texas designated by the Board of Directors or, in the absence of such designation, by the chief executive officer. Any meeting may be held at any place within or without the State of Texas designated in a waiver of notice of such meeting signed by shareholders. Meetings of shareholders shall be held at the principal office of the Corporation unless another place is designated for meetings in the manner provided herein. Section 4. Notice. Written or printed notice stating the place, day and hour of each meeting of shareholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at such meeting. Section 5. Quorum. The holders of at least a majority of the outstanding stock entitled to vote thereat and present in person or by proxy, shall constitute a quorum. Except as otherwise required by law, the Articles of Incorporation or these Bylaws, the act of a majority of the stock at any meeting at which a quorum is present shall be the act of the shareholders' meeting. The shareholders present at any -2- meeting, though less than a quorum, may adjourn the meeting, and any business may be transacted at the adjournment that could be transacted at the original meeting. No notice of adjournment, other than the announcement at the meeting, need be given. Section 6. Proxies. At all meetings of shareholders, a shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable or unless otherwise made irrevocable by law. Section 7. Voting of Shares. Each outstanding share of a class entitled to vote upon a matter submitted to a vote at a meeting of shareholders shall be entitled to one vote on such matter. Section 8. List of Shareholders. A complete list of shareholders entitled to vote at each shareholders' meeting, arranged in alphabetical order, with the address of and number of shares held by each, shall be prepared by the Secretary and filed at the registered office of the -3- Corporation and shall be subject to inspection by any shareholder during usual business hours for a period of ten (10) days prior to such meeting and shall be produced at such meeting and at all times during such meeting be subject to inspection by any shareholder. Section 9. Action Without Meeting. Any action permitted or required by law, by these Bylaws or by the Articles of Incorporation of the Corporation to be taken at a meeting of shareholders of the Corporation may be taken without a meeting or by means of conference telephone as provided in Article VI, Section 6 of the Bylaws. ARTICLE II BOARD OF DIRECTORS Section 1. Number and Term of Office. The business and property of the Corporation shall be managed by the Board of Directors, and subject to the restrictions imposed by law, the Articles of Incorporation or by these Bylaws, they may exercise all the powers of the Corporation. The Board of Directors shall consist of not less than one nor more than thirty directors, as so determined from time to time by resolution of the Board of Directors. Within the above limits, the number of directors may be increased or decreased (provided such decrease does not -4- shorten the term of any incumbent director) from time to time by resolution of the Board of Directors. Each director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified. Directors need not be shareholders nor residents of Texas. Any director may be removed from office, with or without cause, by a majority vote of the shareholders at any meeting at which a quorum of shareholders is present; provided that, if the Articles of Incorporation do not expressly deny to shareholders the right of cumulative voting for the election of directors and if less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. In case of any increase in the number of directors, the additional directors shall be elected at an annual meeting or at a special meeting of shareholders called for that purpose. -5- Section 2. Meetings of Directors. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by statute, in such place or places in the State of Texas, or outside the State of Texas, as the Board of Directors may from time to time determine. Section 3. First Meeting. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the shareholders, and no notice of such meeting shall be necessary. Section 4. Election of Officers. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held next after the annual meeting of shareholders, the Board of Directors shall proceed to the election of the officers of the Corporation. Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required. Section 6. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the -6- Chairman of the Board, if any, the President, or by a majority of the directors for the time being in office. Each such special meeting shall be held at such time and place as shall be designated by the officer or directors calling such meeting. Section 7. Notice. The Secretary shall give notice of each special meeting in person, or by mail or telegraph to each director at least 24 hours before the time of such meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Notice may also be waived in writing as provided in Article VI, Section 4 of these Bylaws. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or written waiver of notice of such meeting. Section 8. Quorum. A majority of the directors fixed in the manner provided in these Bylaws shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there be less than a quorum present, a majority of those present or any director solely present may adjourn the meeting from time to time without -7- further notice. The act of a majority of the directors present at a meeting at which a quorum is in attendance shall be the act of the Board of Directors, unless the act of a greater number is required by the Articles of Incorporation or by these Bylaws. Section 9. Order of Business. At meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board may determine. At meetings of the Board of Directors, the Chairman of the Board, if any, shall preside. In the absence of the Chairman of the Board, the President shall preside, and in the absence of the President, a chairman shall be chosen by the Board from among the directors present. The Secretary of the Corporation shall act as secretary of the meetings of the Board of Directors, but in the absence of the Secretary, the presiding officer may appoint any person to act as secretary of the meeting. Section 10. Compensation. Directors as such shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at such regular or special meetings of the Board; provided, that nothing contained herein shall be construed to preclude any director -8- from serving the Corporation in any other capacity or receiving compensation therefor. Section 11. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 12. Action Without Meeting. Any action permitted or required by law, by these Bylaws or by the Articles of Incorporation of the Corporation, to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting or by means of conference telephone as provided in Article VI, Section 6 of these Bylaws. Section 13. Committees of Directors. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an -9- executive committee and one or more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors, except that no such committee shall have the authority of the Board of Directors in reference to amending the Articles of Incorporation, approving a merger or consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, amending, altering or repealing the Bylaws of the Corporation or adopting new Bylaws for the Corporation, filling vacancies in or removing members of the Board of Directors or any such committee, fixing the compensation of any member of such committee or altering or repealing any resolution of the Board of Directors which by its term provides that it shall not be so amendable or repealable, and, unless such resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of shares of the Corporation. -10- ARTICLE III OFFICERS Section 1. Number, Titles and Term of Office. The officers of the Corporation shall be a President, one or more Vice-Presidents, a Secretary, a Treasurer and, if the Board of Directors so elects, a Chairman of the Board and such other officers as the Board of Directors may from time to time elect or appoint. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. One person may hold more than one office, except that the President shall not hold the office of Secretary. No officer, except the Chairman of the Board, must be a director. Section 2. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Vacancies. A vacancy in the office of any officer may be filled by a vote of a majority of the directors. -11- Section 4. Powers and Duties of the Chief Executive Officer. The President shall be the chief executive officer of the Corporation unless the Board of Directors designates the Chairman of the Board as chief executive officer. Subject to the control of the Board of Directors, the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; he may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors. Section 5. Powers and Duties of the Chairman of the Board. If elected, the Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors; and he shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the Board of Directors. Section 6. Powers and Duties of the President. The President, if any, shall have the authority to agree upon -12- and execute all leases, contracts, evidences of indebtedness, and other obligations in the name of the Corporation; unless the Board of Directors otherwise determines, he shall, in the absence of the Chairman of the Board of if there be no Chairman of the Board, preside at all meetings of the stockholders and (should he be a director) of the Board of Directors; and he shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors. Section 7. Vice-Presidents. In the absence of the Chairman of the Board, if any, or President, or in the event of their inability or refusal to act, a Vice-President designated by the Board of Directors shall perform the duties of the Chairman of the Board, if any, or the President, as the case may be, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board, if any, or the President. In the absence of a designation by the Board of Directors of a Vice-President to perform the duties of the Chairman of the Board, if any, or President, the Vice-President who is senior in terms of time as a Vice-President of the Corporation shall so act. The Vice-Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. -13- Section 8. Treasurer. The Treasurer shall have custody of all the funds and securities of the Corporation which come into his hands. When necessary or proper, he may endorse, on behalf of the Corporation, for collection checks, notes and other obligations and shall deposit the same to the credit of the Corporation in such bank or banks or depositories as shall be designated in the manner prescribed by the Board of Directors, and he may sign all receipts and vouchers for payments made to the Corporation, either alone or jointly with such other officer as is designated by the Board of Directors. Whenever required by the Board of Directors, he shall render a statement of his cash account, he shall enter or cause to be entered regularly in the books of the Corporation to be kept by him for that purpose full and accurate accounts of all moneys received and paid out on account of the Corporation; he shall perform all acts incident to the position of Treasurer subject to the control of the Board of Directors; and he shall, if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require. Section 9. Assistant Treasurer. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as -14- may be assigned to him by the Board of Directors. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability to act. Section 10. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the shareholders, in books provided for that purpose; he shall attend to the giving and serving of all notices; he may in the name of the Corporation attest to all contracts of the Corporation and affix the seal of the Corporation thereto; he may sign with the President all certificates for shares of the capital stock of the Corporation; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours, and he shall in general perform all duties incident to the office of Secretary, subject to the control of the Board of Directors. Section 11. Assistant Secretaries. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors or the Secretary. The Assistant Secretaries shall exercise the -15- powers of the Secretary during that officer's absence or inability to act. ARTICLE IV INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Each director and each officer or former director or officer of this Corporation or each person who may have served at request as a director or officer of another corporation in which it owned shares of capital stock or of which it is a creditor, shall be indemnified by the Corporation against liabilities imposed upon him and expenses reasonably incurred by him in connection with any claim made against him, or any action, suit or proceeding to which he may be a party by reason of his being, or having been such director or officer, and against such sums as independent counsel selected by the Board of Directors shall deem reasonable payment made in settlement of any such claim, action, suit or proceeding primarily with a view of avoiding expenses of litigation; provided, however, that no director or officer shall be indemnified with respect to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in performance of duty, or with respect to any matters which shall be settled by the payment of sums which counsel selected by the Board of -16- Directors shall not deem reasonable payment made primarily with a view to avoiding expenses of litigation, or with respect to matters for which such indemnification would be against public policy. Such right of indemnification shall be in addition to any other rights to which directors or officers may be entitled. This Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability. ARTICLE V CAPITAL STOCK Section 1. Certificates of Shares. The certificates for shares of the capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board, if any, or the President, and also by the -17- Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer and may be sealed with the seal of this Corporation or a facsimile thereof. Where any such certificate is countersigned by a transfer agent, or registered by a registrar, either of which is other than the Corporation itself or an employee of the Corporation, the signatures of any such Chairman of the Board, if any, or President and Secretary or Assistant Secretary or Treasurer or Assistant Treasurer may be facsimiles. They shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder's name and number of shares. Section 2. Transfer of Shares. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives, upon surrender and cancellation of certificates for a like number of shares. Section 3. Closing of Transfer Books. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the -18- Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed in any case fifty (50) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the date on which the notice of the meeting is mailed or date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. Section 4. Regulations. The Board of Directors shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issue, -19- transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. ARTICLE VI MISCELLANEOUS PROVISIONS Section 1. Offices. Until the Board of Directors otherwise determines, the registered office of the Corporation required by the Texas Business Corporation Act to be maintained in the State of Texas, shall be the registered office named in the original Articles of Incorporation of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Such registered office need not be identical to the principal place of business of the Corporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be such as the Board of Directors shall by resolution establish. Section 3. Seal. The seal of the Corporation shall be such as from time to time may be approved by the Board of Directors. Section 4. Notice and Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of these Bylaws, said notice shall be deemed to be sufficient if given by depositing the same in a post office -20- box in a sealed postpaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the books of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. A waiver of notice, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Section 5. Resignations. Any director or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time is specified, at the time of its receipt by the Chairman of the Board, if any, the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. Section 6. Action Without Meeting or By Use of Conference Telephone. Any action permitted or required by law, these Bylaws or by the Articles of Incorporation of the Corporation, to be taken at a meeting of the shareholders, the Board of Directors or any committee designated by the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the shareholders or members of the Board of Directors or committee, as the case may be. Such consent -21- shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State. Subject to the requirement for notice of meetings, shareholders, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in and hold a meeting of such shareholders, Board of Directors or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 7. Securities of Other Corporations. The chief executive officer (or any other officers designated by the Board of Directors) of the Corporation shall have power and authority to transfer, endorse for transfer, vote, consent or take any other action with respect to any securities of another issuer which may be held or owned by the Corporation and to make, execute and deliver any waiver, proxy or consent with respect to any such securities. -22- ARTICLE VII AMENDMENTS These Bylaws may be altered, amended, or repealed by the affirmative vote of the holders of a majority of the outstanding stock at any annual meeting, or at any special meeting if notice of the proposed amendment be contained in the notice of said special meeting, or by the affirmative vote of a majority of the full Board of Directors at any regular or special meeting, provided notice of said proposed amendment be contained in the notice of the meeting. -23- EX-4 6 EXHIBIT 4.2 WARRANT AGREEMENT dated as of ______, 1996 between Amarillo Biosciences, Inc., a Texas corporation (the "Company"), and Whale Securities Co., L.P. (hereinafter referred to as the "Underwriter"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Underwriter warrants ("Warrants") to purchase up to 200,000 shares (the "Shares") of common stock of the Company, $.01 par value (the "Common Stock"); and WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement (the "Underwriting Agreement") dated ____________, 1996 between the Underwriter and the Company, to act as the underwriter in connection with the Company's proposed public offering (the "Public Offering") of 2,000,000 shares of Common Stock at an initial public offering price of $5.00 per share of Common Stock; and WHEREAS, the Warrants issued pursuant to this Agreement are being issued by the Company to the Underwriter or officers and partners of the Underwriter and members of the selling group and/or their officers or partners, in consideration for, and as part of the Underwriter's compensation in connection with, the Underwriter acting as the underwriter pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Underwriter to the Company of TWO HUNDRED DOLLARS ($200), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Underwriter, and/or its designees who are officers or partners of the Underwriter or members of the Selling Group in connection with the Public Offering, are hereby granted the right to purchase, at any time from __________, 1996 [Effective Date] until 5:00 P.M., New York City time, on _______, 2001 (the "Warrant Exercise Term"), up to 200,000 Shares at an initial exercise price (subject to adjustment as provided in Article 8 hereof) of $7.00 per Share. 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth as Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. Exercise of Warrants. 3.1 Cash Exercise. The Warrants initially are exercisable at a price of $7.00 per Share, payable in cash or by check to the order of the Company, or any combination of cash or check, subject to adjustment as provided in Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased, at the Company's principal offices in Texas (presently located at 800 West 9th Avenue, Amarillo, Texas 79101) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of the Common Stock). In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. -2- 3.2 Cashless Exercise. At any time during the Warrant Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into the number of Shares determined in accordance with this Section 3.2, by surrendering this Warrant at the principal office of the Company or at the office of its transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of -3- like tenor evidencing the balance of the Shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within three (3) days following the Exchange Date. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Shares (rounded to the next highest integer) equal to (i) the number of Shares specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price (as hereinafter defined) by (B) the current market value of a share of Common Stock. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for the Shares shall be made forthwith (and in any event within three business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 5 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; 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 issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. -4- The Warrant Certificates and the certificates representing the Shares shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Shares shall bear a legend substantially similar to the following: "The securities represented by this certificate and the other securities issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the Company of an opinion of counsel, reasonably satisfactory to counsel to the Company, stating that an exemption from registration under such Act is available." -5- 5. Restriction on Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof, and that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of [one (1) year] from the date hereof, except to officers or partners of the Underwriter or to any member of the selling group participating in the distribution to the public of the Common Stock and/or their respective officers or partners. 6. Price. 6.1 Initial and Adjusted Exercise Price. The initial exercise price of each Warrant shall be $7.00 per Share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. 7.1 Registration Under the Securities Act of 1933. The Warrants and the Shares have not been registered for purposes of public distribution under the Securities Act of 1933, as amended (the "Act"). -6- 7.2 Registrable Securities. As used herein the term "Registrable Security" means each of the Warrants, the Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Shares; provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Act and disposed of pursuant thereto, (ii) registration under the Act is no longer required for the immediate public distribution of such security or (iii) it has ceased to be outstanding. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Article 7. -7- 7.3 Piggyback Registration. If, at any time during the seven years following the date of this Agreement, the Company proposes to prepare and file one or more post-effective amendments to the registration statement filed in connection with the Public Offering or any new registration statement or post-effective amendments thereto covering equity or debt securities of the Company, or any such securities of the Company held by its shareholders (in any such case, other than in connection with a merger, acquisition or pursuant to Form S-8 or successor form), (for purposes of this Article 7, collectively, a "Registration Statement"), it will give written notice of its intention to do so by registered mail ("Notice"), at least thirty (30) business days prior to the filing of each such Registration Statement, to all holders of the Registrable Securities. Upon the written request of such a holder (a "Requesting Holder"), made within twenty (20) business days after receipt of the Notice, that the Company include any of the Requesting Holder's Registrable Securities in the proposed Registration Statement, the Company shall, as to each such Requesting Holder, use its best efforts to effect the registration under the Act of the Registrable Securities which it has been so requested to register ("Piggyback Registration"), at the Company's sole cost and expense and at no cost or expense to the Requesting Holders. Notwithstanding the provisions of this Section 7.3, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.3 (irrespective of whether any written request for inclusion of such securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.4 Demand Registration. (a) At any time during the Warrant Exercise Term, any "Majority Holder" (as such term is defined in Section 7.4(d) below) of the Registrable Securities shall have the right (which right is in addition to the piggyback registration rights provided for under Section 7.3 hereof), exercisable by written notice to the Company (the "Demand Registration Request"), to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, at the sole expense of the Company, a Registration Statement and such other documents, including a prospectus, as may be necessary (in the opinion of both counsel for the Company and counsel for such Majority Holder), in order to comply with the provisions of the Act, so as to permit a public offering and sale of the Registrable Securities by the holders thereof, for nine (9) consecutive months. -8- (b) The Company covenants and agrees to give written notice of any Demand Registration Request to all holders of the Registrable Securities within ten (10) days from the date of the Company's receipt of any such Demand Registration Request. After receiving notice from the Company as provided in this Section 7.4(b), holders of Registrable Securities may request the Company to include their Registrable Securities in the Registration Statement to be filed pursuant to Section 7.4(a) hereof by notifying the Company of their decision to include such securities within ten (10) days of their receipt of the Company's notice. (c) In addition to the registration rights provided for under Section 7.3 and subsection (a) of this Section 7.4, at any time during the Warrant Exercise Term, any Majority Holder (as defined below in Section 7.4(d)) of Registrable Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file with the Commission, on one occasion in respect of all holders of Registrable Securities, a Registration Statement so as to permit a public offering and sale of such Registrable Securities for nine (9) consecutive months, provided, however, that all costs incident thereto shall be at the expense of the holders of the Registrable Securities included in such Registration Statement. If a Majority Holder shall give notice to the Company at any time of its or their desire to exercise the registration right granted pursuant to this Section 7.4(c), then within ten (10) days after the Company's receipt of such notice, the Company shall give notice to the other holders of Registrable Securities, advising them that the Company is proceeding with such registration and offering to include therein the Registrable Securities of such holders, provided they furnish the Company with such appropriate information in connection therewith as the Company shall reasonably request in writing. -9- (d) The term "Majority Holder" as used in this Section 7.4 shall mean any holder or any combination of holders of Registrable Securities, if included in such holders' Registrable Securities are that aggregate number of Shares (including Shares already issued and Shares issuable pursuant to the exercise of outstanding Warrants) as would constitute a majority of the aggregate number of Shares (including Shares already issued and Shares issuable pursuant to the exercise of outstanding Warrants) included in all of the Registrable Securities. -10- 7.5 Covenants of the Company With Respect to Registration. The Company covenants and agrees as follows: (a) In connection with any registration under Section 7.4 hereof, the Company shall file the Registration Statement as expeditiously as possible, but in no event later than twenty (20) business days following receipt of any demand therefor, shall use its best efforts to have any such Registration Statements declared effective at the earliest possible time, and shall furnish each holder of Registrable Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs, fees and expenses in connection with all Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, and blue sky fees and expenses. The holders of Registrable Securities included in any Registration Statement filed pursuant to Section 7.4(c) hereof will pay all costs, fees and expenses in connection with such registration. (c) The Company will take all necessary action which may be required in qualifying or registering the Registrable Securities included in a Registration Statement for offering and sale under the securities or blue sky laws of such states as are requested by the holders of such securities, [provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction]. -11- (d) The Company shall indemnify any holder of the Registrable Securities to be sold pursuant to any Registration Statement and any underwriter or person deemed to be an underwriter under the Act and each person, if any, who controls such holder or underwriter or person deemed to be an underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 7 of the Underwriting Agreement and to provide for just and equitable contribution as set forth in Section 8 of the Underwriting Agreement. (e) Any holder of Registrable Securities to e sold pursuant to a Registration Statement, and its successors and assigns, shall severally, and not jointly, indemnify, the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished in writing by or on behalf of such holder, or its successors or assigns, for specific inclusion in such Registration Statement to the same extent and with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company and to provide for just and equitable contribution as set forth in Section 8 of the Underwriting Agreement. -12- (f) Nothing contained in this Agreement shall be construed as requiring any Holder to exercise his Warrants prior to the initial filing of any Registration Statement or the effectiveness thereof. (g) If the Company shall fail to comply with the provisions of this Article 7, the Company shall, in addition to any other equitable or other relief available to the holders of Registrable Securities, be liable for any or all incidental, special and consequential damages sustained by the holders of Registrable Securities, requesting registration of their Registrable Securities. (h) Except as set forth in Section 7.5(j) hereof, the Company shall not permit the inclusion of any securities other than the Registrable Securities to be included in any Registration Statement filed pursuant to Section 7.4 hereof, or permit any other registration statement to be or remain effective during the effectiveness of a Registration Statement filed pursuant to Section 7.4 hereof, without the prior written consent of the Majority Holders, which consent shall not be unreasonably withheld. -13- (i) The Company shall deliver promptly to each holder of Registrable Securities participating in the offering in which such Holder's shares are being registered pursuant to Section 7.3 hereof and requesting the correspondence and memoranda described in this Section 7.5(i) and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the Registration Statement and permit each holder of Registrable Securities and underwriters to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the Registration Statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such holder of Registrable Securities or underwriter shall reasonably request. (j) Upon the written request therefor by any holders of Registrable Securities, the Company shall include in the Registration Statement covering any of the Registrable Securities any other securities of the Company held by such holders of Registrable Securities as of the date of filing of such Registration Statement, including, without limitation, restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock. -14- 8. Adjustments of Exercise Price and Number of Shares. 8.1 Computation of Adjusted Price. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Exercise Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution, by (b) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this Section 8.1, the Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. 8.2 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. -15- 8.3 Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 8, the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full Share by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.4 Reclassification, Consolidation, Merger, etc. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holders shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holders were the owners of the shares of Common Stock underlying the Warrants immediately prior to any such events at a price equal to the product of (x) the number of shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holders had exercised the Warrants. -16- 8.5 Determination of Outstanding Shares of Common Stock. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of options, rights, warrants and upon the conversion or exchange of convertible or exchangeable securities. 8.6 Dividends and Other Distributions with Respect to Outstanding Securities. In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend (other than a dividend consisting solely of shares of Common Stock or a cash dividend or distribution or otherwise distribute to its shareholders any monies, assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another person or entity, or any other thing of value, the Holder or Holders of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same monies, property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Subsection 8.6. -17- 8.7 Subscription Rights for Shares of Common Stock or Other Securities. In the case the Company or an affiliate of the Company shall at any time after the date hereof and prior to the exercise of all the Warrants issue any rights to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company, the Holders of the unexercised Warrants shall be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise of the Warrants, to receive such rights at the time such rights are distributed to the other shareholders of the Company. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. -18- 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep avail- able out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed on or quoted by NASDAQ or listed on such national securities exchanges as requested by the Underwriter. -19- 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; or -20- (d) reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or a sale or conveyance to another corporation of the property of the Company as an entirety is proposed; or (e) The Company or an affiliate of the Company shall propose to issue any rights to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. -21- 13. Notices. All notices, requests, consents and other communications hereunder shall be in witing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 of this Agreement or to such other address as the Company may designate by notice to the Holders. 14. Supplements and Amendments. The Company and the Underwriter may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Underwriter may deem necessary or desirable and which the Company and the Underwriter deem not to adversely affect the interests of the Holders of Warrant Certificates. -22- 15. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 16. Termination. This Agreement shall terminate at the close of business on __________, 2004. Notwithstanding the foregoing, this Agreement will terminate on any earlier date when all Warrants have been exercised and all the Shares issuable upon exercise of the Warrants have been resold to the public; provided, however, that the provisions of Section 7 shall survive such termination until the close of business on _________, 2007. 17. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. 18. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Underwriter and any other registered holder or holders of the Warrant Certificates, Warrants or the Shares any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Underwriter and any other holder or holders of the Warrant Certificates, Warrants or the Shares. -23- 19. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. [SEAL] AMARILLO BIOSCIENCES, INC. By: ------------------------------ Name: Title: Attest: - ----------------------- WHALE SECURITIES, CO., L.P. By: Whale Securities Corp., General Partner By:__________________________________ Name: William G. Walters Title: Chairman -24- EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, _________, 199_ No. W- _______ Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that _______________ ____________ or registered assigns, is the registered holder of _______ Warrants to purchase, at any time from _______, 1996 until 5:00 P.M. New York City time on ________, 2001 ("Expiration Date"), up to 200,000 shares ("Shares") of fully-paid and non-assessable common stock, $.01 par value ("Common Stock"), of Amarillo Biosciences, Inc., a Texas corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $7.00 per Share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of ____________, 1996 between the Company and Whale Securities Co., L.P. (the "Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by certified or official bank check in New York Clearing House funds payable to the order of the Company, or any combination of cash or check. No Warrant may be exercised after 5:00 P.M., New York City time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: ___________, 1996 AMARILLO BIOSCIENCES, INC. [SEAL] By: --------------------------- Name: Title: Attest: - ---------------------- [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _________ Shares and herewith tenders in payment for such Shares cash or a certified or official bank check payable in New York Clearing House Funds to the order of __________________ in the amount of $ , all in accordance with the terms hereof. The undersigned requests that a certificate for such Shares be registered in the name of , whose address is __________________, and that such Certificate be delivered to __________________, whose address is _____________. Dated: Signature: --------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------------- ------------------------------------- (Insert Social Security or Other Identifying Number of Holder) [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED ________________________________________ hereby sells, assigns and transfers unto ____________________________________ - ----------------------------------------------------------------------------- (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) - ------------------------------- - ------------------------------- (Insert Social Security or Other Identifying Number of Assignee) EX-10.1 7 AGREEMENT AGREEMENT effective as of the 1st day of April 1984, between UNIVERSITY PATENTS, INC., a Delaware corporation having its principal office at 537 Newtown Avenue, Norwalk, Connecticut 06852 (hereinafter referred to as "UPI") and the Amarillo Cell Culture Co., a Texas corporation having its principal place of business at 3538 Barclay St., Amarillo, Texas 79109 (hereinafter referred to as "Licensee"). W I T N E S S E T H: WHEREAS, JOSEPH M. CUMMINS, D.V.M. (the "Inventor") while a member of the faculty of the College of Veterinary Medicine, UNIVERSITY OF ILLINOIS, invented "Delivery of Biologically Active Components of Heterologous Species Interferon Isolates" (the "Invention") as more fully set forth in United States Patent Application Serial No. 415,525 filed September 7, 1982, which Invention is the property of THE UNIVERSITY OF ILLINOIS FOUNDATION; and WHEREAS, UPI, by virtue of agreements with the UNIVERSITY OF ILLINOIS FOUNDATION and the UNIVERSITY OF ILLINOIS has the exclusive right to license the Invention; and WHEREAS, licensee desires to acquire an exclusive license under such Invention and to engage in development activities related to applications thereof; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt of which is acknowledged by the Parties; IT IS AGREED: ARTICLE I - Definitions (a) "Licensed Patents" shall mean United States Patent Application Serial No. 415,525 entitled "Delivery of Biologically Active Components of Heterologous Species Interferon Isolates" and any patents issuing thereon, including any continuations, divisions, and/or reissues thereof. (b) "Licensed Product" shall mean any substance which, or the use or manufacture of which, is covered in whole or in part by a claim of a issued Licensed Patent in the country of manufacture, use or sale. (c) "Net Selling Price" shall mean the gross selling price of a Licensed Product, including all packaging, instructional or other charges made to a purchaser, but less customary trade discounts and refunds or credits allowed for returns or defective articles. If 2 Licensed Products are sold in transactions which are not bona fide arm's-length transactions, Net Selling Price for such sales shall be valued as equal to commercial sales of similar Licensed Products to unrelated third parties in similar quantities. ARTICLE II - The License (a) UPI hereby grants to Licensee an exclusive license under the Licensed Patents, to make, have made, use, sell or otherwise transfer Licensed Products. (b) The license hereby granted shall include the right of LICENSEE to grant written sublicenses, provided that LICENSEE shall include all sales of Licensed Products by all sublicensees in its statements to UPI as though all of such sales by sublicensees were in fact made by LICENSEE hereunder. In addition to the foregoing, LICENSEE agrees that it will remit to UPI, fifty percent (50%) of any option fee, license fee or other "front-end payment" which it may receive from a sublicensee and which is creditable against earned royalties. LICENSEE agrees to deliver to UPI a true and correct copy of each and every sublicense entered into by LICENSEE within thirty (30) days after execution thereof and shall promptly advise UPI in writing of any modification (and supply a copy of same) or termination of 3 each sublicense. Upon termination of this agreement, all such sublicenses shall be assigned to UPI. ARTICLE III - Consideration (a) Within one hundred and twenty (120) days after the effective date hereof, Licensee shall transfer to UPI, a ten percent (10%) equity interest in Licensee. (b) LICENSEE shall pay to UPI an earned royalty of four percent (4%) of the Net Selling Price of Licensed Product made, used, sold or otherwise transferred hereunder by or for LICENSEE. (c) Annual minimum royalties shall be required as follows: For the first year of the exclusive license no minimum royalty shall be due; For the second year of the exclusive license, two thousand ($2,000) dollars; For the third License Year of the exclusive license, four thousand ($4,000) dollars; and For the fourth and all succeeding License Years of the exclusive license, six thousand ($6,000) dollars. 4 ARTICLE IV - Remittances, Records and Reports Under the License (a) Accrual. Royalties shall accrue when Licensed Products are first sold, or otherwise transferred by or for Licensee. Licensed Products shall be considered sold when billed out. (b) Payment. (1) Earned Royalties. Payments of earned royalties shall be made to UPI within sixty (60) days following the end of each calendar quarter of each year for all Licensed Products sold or otherwise transferred by Licensee during the said calendar quarter. Such payment shall be accompanied by a statement certified to UPI by an officer of Licensee which shall give sufficient information from which to calculate the amount of royalties due hereunder, including, but not limited to, the total quantity and New Selling Prices of Licensed Products sold for which royalty has accrued during the preceding calendar quarter and the aggregate royalties due. Statements shall also be submitted in the event no sales of Licensed Products took place. (2) Minimum payments. Licensee agrees that the minimum amounts set forth in ARTICLE III (c) are to be paid to UPI together with the remittance made for the last accounting period of the applicable year in the event earned royalties for such year do not reach the amount set forth, and that the minimum amount for each year shall become a present obligation of Licensee to UPI on the first day of each year. 5 (c) Inspection. Licensee shall keep records in sufficient detail to permit the determination of royalties payable hereunder and, at the request and expense of UPI, will permit an independent Certified Public Accountant acceptable to both UPI and Licensee to examine, in confidence, during ordinary business hours once in each calendar year such records as may be necessary to verify or determine royalties paid or payable under this Agreement. ARTICLE V - Enforcement of Patents In the event Licensee alleges that a third party infringes a Licensed Patent or an Improvement, the prima facie determination of infringement shall be made by an Independent Patent Attorney (IPA) satisfactory to both UPI and Licensee, at their joint cost and expense. (a) If the IPA finds that there is no prima facie evidence of infringement by the alleged infringer, then Licensee's obligation to pay royalties under this Agreement shall continue without abatement. (b) If the IPA finds prima facie evidence of the alleged infringement: (1) UPI may elect to institute an infringement action against any such third party, which election shall be made no later than one hundred twenty (120) days after the determination of prima facie infringement, as aforesaid, in which event: 6 (i) Licensee shall continue to pay royalties during the pendency of the action; and (ii) If UPI finally prevails, Licensee shall continue to pay royalties as set forth in ARTICLE III hereof: provided that if UPI is required to grant a license to the infringer, then Licensee's royalty rate shall be reduced to the lowest rate granted to such an infringer; (iii) If UPI finally loses: (A) Because the third party is held not to be infringing, Licensee will continue to pay royalties as set forth in ARTICLE III hereof; (B) Because the patent is held invalid, Licensee may cease paying royalties in the country in which such invalidity has been finally adjudicated, provided that Licensed Products are covered or the use thereof are covered only by claims which have been held invalid. (2) If UPI elects not to institute an action as aforesaid, Licensee may elect to institute an action against such third party, in which event: (i) During the pendency of such action, Licensee may suspend payment of royalties under the patent in suit in the country of such action to the extent of any costs actually incurred in such action; and 7 (ii) If Licensee finally prevails, it shall thereafter resume paying royalties as set forth in ARTICLE III hereof and shall retain all damages which it may collect; and (iii) If Licensee finally loses: (A) Because the third party is held not to be infringing, Licensee shall thereafter resume paying royalties as set forth in ARTICLE III thereof and shall, in addition, pay to UPI such royalty payments as were suspended under the terms of ARTICLE V(b)(2)(i) hereof; (B) Because the patent is held invalid, Licensee may thereafter cease paying royalties on sales of Licensed Products in the country in which such invalidity has been finally adjudicated provided that Licensed Products are covered or the use thereof are covered only by claims which have been held invalid. (3) Licensee shall not be entitled to recover, as a credit or otherwise, royalties paid before a final judgment of invalidity. (4) It is agreed by UPI and Licensee that if UPI elects to initiate an infringement action under paragraph (b) (1) of this ARTICLE V in response to an alleged infringement in any country, Licensee may not elect the course of action described in paragraph (2) as to a subsequent infringer in that country until the first action is finally determined unless otherwise agreed to by UPI. 8 (5) UPI shall have the right to assign its rights and accompanying obligations under this ARTICLE V to the Trustees of the University of Illinois or The University of Illinois Foundation to participate in any litigation. In the event of such assignment the assignee will have all rights and all obligations of UPI provided by ARTICLE V. ARTICLE VI - Termination (a) The term of this Agreement shall be from the effective date hereof until the expiration of the last to expire of the Licensed Patents. (b) Licensee may terminate this Agreement, in whole or with respect to any Licensed Patent: (1) Upon 30 days prior written notice to any anniversary hereof or (2) At any time for cause. Non issuance of a United States Patent from U.S. Patent Application Serial No. 415,525 within two years of the effective date hereof shall be deemed "cause". (c) If Licensee shall at any time default in any obligation under this Agreement, included but not limited to failing to make any report, pay any royalties or minimums, or permit the inspection of its books and records as hereinabove required, and such default shall 9 not be cured within sixty (60) days after written notice from UPI to Licensee, specifying the nature of the default, or in the event Licensee pays into escrow royalties which have accrued hereunder, then UPI shall have the right to terminate the license granted to Licensee hereunder by giving written notice to Licensee and such termination shall become effective on the thirtieth (30th) day after giving of such notice. (d) Any termination pursuant hereto shall not relieve Licensee or UPI of any obligation or liability accrued hereunder prior to such termination, nor rescind or give rise to any right to rescind anything done or any payments made or other consideration given hereunder prior to the time such termination shall not affect in any manner any rights of either party arising out of this Agreement prior to such termination. ARTICLE VII - Warranty UPI warrants and represents that it has the full right and power to grant the license set forth in ARTICLE II and that there are no outstanding agreements, assignments or encumbrances inconsistent with the provisions of this Agreement other than as expressly set forth herein. UPI makes no other representation or warranty, express or implied, nor does UPI assume any obligations with respect to infringement of patents of others arising as a result of Licensee's activities under this agreement. 10 ARTICLE VIII - Communication Any payment, notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such Party by certified or registered mail, postage prepaid, addressed to it at its address set forth or to such other address as it shall designate by written notice given to the other Party as follows: In the case of UPI: President University Patents, Inc. P.O. Box 6080 Norwalk, Connecticut 06852 In the case of Licensee: President The Amarillo Cell Culture Co. 3538 Barclay Street Amarillo, Texas 79109 ARTICLE IX - Miscellaneous (a) This Agreement will not be binding upon the parties until it has been signed hereinbelow by or on behalf of each party, in which event it shall be effective as of the date first above written. No amendment or modification hereof shall be valid or binding upon the Parties unless made in writing and signed as aforesaid. 11 (b) This agreement embodies the entire understanding of the parties and shall supersede all previous communications, representations or undertakings, either verbal or written between the Parties relating to the subject matter hereof (c) If any provision or provisions of this Agreement shall be held to be invalid, illegal, or enforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (d) This Agreement shall be construed, and the legal relations between the Parties determined, in accordance with the law of the State of Illinois, U.S.A. (e) LICENSEE shall have no right to use the name or other designations of the UNIVERSITY OF ILLINOIS in connection with any sales or promotion of Licensed Products without the express written consent of the UNIVERSITY OF ILLINOIS. (f) LICENSEE will exert its best efforts to produce and market Licensed Product during the term of this Agreement. (g) All overdue payments, minimums and/or royalties shall bear interest from the date such payment, minimum and/or royalty was due and payable at the prime rate of interest quoted in the Wall Street Journal as of the due date. 12 (h) The headings of the several sections are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date first above written. UNIVERSITY PATENTS, INC. WITNESS: /s/ Daniel Koppley By: /s/ C. Whirles ---------------------- ---------------------- AMARILLO CELL CULTURE CO. WITNESS: /s/ Carolyn Orr By: /s/ Joseph M. Cummins, Jr. ---------------------- --------------------------- Title: President ------------------------ 13 AMENDMENT NO. 1 TO AGREEMENT DATED APRIL 1, 1984 BETWEEN UNIVERSITY PATENTS, INC. AND AMARILLO CELL CULTURE COMPANY, INCORPORATED WHEREAS, UNIVERSITY PATENTS, INC., a Delaware corporation ("UPI"), and AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("LICENSEE"), entered into that certain Agreement dated April 1, 1984, a copy of which is attached hereto; and further WHEREAS, the parties desire to amend said Agreement in certain respects; THEREFORE, in consideration of these presents and for other good and adequate consideration the receipt and sufficiency of which are acknowledged by the execution hereof, the parties hereto agree as follows: 1. The above referenced Agreement of April 1, 1984, is hereby amended as follows: a. On page 3 of the Agreement, the second paragraph under Paragraph (b) is amended in its entirety, to read as follows: "In addition to the foregoing, LICENSEE agrees that it will remit to UPI, fifty percent (50%) of any front-end option fee, license fee or other "front-end payment". Any such amounts remitted by LICENSEE to UPI shall be credited against the royalty payments provided for under Article III, Paragraphs (b) and (c), below." 2. Except as expressly amended by this Amendment No. 1, the terms and provisions of the Agreement remain in full force and effect, and the parties hereto hereby ratify and confirm said Agreement, as amended. 14 IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Agreement dated April 1, 1984 to be duly executed to become effective as of this the 26th day of July, 1984. UNIVERSITY PATENTS, INC. WITNESS: /s/ Susan Garland By: /s/ Daniel Koppley ---------------------- ---------------------- Vice President AMARILLO CELL CULTURE CO. WITNESS: /s/ Mary Thomas By: /s/ Joseph M. Cummins ---------------------- --------------------------- Joseph M. Cummins AMENDMENT This Amendment, effective as of the 20th day of April 1988, between University Patents, Inc., a Delaware corporation having its principal office at 1465 Post Road East, Westport, Connecticut 06880 (hereinafter referred to as "UPI") and the Amarillo Cell Culture Company, Inc., a Texas corporation having its principal place of business at 6666 Amarillo Boulevard West, Amarillo, Texas 79106 (hereinafter referred to as "Licensee"). WITNESSETH WHEREAS UPI and Licensee are parties to a License Agreement dated April 1, 1984, covering an invention titled "DELIVERY OF BIOLOGICALLY ACTIVE COMPONENTS OF HETEROLOGOUS SPECIES INTERFERON ISOLATES" (the "Invention"). WHEREAS UPI and Licensee desire to amend the License Agreement responsive to developments since the Agreement was executed. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt of which is acknowledged by the Parties; IT IS AGREED: 1. The definition of "Licensed Patents" under Article I, Paragraph (a) shall be amended to read as follows: "Licensed Patents" shall mean United States Patent Application Serial No. 415,525 entitled "DELIVERY OF BIOLOGICALLY ACTIVE COMPONENTS OF HETEROLOGOUS SPECIES INTERFERON ISOLATES" issuing on July 31, 1984, as U.S. Patent 4,462,985 and any other patents issuing thereon, including any continuations, divisions, and/or reissues thereof, and any foreign counterparts, including specifically Japanese Patent Application No. 56502921, filed August 18, 1981. 2. Add new subparagraph (d) under Article III -- Consideration, as follows: (d) Licensee shall be responsible for and shall pay all costs of prosecution and issuance of Japanese Patent Application No. 56502921 in the Japanese Patent Office. 3. Paragraph (b) (1) under Article V shall be revised to read as follows: -2- (1) UPI may elect to institute an infringement action against any such third party, which election shall be made no later than ninety (90) days after the determination of Prima facie infringement, as aforesaid, in which event: (i) Licensee shall continue to pay royalties during the pendency of the action; and (ii) If UPI finally prevails, Licensee shall continue to pay royalties as set forth in ARTICLE III hereof; provided that if UPI is required to grant a license to the infringer, then Licensee's royalty rate shall be reduced to the lowest rate granted to such an infringer; (iii) If UPI finally loses: (A) Because the third party is held not to be infringing, Licensee will continue to pay royalties as set forth in ARTICLE III hereof; (B) Because the patent is held invalid, Licensee may cease paying royalties in the country in which such invalidity has been finally adjudicated provided that Licensed Products are covered or the use thereof are covered only by claims which have been held invalid. -3- 4. All other terms of the License Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date first above written. UNIVERSITY PATENTS, INC. By: /s/ C. Whirles ---------------------- Title: Chairman ------------------- WITNESS: /s/ Jeane E. Hancock ---------------------- AMARILLO CELL CULTURE CO. WITNESS: /s/ Crystal Shelton By: /s/ Joseph M. Cummins ---------------------- --------------------------- Title: President ------------------------ -4- EX-10.2 8 LICENSE AGREEMENT LICENSE AGREEMENT Agreement effective as of the 22 day of March, 1988 between the AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation having its principal office at 6666 Amarillo Blvd. West Amarillo, Texas 79106 (hereinafter referred to as "ACC") and THE TEXAS A&M UNIVERSITY SYSTEM (hereinafter referred to as "TAMUS") with its principal offices in College Station, Texas 77843. WITNESSETH WHEREAS, JOSEPH M. CUMMINS, D.V.M. (the "Inventor") while an employee of The Texas Agricultural Experiment Station (TAES), a part of TAMUS, invented (1) "METHOD OF REGULATING APPETITE AND EFFICIENCY OF FOOD UTILIZATION EMPLOYING INTERFERON" as described and claimed in United States Patent No. 4,497,795 issued February 5, 1985; (2) "METHOD OF USING INTERFERON IN LOW DOSAGE TO REGULATE APPETITE AND EFFICIENCY OF FOOD UTILIZATION" as described and claimed in pending U.S. Patent Application Serial No. 688,868 filed January 4, 1985; (3) "LOW DOSAGE OF INTERFERON TO ENHANCE VACCINE EFFICIENCY" as described and claimed in pending U.S. Patent Application Serial No. 814,317 filed December 30, 1985; and (4) "IMPROVED METHOD OF ADMINISTERING INTERFERON" as described and claimed in pending U.S. Patent Application Serial No. 044,317 filed April 30, 1987 collectively "the Inventions". WHEREAS, TAMUS is the owner of the Inventions by assignment from the Inventor; 1 WHEREAS, ACC is the owner of "Treatment of Immuno-Resistant Disease" as described and claimed in U.S. Patent Application Serial No. 927,834 filed Nov. 6, 1986 and a continuation-in-part of that application, U.S. Patent Application Serial No. 110,501 filed October 26, 1987, each also related to the administration of interferon which patent applications ACC desires to assign to TAMUS and include in this License Agreement; WHEREAS, Inventions (3) and (4) above are already the subject of a License Agreement between ACC and TAMUS dated April 1, 1987; WHEREAS, ACC and TAMUS desire to rescind and replace the existing License Agreement as herein provided, by entering into a new master License Agreement covering patent rights in all of the Inventions; WHEREAS, the parties recognize that TAMUS has not demonstrated operability and effectiveness of the Inventions on a commercial basis, and further recognize that technical, marketing development and time consuming state and federal regulatory approval of the Inventions will be required for commercialization; WHEREAS, ACC desires the right to file and/or prosecute (at ACC's expense) continuations, continuations-in-part, divisions, or foreign counterparts covering the Inventions, and that such continuations, continuations-in-part, divisions or foreign counterparts shall be included in this license; WHEREAS, ACC desires the right to choose a patent attorney to handle patent applications covering the Inventions; WHEREAS, ACC desires to acquire an exclusive license of the Inventions to engage in product development and sales activities; and 2 NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt of which is acknowledged by the parties; IT IS AGREED: ARTICLE I DEFINITIONS As used herein, the following terms shall have the following meanings: 1.1 "PATENT RIGHTS" shall mean: (1) subject matter within the scope of any valid claim of United States Patent No. 4,497,795 entitled "METHOD OF REGULATING APPETITE AND EFFICIENCY OF FOOD UTILIZATION EMPLOYING INTERFERON", foreign counterparts of said patent and (2) any valid claim of any patent issuing on any one of (a) U.S. Patent Application Serial Number 688,868 filed January 4, 1985; (b) U.S. Patent Application Serial No. 814,317 filed December 30, 1985; (c) U.S. Patent Application Serial No. 044,317 filed April 30, 1987; (d) U.S. Patent Application Serial No 927,834 filed November 6, 1986; (e) U.S. Patent Application Serial No. 110,501 filed October 26, 1987; 3 including any continuations, continuations-in-part, divisions, foreign counterparts, and/or reissues of said patent or patent applications, (3) subject matter within any valid claim of a TAMUS owned patent of the inventor which dominates the subject matter of any patents or applications set forth in paragraphs (1) or (2), above. 1.2 "LICENSED PATENT" (Schedule A) shall mean the patent or patents, U.S. and foreign, with claims defining "PATENT RIGHTS." 1.3 "LICENSED PRODUCT" shall mean any product which is for use in any species, the sale, use or manufacture of which, would infringe a claim of a LICENSED PATENT except for grant of this license. 1.4 "NET SELLING PRICE" shall mean the gross selling price of a LICENSED PRODUCT, including all packaging, instructional or other charges made to a purchaser, but less customary trade discounts and refunds or credits allowed for returns or defective products. If LICENSED PRODUCTS are sold in transactions which are not bona fide arm's-length transactions, NET SELLING PRICE for such sales shall be valued as equal to commercial sales of similar LICENSED PRODUCTS to unrelated third parties in similar quantities. When a LICENSED PRODUCT contains an interferon product in combination with one or more other biologically active or nutritional ingredients, the "NET SELLING PRICE" therefor shall be the lesser of 4 one-half of the "NET SELLING PRICE" determined as otherwise specified herein, or twice the documented cost of the interferon in the LICENSED PRODUCT. 1.5 "LICENSE YEAR" shall mean the twelve-month period beginning on the first day of the first month after LICENSE APPROVAL, and each twelve month period thereafter. 1.6 "AFFILIATE" shall mean a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation or company, "control" means ownership either directly or indirectly of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors. 1.7 "LICENSE FEE" shall mean the amount paid for the granting of a license to PATENT RIGHTS. 1.8 "LICENSE APPROVAL" shall mean the date that this agreement is formally signed by representatives of TAMUS and ACC. 5 ARTICLE II THE LICENSE 2.1 TAMUS hereby grants to ACC an exclusive worldwide right and license to PATENT RIGHTS under any LICENSED PATENT, to make, have made, use, sell or otherwise transfer LICENSED PRODUCTS for use in all species. 2.2 The license hereby granted shall include the right of ACC to grant written sublicenses provided that ACC shall include all sales of LICENSED PRODUCTS by all sublicensees in its statements to TAMUS and all such sales shall be treated for purposes of Paragraph 3.2 and 3.3 of this Agreement as though all of such sales by sublicensees were in fact made by ACC. In addition to the foregoing, ACC agrees that it will remit to TAMUS fifty percent (50%) of any option fee, license fee or other "front-end payment" which it may receive from a sublicensee with respect to any manufacture, use or sale of a LICENSED PRODUCT intended for application to all species. Reimbursement for research, patent, or other expenses actually incurred shall not be considered a "front end" fee as long as ACC provides documentation of expenses. Any remittance by ACC to TAMUS under this paragraph shall be credited against earned royalties payable by ACC to TAMUS under 3.2, 3.3, or 3.4 of this Agreement. ACC agrees to deliver to TAMUS a true and correct copy of each and every sublicense entered into by ACC within thirty (30) days after execution thereof and shall promptly advise TAMUS in writing of any 6 modification (and supply a copy of same) or termination of each sublicense. Upon termination of this Agreement, ACC's rights in all such sublicenses shall be assigned to TAMUS. ARTICLE III CONSIDERATION 3.1 ACC agrees to pay a license fee in the amount of ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000) to be paid to TAMUS, which payment shall be credited against payments due to TAMUS pursuant to paragraphs (3.2), (3.3) and (3.4) of this Article III. The payment of ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000) is to be made in four (4) equal quarterly installments without interest. The first installment of THIRTY THOUSAND DOLLARS ($30,000) shall be made within 45 days of March 15, 1988. The other installments of THIRTY THOUSAND DOLLARS ($30,000) each shall be paid by June 15, 1988, September 15, 1988 and December 15, 1988. Failure to make these payments, after notice and demand by TAMUS, and failure of ACC to cure default within fifteen (15) days, shall cause this Agreement to be null and void and of no further force or effect, any other provision of this Agreement notwithstanding, and TAMUS shall retain any installments theretofore received by it. 3.2 ACC shall pay to TAMUS an earned royalty of Two and Four-tenths percent (2.4%) of the NET SELLING PRICE of all LICENSED PRODUCTS sold by or for ACC or any licensee of ACC in a country where PATENT RIGHTS exist. The earned royalty percentage shall be applied only once 7 to the NET SELLING PRICE regardless of the possibility that manufacture, use or sale of a LICENSED PRODUCT may be covered by more than one LICENSED PATENT. 3.3 If other U.S. patents dominating LICENSED PRODUCTS, and not assigned to or owned by TAMUS, are in force, requiring ACC to pay other royalty payments, then for each LICENSED PRODUCT burdened by such royalty payments, the royalties payable under Article 3.2 above shall be reduced to One and Two-tenths percent (1.2%) of the NET SELLING PRICE. 3.4 ACC agrees to pay to TAMUS guaranteed annual minimum royalties as follows: (a) For the third LICENSE YEAR of the exclusive license, a total of TEN THOUSAND DOLLARS ($10,000); and (b) For the fourth and all succeeding LICENSE YEARS of the exclusive license, a total of FIFTEEN THOUSAND DOLLARS ($15,000) per year. 3.5 Joseph M. Cummins, President of ACC and the Inventor, shall execute the Waiver and Release attached hereto as Schedule B and the Assignment attached hereto as Schedule C and such executed Assignment and Waiver and Release shall be a part of this Agreement and effective upon execution. 8 ARTICLE IV DUE DILIGENCE CRITERIA ACC shall exercise diligence in the marketing and commercialization of LICENSED PRODUCTS by its own acts or through acts of its Affiliates or sublicensees. ARTICLE V REMITTANCES. RECORDS AND REPORTS UNDER THE LICENSE 5.1 Accrual. Royalties shall accrue when LICENSED PRODUCTS are first sold to a non-AFFILIATE of ACC by or for ACC or a sublicensee of ACC. LICENSED PRODUCTS shall be considered sold when billed or invoiced. 5.2 Payment. (a) General. All payments, under paragraph 3.2-3.4, to TAMUS shall be made to TAMUS in College Station, Texas within forty-five (45) days following the end of each six (6) months of each LICENSE YEAR for all LICENSED PRODUCTS sold by ACC or a sublicensee of ACC during the six (6) months. Such payment shall be accompanied by a certified statement to TAMUS, by an officer of ACC which shall give sufficient information from which to calculate the amount of royalties due hereunder, including, but not limited to, the total quantity and NET SELLING PRICES of LICENSED PRODUCTS sold for which royalty has accrued during the preceding six (6) months, 9 and the aggregate royalties due. Statements shall also be submitted in the event no sales of LICENSED PRODUCTS took place. (b) Minimum Payment. ACC agrees that the amount required to achieve payment of the minimum royalty due set forth in Article 3.4 is to be due and payable to TAMUS together with the remittance made for the last accounting period of the applicable LICENSE YEAR in the event earned royalties for such LICENSE YEAR do not reach the minimum amounts set forth. (c) Payments hereunder shall be made in U.S. dollars in the United States. With respect to sales in countries outside the United States, royalties shall be payable in U.S. dollars at the official rate of exchange prevailing on the last day of each quarter during the accounting period in which royalties accrue. 5.3 Inspection. ACC shall keep records in sufficient detail to permit the determination of royalties payable hereunder and, at the request and expense of TAMUS, will permit an independent Certified Public Accountant to examine, in confidence, during ordinary business hours once each LICENSE YEAR such records as may be necessary to verify or determine royalties paid or payable under this Agreement. Said records shall be open and available for a period of four (4) years following the rendering by ACC of a royalty report. 10 ARTICLE VI PATENT PROSECUTION 6.1 TAMUS grants ACC the right to file and prosecute patent applications including continuations, continuations-in-part, divisions, foreign counterparts and reissues thereof which relate to LICENSED PRODUCTS and PATENT RIGHTS. Upon full execution of this agreement, ACC agrees to accept responsibility for filing, prosecution to issuance and maintenance of patent applications and/or patents which relate to LICENSED PRODUCTS and PATENT RIGHTS including foreign filings already made by TAMUS. It is understood that any such patent applications filed or prosecuted by ACC hereunder shall remain the property of TAMUS. 6.2 TAMUS shall disclose to ACC the complete texts of all patent applications filed by TAMUS which relate to LICENSED PRODUCTS as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving Patent Right anywhere in the world. ACC shall keep TAMUS promptly and fully informed of the course of patent prosecution or other proceedings. 6.3 In the event that ACC elects not to file or to continue to prosecute or maintain any patent or patent applications encompassing PATENT RIGHTS, it shall so notify TAMUS at least two (2) months prior to taking (or not taking) any action which would result in abandonment, withdrawal or lapse of such patent or patent 11 applications. TAMUS shall then have the right to continue maintenance or prosecution of such patent or application, at its own expense. 6.4 ACC shall receive a credit against royalties payable to TAMUS under Article III hereof for half (50%) of ACC's documented expenses for patent filings and prosecution under this article and all (100%) of ACC's documented expenses for maintenance fees. ARTICLE VII ENFORCEMENT OF PATENTS ACC shall notify TAMUS timely of any probable infringement which comes to its attention, and is empowered: 7.1 To bring suit in its own name, or, if required by law, jointly with TAMUS, for infringement of PATENT RIGHTS. Any recovery, award or settlement made to plaintiff as a result of suit for infringement shall be treated as an addition to NET SELLING PRICE of LICENSED PRODUCT; provided, however, that ACC and TAMUS shall each recover its cost of litigation from any recovery, award, or settlement in computing NET SELLING PRICE. TAMUS reserves the right to represent itself in any infringement suit. 7.2 To settle any claim or suit for infringement of PATENT RIGHTS by granting the infringing party a sublicense under the provisions of this Agreement. 12 ARTICLE VIII TERM AND TERMINATION 8.1 This Agreement shall be in effect until the date of the last to expire of LICENSED PATENTs and will remain in effect unless terminated earlier in accordance with the provisions of this Article VIII, or as otherwise provided in this Agreement. 8.2 ACC may surrender and thereby terminate this Agreement, or license grant hereunder, at any time upon ninety (90) days prior written notice to TAMUS. 8.3 In the event ACC shall at any time fail to make payments (except for the payment provided under paragraph 3.1, above), render reports, meet the diligence requirement, or otherwise abide by the terms herein provided, TAMUS shall have the right to notify ACC in writing of such default and that TAMUS intends to terminate this Agreement unless such default is cured by ACC with in sixty (60) days from receipt by ACC of such notice. Then and in such event, this Agreement and the license and rights granted by it shall thereby terminate with respect only to the species in that country in which the default occurred. 8.4 This agreement may be terminated by TAMUS at its option and without prejudice to any other remedy to which it may be entitled at 13 law or in equity, or elsewhere under this Agreement, by giving written notice of termination to ACC if the latter should: (a) Be adjudicated a voluntary or involuntary bankrupt; (b) Institute or suffer to be instituted any proceeding for a reorganization or rearrangement of its affairs; (c) Make an assignment for the benefit of creditors; (d) Become insolvent or have a receiver of its assets or property appointed; or (e) Allow any final judgment against it, after final determination of any appeal, to remain unsatisfied for a period of thirty (30) days or longer; provided, however that if such judgement shall be satisfied prior to termination of this agreement, then such judgement shall thereupon cease to be grounds for termination. 8.5 Upon termination of this Agreement for any reason, ACC shall immediately cease use of the PATENT RIGHTS; and the assignment in Schedule A and the release in Schedule B shall become null and void and be of no further force. 8.6 Termination of the Agreement or any license granted hereunder by either party for any reason, other than termination pursuant to paragraph 3.1, above, shall not relieve the parties of any obligation accruing prior to such termination. 14 ARTICLE IX REPRESENTATIONS AND INDEMNITIES 9.1 TAMUS represents that it has the full right and power to grant the License set forth in Article II and that there are no outstanding agreements, assignments or encumbrances inconsistent with the provisions of this Agreement other than as expressly set forth herein. TAMUS makes no other representation or warranty, express or implied, nor does TAMUS assume any obligations with respect to infringement of patents of others arising as a result of ACC's activities under this Agreement. In the event any third party asserts or claims rights in one or more LICENSED PATENTS inconsistent with said representation, and ACC becomes involved in litigation to defend or assert its rights under this Agreement, TAMUS agrees to cooperate with ACC in such action and ACC shall receive a credit against royalties under 3.2, 3.3 and 3.4 equal to its reasonable costs of such action. 9.2 ACC will indemnify TAMUS against any causes of action arising from ACC's commercialization of the Inventions, PATENT RIGHTS and/or LICENSED PRODUCTS. ARTICLE X THIRD PARTY AND COMPULSORY LICENSES 10.1 In the event that a third party shall file any legal action against ACC for patent infringement based upon a dominant patent owned or licensed by said third party, ACC shall be entitled to deduct from any royalty amounts due and payable to TAMUS an amount representing ten percent (10%) of its billed cost for legal services directly related to 15 the defense of such action. ACC shall notify TAMUS immediately upon receipt of notice of the filing of any such action. ACC hereby agrees that in no event shall TAMUS be responsible for the amount of any cost or legal fees exceeding the ten percent (10%) described above. 10.2 In the event that a governmental agency in any country or territory grants or compels TAMUS to grant a license to any third party for a LICENSED PRODUCT, ACC shall have the benefit in such country or territory of the terms granted to such Third Party to the extent that such terms are more favorable than those of this Agreement. ARTICLE XI COMMUNICATION Any payment, notice or other communication required or permitted to be made or given to either party hereto pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such party by certified or registered mail, postage prepaid, addressed to it at its address set forth below or to such other address as it shall designate by written notice given to the other party as follows: In the case of ACC: Dr. Joseph M. Cummins, President Amarillo Cell Culture Company, Incorporated 6666 Amarillo Blvd. West Amarillo, Texas 79106 In the case of TAMUS: System Patent Administrator The Texas A&M University System College Station, Texas 77843 16 With a copy to: Melvin J. DeGeeter Coordinator of Research Development for Industrial Relations The Texas Agricultural Experiment Station Texas A&M University College Station, Texas 77843-2162 ARTICLE XII ASSIGNABILITY This Agreement and the rights and privileges thereof are not assignable or otherwise transferable by either party without the prior written consent and approval of the other party except under one of the following circumstances: (i) they may be transferred with the business and goodwill of that part of the business to which the license hereunder relates, provided that the transferee shall, without delay, accept in writing the provisions of this Agreement and agree to become in all respects bound thereby in the place of the transferror; or (ii) ACC may assign its rights hereunder to an Affiliate of ACC. ARTICLE XIII MISCELLANEOUS 13.1 This Agreement will not be binding upon the parties until it has been signed herein below by or on behalf of each party, in which event it shall be effective as of the date first above written. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed as aforesaid. 13.2 This Agreement embodies the entire understanding of the parties with respect to LICENSED PATENTS and shall supersede all previous communications, representations, undertakings, or agreements 17 either verbal or written between the parties relating to the subject matter hereof. 13.3 If any provision or provisions of this Agreement shall be held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 13.4 This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the law of the State of Texas, USA. 13.5 ACC shall have no right to use the name or other designation of TAMUS or any Part of TAMUS in connection with any sales or promotion of LICENSED PRODUCTS without the express written consent of TAMUS. 13.6 This Agreement rescinds and replaces in its entirety that certain License Agreement between ACC and TAMUS dated April 1, 1987. 13.7 All overdue payments, minimums and/or royalties, unless otherwise specifically provided, shall bear interest from the date such payment, minimum and/or royalty was due and payable at the "Prime Rate" of interest quoted in the "Wall Street Journal" as of the due date, not to exceed the maximum legal rate of interest permitted by the laws of the State of Texas. 18 13.8 The headings of the several sections are inserted for convenience or reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. AMARILLO CELL CULTURE COMPANY, THE TEXAS A&M UNIVERSITY SYSTEM INCORPORATED /s/ Joseph M. Cummins /s/ Perry L. Adkisson - ----------------------------- ------------------------------- Joseph M. Cummins, President Perry L. Adkisson, Chancellor February 18, 1988 3-22-88 - ----------------------------- ------------------------------- Date Date 19 Schedule A (attachment to License Agreement dated March 22 , 1988) ------------ ASSIGNMENT FOR GOOD AND VALUABLE CONSIDERATION the receipt, sufficiency and adequacy of which are hereby acknowledged, the undersigned, does hereby: SELL, ASSIGN AND TRANSFER to THE TEXAS A&M UNIVERSITY SYSTEM (The "Assignee"), a Texas State Agency having a place of business at College Station, Texas, the entire right, title and interest for the United States and all foreign countries in and to any and all improvements which are disclosed in United States Patent Application Serial Number 927,834 filed November 6, 1986 and a Continuation-in-part of that Patent Application with Serial Number 110,501 filed October 26, 1987. The title of the Application, Serial Number is 927,834 is "Treatment of Immune-Resistant Disease". The assignment shall include such applications and all divisional, continuing, substitute, renewal, reissue and all other applications for patent which have been or shall be issued in the United States and all foreign countries on such improvements; and specifically including the right to file foreign applications under the provisions of any convention or treaty and claim priority based on such application in the United States; AUTHORIZE AND REQUEST the issuing authority to issue any and all United States and foreign patents granted on such improvements to the Assignee; WARRANT AND COVENANT that no assignment, grant, mortgage, license or other agreement with any third party affecting the rights and property herein conveyed is in existence, and that the full right to convey the same as herein expressed is possessed by the undersigned; COVENANT, when requested and at the expense of the Assignee, to carry out in good faith the intent and purpose of this assignment, the undersigned will execute all divisional, continuing, substitute, renewal, reissue, and all other patent applications on any and all such improvements; execute all rightful oaths, declarations, assignments, powers of attorney and other papers: communicate to the Assignee all facts known to the undersigned relating to such improvements and the history thereof; and generally do everything possible which the Assignee shall consider desirable for vesting title to such improvements in the Assignee, and for securing, maintaining and enforcing proper patent protection for such improvements; TO BE BINDING on the heirs, assigns, representatives and successors of the undersigned and extend to the successors, assigns and nominees of the Assignee. (Signature) /s/ Joseph M. Cummins Date Mar 11, 1988 --------------------------------------- ----------------- Name: Dr. Joseph M. Cummins, President Amarillo Cell Culture Canpany, Incorporated STATE OF Texas ) ----------- ) ss. COUNTY OF Potter -----------) BEFORE ME, the undersigned authority, on this 11th day of March, 1988 personally appeared Josep M. Cummins, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same of his own free will for the purposes and consideration therein expressed. /s/ Mary Ann Hofmann --------------------- [SEAL] Notary Public Officer Schedule B (attachment to License Agreement dated March 22 , 1988) ------------ WAIVER AND RELEASE For and in partial consideration of grant of an exclusive license by Texas A&M University System ("TAMUS") to Amarillo Cell Culture Company, Incorporated ("ACC") under Patent Rights as defined in, and under the terms of, the attached License Agreement, and for other valuable consideration, the receipt of which is hereby acknowledge, Joseph M. Cummins, individually, and not as President of ACC, does hereby waive any and all rights he may have as a former TAMUS Employee and Inventor under TAMUS patent policy to a share of royalties received by TAMUS, and derived from the Patent Rights as defined in the attached License Agreement. Said Joseph M. Cummins does hereby release TAMUS from any obligation it has under TAMUS patent policy to share with the Inventor Joseph M. Cummins accrued or future royalties derived from said defined Patent Rights and only from those defined Patent Rights. Term of this waiver and release are binding to the heirs, assigns, representatives and successors of the undersigned and extend to the successors and nominees of the Assignee. /s/ Joseph M. Cummins -------------------------------- Joseph M. Cummins Mrs. Joseph Cummins hereby agrees to this waiver and release and terminates any benefits she may receive from Dr. Joseph Cummins' rights as a former TAMUS Employee and Inventor as stated above. /s/ Brenda K. Cummins -------------------------------- Brenda K. Cummins STATE OF TEXAS ) ) ss. COUNTY OF Potter -----------) Before me, a Notary Public within and for said County and State, appeared Joseph M. Cummins, who acknowledged execution of the foregoing Waiver and Release. Witness my hand and Notarial Seal this 11th day of March, 1988 /s/ Mary Ann Hofmann -------------------------------- Notary Public MARY ANN HOFMANN -------------------------------- Printed Name My Commission Expires: 12-10-96 ----------- My County of Residence: Randall ----------- SCHEDULE C FIVE INTERFERON PATENTS 1. United States Patent Number 4,497,795 - "Appetite and Feed/Gain" 2. Continuation-in-Part Patent Application filed January 4, 1985 entitled "Method of Using Interferon in Low Dosage to Regulate Appetite and Efficiency of Food Utilization" 3. United States Patent Application Serial Number 814,317 filed December 30, 1985 entitled "Low Dosage of Interferon to Enhance Vaccine Efficiency" 4. United States Patent Application Serial Number 044,317 filed April 30, 1987 entitled "Improved Method of Administering Interferon" 5. United States Patent Application Serial Number 927,834 filed November 6, 1986 entitled "Treatment of Immune-Resistant Disease" 20 EX-10.3 9 LICENSE AGREEMENT LICENSE AGREEMENT THIS LICENSE AGREEMENT is made and effective this 20th day of October, 1989, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its principal place of business at 6666 Amarillo Boulevard West, Amarillo, Texas 79106 (hereinafter "ACC") and INTERFERON SCIENCES, INC., with its principal place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901 (hereinafter "ISI") (ACC and ISI are hereinafter collectively referred to as the "Parties"). WHEREAS, ACC owns or controls patents and patent applications directed to the oral administration of interferons for the prophylactic and therapeutic treatment of animals and human beings and has expertise in such uses of interferon; WHEREAS, ACC has already conducted or contracted for the conduct of preliminary tests demonstrating the efficacy of orally administered interferon, including cell culture derived interferons, in several vertebrate species, including humans; WHEREAS, ISI has substantial expertise in the production and use of cell culture derived human leukocyte interferon alpha (hereinafter, "IFN-a") and has proprietary rights and know-how in the field of production, purification and formulation of IFN-a; WHEREAS, ISI has ongoing research programs and product development efforts directed to the use of human IFN-a in human medicine and desires to expand use of human IFN-a to new human applications; WHEREAS, ACC desires to promote non-human applications of its proprietary technology relating to administration of interferon and acknowledges that such efforts would be facilitated by the availability of a source of FDA-approved IFN-a for ACC and its Third Party Licensees; WHEREAS, ISI has received FDA approval of a natural human IFN-a containing product ("IFN ALFA-N-3") with therapeutic claims in humans; WHEREAS, ACC desires to be the exclusive agent for distribution of ISI IFN ALFA-N-3 for oral use in non-human species, all as provided in that certain Manufacturing and Supply Agreement of even date herewith, between the Parties; WHEREAS, ISI desires to acquire a worldwide co-exclusive license under ACC's patents and patent applications for the manufacture, use and sale of human IFN-a formulations for oral use in human beings; and WHEREAS, ACC has disclosed to ISI ACC Technical Information including preliminary animal and human data and -2- copies of ACC patents and pending patent applications, and ISI has disclosed to ACC certain ISI Technical Information; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, ISI and ACC agree as follows: ARTICLE I DEFINITIONS 1.1. "ACC" and "ISI" shall mean and include not only the indicated company, but also its Affiliates and permitted Assignees. 1.2. "Affiliate" means a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation or company, "control" means ownership either directly or indirectly of at least Fifty Percent (50%) of the shares of stock entitled to vote for the election of directors. 1.3. "Agreement" or "License Agreement" means this Agreement and all Exhibits hereto. 1.4. "Assignee" means any assignee or sublicensee of rights under this Agreement. 1.5. "Distributor" means any purchaser, other than a Manufacturing Sublicensee, of Licensed Products from ISI, its Affiliates or permitted assignees. -3- 1.6. "Invention" means the use of interferons as disclosed and claimed in one or more Licensed Patents. 1.7. "ISI Interferon" means the ISI natural human IFN-a (IFN ALFA-N3) used to formulate IFN ALFA-N3-containing formulation(s) presently approved by the FOOD AND DRUG ADMINISTRATION ("FDA") for use as a treatment of human genital warts and which is produced, purified and formulated by ISI utilizing ISI Technical Information. It is contemplated that ISI Interferon will be utilized in the formulation of Licensed Products hereunder. 1.8. "Licensed Patent(s)" means those United States Patents and patent applications listed in Exhibit "A" hereof, and any continuations, continuations-in-part, divisions, reissues or extensions thereof, and each foreign counterpart of each United States Patent and patent application listed in Exhibit "A" and any extensions thereof, and any new patents, patent applications, continuations, continuations in part, divisions, reissues or extensions, filed or controlled by ACC either heretofore, or in the future, covering oral use of interferon in the human species. 1.9. "Licensed Product" means dose formulations or compositions containing interferon derived from any species and designated, detailed, or labeled for oral use in human species. -4- 1.10. "Manufacturing Sublicensee" means any Assignee of any of ISI's rights under this Agreement, under an arrangement (other than by virtue of a change or control of ISI) which requires or contemplates the manufacture of ISI Interferon by such Assignee. 1.11. "Net Sales Value" shall mean the gross selling price paid to ISI by a Distributor, including any royalty, for Licensed Product, including all packaging, instructional or other charges made to a Distributor, but less customary trade discounts and refunds or credits allowed for return of defective products. If Licensed Products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to commercial sales of similar Licensed Products to unrelated third parties in similar quantities. 1.12. "Technical Information" means all information, reports, results, inventions, know-how, materials, and any other technical and scientific data, specifications and formulae directly related to the development, regulatory approval, manufacture, testing, use, marketing and/or sale of Licensed Products or other interferon-containing compositions, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' conduct under this Agreement. "ACC Technical Information" refers to Technical Information -5- originating with ACC or which ACC has obtained through its contractual relationships with third parties. "ISI Technical Information" refers to Technical Information originating with ISI. "Technical Information" when not otherwise specified herein means ACC Technical Information and ISI Technical Information. 1.13. "Territory" shall mean all countries of the world, except Japan. 1.14. "Third Party Licensees" refers to third parties licensed by ACC under Licensed Patents to use and/or sell interferon-containing products designated, detailed or labeled for use in non-human species. 1.15. "University Agreements" shall mean the agreement dated March 22, 1988, between ACC and the TEXAS A&M UNIVERSITY SYSTEM and the agreement dated April 1, 1984, between ACC and UNIVERSITY PATENTS, INC., and Amendment No. 1 thereto, dated July 26, 1984, all of which are attached hereto as Exhibit "B". ARTICLE II THE LICENSE GRANT 2.1. ACC grants to ISI, subject to the terms of this License Agreement, a royalty-bearing co-exclusive license under Licensed Patents and under ACC Technical Information to make, have made, use and sell Licensed -6- Products labeled for use only in human species in the Territory. The rights hereby granted are co-exclusive with ACC's and its sublicensees' rights to make, have made, use and sell HBL interferon under the HBL Agreement attached hereto as Exhibit "D", and with ACC's and its sublicensees' rights to make, have made, use and sell their own non-human interferon for use only in animals. 2.2. ISI shall have the right to grant sublicenses under the license granted herein. For purposes of this Paragraph 2.2, "sublicense" shall mean a sublicense by ISI of some, but less than all, of its rights under this License Agreement, and shall not require ACC's consent, such as would be required for an Assignment under Paragraph 11.5. All such sublicenses shall be made expressly subject to the terms and provisions of this Agreement. ISI shall, within thirty (30) days of the execution of each sublicense, provide to ACC a copy of each sublicense granted hereunder and shall promptly advise ACC in writing of any modification (and supply a copy of same) or termination of each sublicense. Upon termination of this Agreement, all such sublicenses shall be automatically terminated, and all such sublicenses shall contain an express provision to that effect. -7- ARTICLE III CONSIDERATION 3.1. ISI shall pay to ACC a royalty of * of the Net Sales Value of Licensed Products sold by ISI to Distributors. 3.2. The obligation to pay a royalty shall be imposed only once in respect of a particular unit of Licensed Product, regardless of the number of Licensed Patents - ------------- * Confidential Treatment has been requested -7.1- embracing the Licensed Product and/or the manufacture and/or use thereof. 3.3. Further in consideration of the grant of license under ARTICLE II hereof, ISI shall execute and deliver the Manufacturing and Supply Agreement (a counterpart of which is attached hereto as Exhibit "C") on the date of this Agreement. 3.4. In addition to the payments provided in Paragraph 3.1, above, within thirty (30) days of receipt by ISI, ISI agrees that it will remit to ACC * of any option fee, license fee, or other payment, except royalty or specific research or patent expense reimbursements, and except payments received for sale of its stock at the then fair market value thereof, which it may receive from a Distributor, and * of any and all payments of whatsoever nature, except specific research or patent expense reimbursements, and except payment received for sale of its stock at the then fair market value thereof, which it may receive from a Manufacturing Sublicensee. 3.5. ISI shall maintain records of all ISI expenditures with respect to its business efforts toward development of Licensed Products hereunder and such records shall be sufficient to show the clinical indication for which each such expenditure is made. ISI shall provide ACC by January -8- 31 of each year during the term of this Agreement, and upon the expiration of three (3) years from the date of this Agreement, a report of ongoing efforts for the development of each clinical indication for Licensed Products, including a report of all expenditures by ISI for each indication with respect to formulation development, pre-clinical and clinical testing, regulatory approval efforts, manufacturing facility development/procurement, product packaging, marketing/sales strategy, and any other areas into which ISI's reasonable business efforts in accordance with this paragraph should reasonably be categorized. Such a report shall be prepared more often if ACC so requests in writing, and if ACC pays to ISI the expenses incurred by ISI in generating such additional reports. It is understood that ACC will receive such information as ISI Technical Information, and ACC shall use it only for the purpose of monitoring ISI's efforts to develop Licensed Products under this Agreement. 3.6. Upon the expiration of three (3) years from the date of this Agreement, ISI shall provide to ACC within thirty (30) days of ACC's request, copies of all data relating to the development of Licensed Products generated by ISI or by others for ISI during the term of this Agreement to that date. -9- ISI shall expend for development of Licensed Products hereunder, a total of at least * over the three (3) year period commencing on the date of this Agreement, for all indications for use of human interferon in humans, and a total of at least * over the three (3) year period commencing on the date of this Agreement, for the use of non-human interferons for human indications. 3.7. This License Agreement, and all rights licensed hereunder by ACC to ISI, shall terminate upon the expiration of five (5) years from the date hereof, unless ISI or its Manufacturing Sublicensee shall be marketing Licensed Products in the United States at that date; provided, however, that such termination date shall be extended from year to year, and this Agreement shall not terminate, so long as ISI continues to expend a minimum of * per year toward development of Licensed Products related to the use of human interferon in humans, and a minimum of * per year toward development of Licensed Products related to the use of non-human interferons in human indications hereunder ("Extension Payments"). If ISI should elect to -10- continue this Agreement in force by making such Extension Payments, ISI shall so notify ACC in writing within thirty (30) days of the expiration of five (5) years from the date of this Agreement. Thereupon, ISI shall have a period of twelve (12) calendar months during which to make such expenditures, and to document the same to ACC. If ISI -10.1- wishes, ISI may, at its election, satisfy said Extension Payment obligation by paying said * , as the case may be, to ACC within said twelve (12) month period, in which case said Extension Payment shall be treated as prepaid royalty, and applied to future obligations payable by ISI to ACC under ARTICLE III of this Agreement. If sufficient royalties shall not have been earned by ACC under the terms of this Agreement prior to its termination to offset all such prepaid royalties, then any excess amounts of prepaid royalties shall be nonrefundable, and shall be retained by ACC. If at any time after the expiration of five (5) years from the date hereof ISI should commence marketing Licensed Products in the United States under this Agreement, then ISI shall thereupon no longer be required to make Extension Payments to hold this Agreement in force, but ISI shall not be entitled to the return or refund of any Extension Payments theretofore made. If at anytime after the expiration of five (5) years from the date of this Agreement, ISI should no longer be marketing any Licensed Products in the U.S., then this Agreement and ISI's rights thereunder shall thereupon terminate, unless ISI begins or recommences such Extension Payments all as set forth above. Until the termination of this Agreement pursuant to ARTICLE V, ISI may hold this Agreement in force at all times after expiration of -11- five (5) years from the date hereof, by either (i) marketing Licensed Products in the U.S., or (ii) making Extension Payments. With respect to the making of Extension Payments by ISI, this Agreement may be held in force, as provided above, as to indications for use of human interferon in humans, by making the * annual Extension Payments, and this Agreement may be held in force as to indications for of non-human interferons in humans by making the * annual Extension Payments. 3.8. In the United States, ISI shall commence marketing of each Licensed Product within one hundred eighty (180) days after receiving approval of the New Drug Application ("NDA") for that Licensed Product. 3.9. Upon request by ACC, ISI shall provide ACC a list of each country, other than the United States, in which ISI or any Manufacturing Sublicensee is marketing Licensed Product, identifying the Licensed Products, and details of distribution, for each such country. 3.10. The Parties to this Agreement contemplate the possibility that ISI's sale of Licensed Products under this Agreement may be subject to competition from oral interferon products sold by other companies; accordingly, the Parties hereto agree as follows: -12- (a) ISI shall be required to pay to ACC the full amounts set forth in ARTICLE III, above, regardless of whether or not other companies may be competing against ISI with respect to the same indications. (b) The provisions of Paragraph (a) above notwithstanding, if ISI shall have demonstrated that sales of Licensed Product shall not be "economically viable" due to market competition from oral interferon products of companies other than HBL, then the royalty set forth in Paragraph (a) above shall be -12.1- reduced, to that point mutually agreed upon by ACC and ISI, where such sales shall become, or may be expected to become, "economically viable". For purposes of this provision, "economically viable" shall mean that such product sales, standing alone and without reference to other sales by ISI, will generate a net profit for ISI after taking into account costs of production and distribution, and royalties payable to ACC. In computing the amount of net profit on sales for purposes of this provision, none of ISI's general or indirect overhead, research and development costs, or depreciation shall be allocated to such sales as costs. If ACC and ISI should be unable to agree upon that royalty which would insure "economic viability", they shall jointly appoint an independent certified public accounting firm to make such determination, and the determination of such firm shall be final and conclusive. Such firm shall be one which has not previously been employed by either ACC or ISI. The expense of such firm shall be equally shared by ACC and ISI. ARTICLE IV REMITTANCES, RECORDS AND REPORTS 4.1. ISI shall keep accurate records in sufficient detail to enable the royalties payable hereunder to be determined. ACC shall have the right to nominate an independent public accountant, acceptable to and approved by ISI, which approval shall not be unreasonably withheld. Once in each calendar year, said accountant shall have access to the records of ISI relating to royalty payments under this License Agreement during reasonable business hours for the -13- purpose of verifying the accuracy of the reports and payments made during the current year and/or the preceding calendar year. Said accountant shall disclose to ACC only information relative to the accuracy of the reports and the payments made in accordance with this License Agreement. Any and all fees charged by said accountant shall be paid by ACC except, if ACC's auditors should find discrepancies in ISI's quarterly reports that resulted in under-reporting or underpayment by a factor greater than Ten Percent (10%) of the amount due, then ISI shall reimburse ACC for the cost of the audit conducted on the sales and/or payments for that country. 4.2. With respect to sales to Distributors, payment of royalties shall be made to ACC within forty-five (45) days following the end of each calendar quarter of each year for all Licensed Products sold by or for ISI during said calendar quarter, and royalties to ACC shall accrue when Licensed Products are first sold, or otherwise transferred by or for ISI, and Licensed Products shall be considered sold when billed out. With respect to amounts received by ISI from Manufacturing Sublicensees, payment shall be made to ACC within forty-five (45) days following the end of each -14- calendar quarter of each year for all payments received by ISI from Manufacturing Sublicensees during said calendar quarter. All payments to ACC shall be accompanied by statements certified by an officer of ISI which give sufficient information from which to calculate the amount of payment due hereunder, including the total quantity and Net Sales Value of each Licensed Product sold to Distributors for which royalty has accrued during the preceding calendar quarter, the amounts received by ISI from all Manufacturing Sublicensees during the preceding calendar quarter, and the aggregate amounts payable to ACC. A statement shall also be submitted in the event that no amounts are payable to ACC. 4.3. Payments hereunder shall be made in U.S. Dollars in the United States. With respect to sales to Distributors in countries outside the United States, royalties shall accrue in the currency of the country in which the sales are made and royalties shall be payable to ACC in U.S. Dollars at the official rate of exchange prevailing on the last day of the quarter during which the royalties accrued. 4.4. Any assignment under this Agreement shall require Assignee's compliance with the record keeping, royalty payment and record review provisions of this Agreement. -15- ARTICLE V TERM AND TERMINATION 5.1. This Agreement shall remain in effect until the date of the last to expire of the Licensed Patents unless terminated earlier in accordance with the proviSions of this ARTICLE V or as otherwise provided in this Agreement. 5.2. ISI may surrender and thereby terminate this Agreement at any time upon ninety (90) days' prior written notice to ACC. 5.3. In the event ISI shall at any time fail to make payments, render reports, meet the diligence or Extension Payment requirements of ARTICLE III, or otherwise fail to abide by the terms herein provided, ACC may notify ISI in writing of such default and ACC's intent to terminate this License Agreement unless such default is cured by ISI within sixty (60) days from receipt by ISI of such notice. If such default is not cured within the sixty (60) day period, ACC may provide ISI with written notice of termination, and this Agreement and the license and rights granted by it shall thereupon terminate. 5.4. This Agreement may be terminated by ACC at its option and without prejudice to any other remedy to which it may be entitled at law or in equity or elsewhere in this -16- Agreement, by giving written notice of termination to ISI if the latter should: (a) Be adjudicated a voluntary or involuntary bankrupt; (b) Institute or suffer to be instituted any proceeding for a reorganization or rearrangement of its affairs; (c) Make an assignment for the benefit of creditors; (d) Have a receiver of its assets or property appointed. 5.5. If at any time ISI should cease the conduct of its interferon manufacturing business, then it is agreed by the Parties that this License Agreement may thereupon be terminated by ACC, upon thirty (30) days written notice; provided, however, that if ISI shall have theretofore assigned its rights hereunder to a Manufacturing Sublicensee, under terms and conditions requiring said Manufacturing Sublicensee to continue to manufacture and supply ISI Interferon to ACC pursuant to the terms and conditions of the Manufacturing and Supply Agreement, then this Agreement may not be terminated by ACC upon ISI's cessation of the conduct of its interferon manufacturing business, but may be terminated by ACC upon cessation by said Manufacturing Sublicensee of the conduct of its interferon manufacturing business, upon thirty (30) days written notice, unless said Manufacturing Sublicensee has -17- made arrangements satisfactory to ACC, for continuation of the manufacturing and supply to ACC of ISI Interferon. If the ability of ISI to supply Manufactured Products (as defined in the Manufacturing and Supply Agreement) in the quantity and quality provided therein shall have been interrupted for a period of six (6) months or more, and if such interruption in supply was not the result of force majeure such as acts of God, strikes, wars, fire, inability to obtain raw materials, or civil disturbances, then as soon thereafter as ACC's inventories of Manufactured Products shall be or become exhausted, this License Agreement may thereupon be terminated by ACC, upon thirty (30) days written notice. 5.6. Termination of this License Agreement or any license granted hereunder by either Party for any reason shall not relieve the Parties of any obligation accruing prior to such termination. 5.7. On termination by ISI of this License Agreement for any reason, except natural termination in accordance with Paragraph 5.1 upon expiration of the last-to-expire of Licensed Patents, ISI shall cease to use or evaluate the Invention and shall cease to both make and sell Licensed Products and shall surrender to ACC all of ACC's confidential documents and information that it may have received during the term of this License Agreement. Any accrued royalties -18- shall be paid to ACC within thirty (30) days of the termination of this Agreement. ARTICLE VI ENFORCEMENT OF LICENSED PATENTS 6.1. In the event ISI alleges that a third party infringes a Licensed Patent, a prima facie determination of infringement shall be made by an Independent Patent Attorney ("IPA") satisfactory to both ISI and ACC, at their joint cost and expense. 6.2. If the IPA finds that there is no prima facie infringement by the alleged infringer, then ISI's obligation to pay royalties under this License Agreement shall continue without abatement. 6.3. If the IPA finds prima facie evidence of the alleged infringement: 6.3.1. ACC or ACC's licensor may elect to institute an infringement action against any such third party, which election shall be made no later than one hundred twenty (120) days after the determination of prima facie infringement as aforesaid, in which event ISI shall continue to pay royalties during the pendency of the action; and 6.3.2. Whether or not ACC or its licensor finally prevails, ISI shall continue to pay royalties as set forth in ARTICLE III hereof. -19- 6.3.3. If ACC or its licensor elects not to institute an action as aforesaid, ISI may elect to institute an action against a third party in which event: (a) During the pendency of such action, ISI may suspend payment of royalties under the Licensed Patent in suit in the country of such action to the extent of any costs actually incurred in such action; and (b) If ISI finally prevails it shall thereafter pay to ACC the amount of all royalties, the payment of which had been suspended under Paragraph 6.3.3(a), above, and shall resume paying royalties as set forth in ARTICLE III hereof, but may deduct from such amounts payable to ACC, ISI's actual out-of-pocket costs incurred in pursuing such litigation; in addition, ISI shall retain all damages which it may collect, but will pay to ACC Ten Percent (10%) of such damages as are compensatory damages for lost sales; and (c) If ISI finally loses the infringement action, ISI shall thereafter resume paying royalties as set forth in ARTICLE III and shall, in addition, pay to ACC such royalty payments as were suspended under the terms of Paragraph 6.3.3(a) hereof. 6.3.4. If ISI elects to prosecute an in- fringement action, it shall be responsible for all fees and costs incurred therein. 6.3.5. Each party shall reasonably cooperate with the other Party in the conduct of the proceedings, whether joint or not (such as by joining in name only); -20- however, where ACC or its licensor is joined in any such proceedings in name only as a necessary party and not at its election, ISI shall indemnify and hold harmless ACC and its licensor from and against any and all actions, claims, and counterclaims brought against ACC and/or its licensor, and ISI agrees to pay all expenses, damages and costs which may be finally assessed against ACC or its licensor in such actions, claims and counterclaims. 6.4. In the event of a final judgment of invalidity, ISI shall not be entitled to recover, as a credit or otherwise, any royalties theretofore paid. 6.5. It is agreed by ACC and ISI that if ACC elects to initiate an infringement action under Paragraph 6.3.1 in response to an alleged infringement in any country, ISI may not elect the course of action described in Paragraph 6.3.3 as to a subsequent infringer in that country until the first action is finally determined, unless otherwise agreed to by ACC. ARTICLE VII ALLEGED INFRINGEMENT BY ISI If ISI or a customer thereof (hereinafter "Defendant") is named as a defendant in a lawsuit charging Defendant with patent infringement as a result of its sale and/or use of a Licensed Product, when and only when such an -21- allegation of infringement arises specifically from uses which are described in a Licensed Patent or an application for a Licensed Patent, and Defendant provides ACC with copies of the complaint (or similar paper) and all papers associated with such suit, ISI shall have the right to establish an escrow account for the mutual benefit of ACC and ISI. For so long as the lawsuit is pending, including during any appeal from any judgment or decision of any court having jurisdiction of the suit, ISI shall have the right to deposit one-half (1/2) of the royalty payments to be paid to ACC under ARTICLE III hereof into said escrow account. The amounts deposited into the escrow account may be used toward Defendant's out-of-pocket monetary expenses actually incurred in defending the lawsuit, limited to attorneys' fees, costs and any damages assessed against Defendant based specifically and only on such use or sale of Licensed Products by Defendant. The escrow account shall be established as one or more interest bearing, federally insured accounts. The agreement establishing the escrow account shall require the escrow agent to provide ACC and ISI with accurate accounting reports, to reimburse ISI for its said expenses as approved in writing by ACC, and to remit to ACC any balance left in said account immediately after the lawsuit is finally adjudicated or otherwise resolved. ACC -22- shall approve all of said out-of-pocket expenses for reimbursement by the escrow agent provided the expenses are accurately documented for ACC and shown to be reasonably necessary to the defense of the lawsuit or any actual payment of assessed damages. ISI shall have no recourse against ACC concerning such lawsuit other than as herein specifically provided. Nothing in this ARTICLE VII shall be construed as allowing ISI to establish an escrow account, if Defendant is named as a defendant in a lawsuit charging Defendant with patent infringement as a result of ISI's or other Defendant's manufacture and/or purification of a Licensed Product. Both Parties recognize and hereby acknowledge that claims of patent infringement may be asserted by other persons or entities which claims may relate to the manufacture, sale and/or use of ISI Interferon. In the event such claims are asserted by other persons or entities against either of the Parties hereto, or their Affiliates or sublicensees, it is agreed and understood that neither the provisions of ARTICLE VI, nor the foregoing provisions of this ARTICLE VII shall apply, that neither Party shall have the obligation to defend such a suit for or at the request of the other Party, that either Party may defend such a suit against itself at its own, sole expense, and that no royalties paid hereunder shall -23- be reduced, withheld or escrowed by virtue of such suit, provided, however, that if such suit is brought against Defendant within two (2) years of ISI's having received any license fees under Paragraph 3.4 of this Agreement, and if ISI elects not to defend such suit, ISI shall reimburse to ACC the full amount of such license fees. ARTICLE VIII WARRANTY 8.1. ACC warrants and represents that it has the full right and power to grant the license set forth in ARTICLE II hereof, that the University Agreements are now in effect and that all payments and other actions required for the University Agreements to remain in effect for the duration of this License Agreement will be made or taken as the case may be. 8.2. ACC warrants that there are no outstanding agreements, assignments or encumbrances inconsistent with provisions of this License Agreement that would limit or infringe on this License Agreement, and the rights granted hereunder. 8.3. ISI warrants that the manufacture of ISI Interferon is fully compliant with all applicable state and federal regulations, including regulations promulgated under the Federal Food, Drug and Cosmetic Act. ISI further -24- represents and warrants that it owns or has access to FDA approved facilities for the manufacture of ISI Interferon and formulation of FDA compliant formulations therefrom. ARTICLE IX DISCLAIMERS AND INDEMNIFICATION 9.1. ACC makes no representation or warranty that the sale of Licensed Products will not infringe any third party patent, nor does ACC assume any obligations with respect to infringements of patents of others arising as a result of ISI's activities under this License Agreement except as otherwise expressly provided in this License Agreement. 9.2. ACC makes no covenant either to defend any infringement charge by a third party or to initiate action against infringers of any Licensed Patent except as otherwise expressly provided in this License Agreement. 9.3. ACC makes no representation or warranty concerning the potential profitability of Licensed Products and shall not be liable for failure of licensee to obtain a profit or income from Licensed Products. 9.4. ACC SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, OPERATION OR FITNESS FOR USE OF LICENSED PRODUCTS OR ANY OTHER REPRESENTATION OR -25- WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO LICENSED PRODUCTS OR LICENSED PATENTS. ACC EXPRESSLY MAKES NO WARRANTY OF VALIDITY OF PATENTS LICENSED HEREUNDER. 9.5. ISI agrees that it shall indemnify and save ACC harmless from any and all claims, demands, actions and causes of action against ACC, whether groundless or not, in connection with any and all injuries, losses, damages or liability of any kind whatsoever, arising, directly or indirectly, out of the use, manufacture, distribution and/or sale of Licensed Products by or through ISI or its Affiliates or sublicensees, whether or not the claims, demands, actions or causes of action are alleged to have resulted in whole or in part from the negligent acts or omissions of ACC, or from acts or omissions of such persons for which they are or any of them would otherwise be strictly liable. This indemnification obligation shall include, without limiting the generality of the foregoing, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any and all such claims, demands, actions or causes of action and shall extend to the officers, employees and agents of ACC. This indemnification obligation does not extend to any occurrences or events except those occurring in the use, manufacture, distribution and/or sale of Licensed Products by or through ISI, its Affiliates or sublicensees. -26- ARTICLE X CONFIDENTIALITY 10.1. ACC owns or is licensed under confidential or secret information relating to the Invention, and it is the intention of ACC to maintain this confidentiality. 10.2. ISI possesses trade secrets and technical and marketing information that are proprietary to ISI, and it is its intention to maintain the confidentiality of its proprietary information. 10.3. Each Party agrees to maintain confidential and secret all Technical Information which may be disclosed or provided to it by the other Party and that the Parties may together subsequently acquire in relation to the Invention and which is designated in writing by clearly identifiable legend as being confidential or secret in character. 10.4. Each Party's obligation to the other (to maintain confidentiality) hereunder shall terminate with respect to any particular item and only said item of the disclosing Party's confidential Technical Information, when the recipient Party can demonstrate that such item of information: 10.4.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or -27- 10.4.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 10.4.3. Has come into the recipient Party's possession through a third party free of any obligation of confidentiality to the disclosing Party, where said third party has acquired said information lawfully and not under circumstances forbidding its disclosure. 10.5. Neither Party will permit the other Party's confidential Technical Information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" basis and each will maintain confidential or secret information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 10.6. Each Party will notify the other promptly if it has knowledge that a third party possesses Technical Information of the other Party related to the Invention. 10.7. ISI shall have the right to use ACC's Technical Information to the extent reasonably necessary to accomplish the objectives of this License Agreement, including specifically the right to disclose such information to its Affiliates, actual and potential sublicensees, third party contract consultants and scientific investigators (from -28- whom ISI shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell Licensed Products. ARTICLE XI MISCELLANEOUS 11.1. Force Majeure. The failure of ISI, ACC, or any of their Affiliates or sublicensees to take any act required by this License Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war, riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstances now exists or hereafter arises, shall not subject said Party to any liability to the other. 11.2. Arbitration. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to -29- resolve any such dispute. In the event they are unable to resolve any such dispute by negotiation, such dispute shall be submitted to arbitration as follows: If arbitration is initiated by ISI, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ACC, it shall be held in New York, New York in compliance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any competent court having competent jurisdiction to enforce said award. 11.3. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party pursuant to this License Agreement shall be sufficiently made or given on the date of sending if sent to such Party by certified or registered mail or by Federal Express or a similar overnight courier service, postage or delivery charge prepaid, or by telex or telefax addressed to it at its address set forth below, or to such other address(es) as it may have designated by written notice given to the other Party: -30- In case of ISI: Dr. Sam Ronel, President Interferon Sciences, Inc. 783 Jersey Avenue New Brunswick, New Jersey 08901 and Ms. Irene Frangos National Patent Development Corp. 9 West 57th Street New York, New York 10019 In case of ACC: Dr. Joe Cummins, President Amarillo Cell Culture Company, Inc. 6666 Amarillo Boulevard West Amarillo, Texas 79106 11.4. Amendments to Agreement. This License Agreement constitutes the entire agreement between the Parties hereto on this subject matter and supersedes all previous arrangements whether written or oral. Any amendment or modification of this License Agreement shall be effective only if made in writing, and executed by both Parties. 11.5. Assignment. This License Agreement may be assigned in whole by ACCC to any person or entity and may be assigned in whole by ISI to any of its Affiliates. It shall otherwise not be assignable by ISI without the prior written consent of ACC, which consent shall not be unreasonably withheld. This Agreement shall inure to -31- the benefit of the permitted Assignees or successors of ISI and/or ACC. 11.6. Enforceability. If one or more of the provisions of this License Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. To the extent permitted by law, each Party waives any provision of law which renders any provision herein invalid, illegal or unenforceable in any respect. IN WITNESS WHEREOF, the Parties hereunto have caused this instrument to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: ISI: AMARILLO CELL CULTURE COMPANY, INTERFERON SCIENCES, INC. INCORPORATED By: /s/ Joseph M. Cummins By: /s/ Sam Ronel -------------------------- --------------------- Dr. Joseph M. Cummins Dr. Sam Ronel -32- EX-10.4 10 MANUFACTURING AND SUPPLY AGREEMENT MANUFACTURING AND SUPPLY AGREEMENT THIS AGREEMENT is made and effective this 20th day of October, 1989, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its principal place of business at 6666 Amarillo Boulevard West, Amarillo, Texas 79106 (hereinafter "ACC") and INTERFERON SCIENCES, INC., with its principal place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901 (hereinafter "ISI") (ACC and ISI collectively referred to hereinafter as the "Parties"). WHEREAS, ACC and ISI have entered into a License Agreement of even date herewith under which ACC grants to ISI a license under ACC owned or licensed patents and under ACC technical information for ISI's manufacture, use and sale of interferon-containing products labeled for oral use in human species; WHEREAS, ISI has substantial expertise in the production and use of cell culture derived human leukocyte interferon (hereinafter "IFN ALFA-N3") and has proprietary rights and know-how in the field of production, purification and formulation of IFN ALFA-N3; WHEREAS, ACC desires to promote non-human applications of its proprietary technology relating to oral administration of interferon and desires to make available to its animal health licensees or distributors pre-formulated interferon-containing compositions packaged and labeled for use and sale consistent with ACC's distribution needs or ACC's grant of license to said animal health licensees; WHEREAS, ISI has indicated its willingness to manufacture and utilize ISI IFN ALFA-N3 to formulate and bulk package interferon-containing compositions in accordance with the FDA requirements which may be applicable from time to time; WHEREAS, ISI has received FOOD AND DRUG ADMINISTRATION ("FDA") approval of a natural IFN ALFA-N3-containing product with a therapeutic claim in humans; WHEREAS, each ISI Interferon-containing product manufactured or formulated by ISI shall fall within the scope of regulations promulgated under the FDA and shall require additional approval of the Food and Drug Administration prior to sale or use in any species; WHEREAS, ISI has indicated its willingness to allow ACC or ACC's animal health third party licensees to reference the FDA Drug Master File for ISI IFN ALFA-N3; WHEREAS, ACC desires to be the exclusive agent for distribution of ISI IFN ALFA-N3 for oral use in non-human species; -2- NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, ISI and ACC agree as follows: ARTICLE I DEFINITIONS 1.1. "ACC" and "ISI" shall mean and include not only the indicated company, but also its Affiliates and permitted assignees. 1.2. "Affiliate" means a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation, "control" means ownership either directly or indirectly of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors. 1.3. "ISI Interferon" means the natural IFN ALFA-N3 used for the formulation of ISI's natural IFN ALFA-N3-containing formulation(s) approved by the FDA for use in the treatment of human genital warts, and which is produced, purified and formulated by ISI utilizing ISI Technical Information. ISI Interferon shall be utilized in the formulation of Products, Manufactured Products and Reformulated Products hereunder. -3- 1.4. "License Agreement" means the license agreement between ISI and ACC entered into of even date herewith. 1.5. "Manufactured Products" shall mean ISI Interferon, packaged in accordance with FDA approved dosage forms; as of the date of this Agreement, this comprises vials containing five (5) million International Units ("IU") each. 1.6. "Net Sales Value" shall mean the gross selling price of Products sold by ACC, including all packaging, instructional or other charges made to a purchaser, but less ACC's actual out-of-pocket costs related to packaging, labeling, and instructional materials, and less customary trade discounts or credits allowed for return of defective products. If Products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to the commercial sale of similar Products to unrelated third parties in similar quantities. 1.7. "Products" means compositions containing ISI Interferon, designated, detailed, or labelled for oral use in any non-human species. 1.8. "Reformulated Product" means Manufactured Product diluted or otherwise reformulated by ISI at ACC's expense, pursuant to ACC's requirements. -4- 1.9. "Sublicensee" shall mean any person or entity licensed by ACC under patents and/or Technical Information owned by or licensed to ACC for the use and sale of interferon-containing products for oral administration to nonhuman species. 1.10. "Technical Information" means all information, reports, results, inventions, licenses, know-how, improvements, materials, and any other technical and scientific data, specifications and formulae directly related to development, regulatory approval, manufacture, testing, use, marketing and/or sale of Products or other interferon-containing compositions, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' performance under this Agreement. "ACC Technical Information" refers to Technical Information originating with ACC or which ACC has developed through its contractual relationships with third parties. For the purpose of this Agreement, ACC Technical Information shall include Technical Information from Sublicensees pertinent to development, manufacture and sale of Products by said Sublicensee. "ISI Technical Information" refers to Technical Information originating with ISI or which ISI has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise -5- specified herein means both ACC Technical Information and ISI Technical Information. ARTICLE II ISI OBLIGATIONS 2.1. Subject to the terms and conditions of this Agreement, ISI shall supply Manufactured Product for oral use in non-human species exclusively to ACC, and to no other persons or entities. Manufactured Product shall be supplied in response to issuance by ACC of written purchase orders delivered to ISI specifying the identity of the quantity to be supplied, along with any special instructions/requests regarding supply and/or delivery. 2.2. ISI agrees to allow right of reference to ISI's FDA Drug Master File for ISI Interferon and to do such other acts that are reasonably necessary, and within ISI's control, to facilitate FDA approval of Products, and ISI also hereby agrees to consult with ACC concerning FDA regulatory affairs, to review ACC documents to be submitted to FDA, to provide persons knowledgeable in FDA regulatory affairs for periodic travel to FDA, and to take such other actions as may be necessary from time to time to facilitate FDA approval of ISI Interferon-containing formulations for non-human use. ISI further agrees to provide, subject to compliance with applicable FDA regulations, sufficient ISI Interferon for -6- formulation development, preliminary animal studies and clinical trials as are appropriate and necessary to support application for FDA approval and commercialization of Products. ISI's provision of ISI Interferon for animal testing and formulation development purposes shall be at no direct cost to ACC as long as no more than fifteen (15) million IU are required by ACC during any six (6) month period for such testing and development. 2.3. Upon request by ACC, ACC and ISI agree to negotiate in good faith to enter into an agreement for delivery of Reformulated Products in labeled containers, ready for delivery to end-users, including instructions. ISI shall be entitled to additional compensation for such packaging, labels and instructions, which compensation will be based upon ISI's actual out-of-pocket costs to provide such packaging, labelling and instructions, including, without limitation, development costs. ACC and ISI agree to negotiate in good faith, upon request by ACC for such packaging, labelling, and instructions, to agree to any further matters as to which agreement may be required, such as materials employed, manufacturing and production time, delivery dates, etc. In the event ISI, in the course of reformulating Manufactured Product into Reformulated Product, should -7- discover any novel, patentable technology, such technology shall be the sole property of ISI. 2.4. In the event ISI is sued by any person or entity for infringement of any United States patent relating to the production of ISI's IFN ALFA-N3, ISI may elect, at its sole discretion, during the time period such suit remains pending or on appeal, to terminate deliveries in the United States to ACC under this Agreement; in which case, ACC shall not be required to recommence accepting deliveries in the United States except upon its prior written consent. In addition, at ACC's request, and upon receipt by ISI from ACC of ISI's estimated out-of-pocket costs of compliance, ISI will undertake to make its best effort to modify the formulations and protocols of ISI's IFN ALFA-N3, to avoid any alleged conflict with any patents. ISI does not hereby guarantee the success of any such undertaking. ARTICLE III CONSIDERATION TO ISI; DUE DILIGENCE 3.1. ISI shall receive a transfer fee from ACC in the amount of per million international units ("IU") (the "Base Price") of Manufactured Product delivered by ISI to ACC, or for ACC's account, pursuant to the terms and conditions of this Agreement. -8- The risk of loss or damage in shipping shall be borne by ACC. The Base Price shall be increased (but not decreased) on January 1, 1990 and January 1, 1991 by an amount equal to the Base Price multiplied by the percentage increase in the Consumer Price Index (as hereinafter defined) (or such other index as the parties may agree) since November 1, 1989. The Consumer Price Index shall mean the Consumer Price Index for all Urban Consumers for New York, New York- Northeastern New Jersey published by the Bureau of Labor Statistics, United States Department of Labor, based on the period 1967 equaling 100, or the supplement or successor thereto if publication of such index should be discontinued. On January 1, 1992, and each January 1 thereafter, the price shall be reset to an amount equal to the higher of (i) the Base Price, adjusted through such date for CPI, or (ii) ISI's direct costs of manufacturing a vial of Manufactured Product (excluding any depreciation costs) as of such date. ISI shall make available to ACC its records reflecting its direct costs. If ACC and ISI shall be unable to agree on price, they shall jointly appoint an independent certified public accounting firm to make such determination, and the determination of such firm shall be final and conclusive. The expenses of such firm shall be equally shared by ACC and ISI. -9- ISI shall also receive from ACC or Sublicensee a manufacturing and supply fee equal to * of the Net Sales Value of products labeled for use in equine species and * of the Net Sales Value of products labeled for all other non-human species. In addition to the transfer and manufacturing and supply fees, ISI shall receive * of any license fee, option fee, or other payment, except royalty or specific research or patent expense reimbursements, and except payments received by ACC for sale of its stock at the then fair market value thereof, which ACC may receive for the assignment or sublicense of rights under this Agreement to the sale and/or use of ISI IFN ALFA-N3. The transfer and manufacturing and supply fees payable to ISI for Manufactured Products delivered to ACC shall accrue on delivery and shall be payable to ISI within forty-five (45) days of the close of the calendar quarter in which the products are sold by ACC, and each calendar quarter thereafter, and Products shall be considered sold when billed out. 3.2. For purposes of calculating the manufacturing and supply fee payable under this ARTICLE III, "Products" as used in this ARTICLE III, and in Paragraph 1.6 of ARTICLE I, shall mean any human IFN ALFA-N3 containing packaged dose formulations or compositions [except any interferon- -10- containing product manufactured or produced by Hayashibara Biochemical Laboratories, Inc., or its affiliates ("HBL")] designated or detailed and labeled for oral use in non-human species, whether or not manufactured by ISI, unless one of the following exceptions applies, in which case "Products", for purposes of calculating the manufacturing and supply fee payable under this ARTICLE III, shall have the meaning set forth in Paragraph 1.7: Exception No. 1: If another human IFN ALFA-N3 is "clinically significantly better" for a particular indication. "Clinically significantly better" shall mean that it is better, with respect to a clinically significant attribute, as determined from the results of a test, which test shall be designed by ACC. ACC shall inform ISI of all test specifications and parameters, and will make any changes reasonably requested by ISI. The means of the variables will be tested at alpha = .05, and beta error and power of test will be calculated. The power must be eighty percent (80%) or greater. Mean separations will be calculated by an approved statistical method. If the test result indicates that there is a ninety-five percent (95%) or better probability that the other IFN ALFA-N3 performs more favorably with respect to the clinical response being tested, then said IFN ALFA-N3 shall be deemed, for purposes of this Agreement, -11- to be "clinically significantly better" than the ISI IFN ALFA-N3. Exception No. 2: If it is not economically feasible to use ISI's IFN ALFA-N3 in the market in question. The determination of economic feasibility shall be made by ACC, but such determination shall be reasonable, and made in good faith. Specifically, the mere availability of a less expensive human IFN ALFA-N3 shall not constitute or render ISI's IFN ALFA-N3 "economically unfeasible". By way of explanation, and not by way of limitation, the following circumstances would constitute ISI's IFN ALFA-N3 "economically unfeasible": (a) If ACC shall be required to pay to ISI and any other person or entity, exclusive of University of Illinois and Texas A&M University, combined royalties in excess of * of the Net Sales Value of Products. ISI will assist ACC, upon request by ACC, in negotiating a royalty to any person or entity for use and/or infringement of any United States patent, and will attempt to negotiate such royalty at the lowest rate possible; in the event such negotiated royalty should exceed * of Net Sales Value, then ISI hereby agrees to a reduction in the royalty payable to it under Paragraph 3.1, above, so that the combined royalties payable by ACC to ISI and all other -12- persons or entities combined shall not exceed * of Net Sales Value of Products sold for use in equine species, and * of the Net Sales Value of Products sold for use in other non-human species; provided further, however, that ISI shall not be required, without its consent, to reduce the royalty payable to ISI under Paragraph 3.1, above, for sales of products labeled for non-equine, non-human species, to less than * , but if ISI should decline to reduce such royalties payable to it to less than * , and if the combined royalties payable by ACC to ISI and all other persons or entities combined, exclusive of payments to University of Illinois and Texas A&M University, should exceed * , then ISI's IFN ALFA-N3 would be deemed "economically unfeasible"; or (b) If ACC and/or ISI shall have been sued by any person or entity with respect to an alleged patent violation. In such case, ISI's human IFN ALFA-N3 would be once again deemed "economically feasible" if such lawsuit (including any appeal thereof) were settled, dismissed, or otherwise finally concluded favorably to ISI and/or ACC, or if a license fee acceptable to ACC were negotiated with such other person or entity, and a license fee negotiated with such other person or entity shall be -13- deemed acceptable to ACC as long as combined royalties payable by ACC to ISI and all other persons or entities combined, exclusive of payments to University of Illinois and Texas A&M University, should not exceed fifteen percent (15%). Exception No. 3: ISI shall be unable to provide ACC's bona fide requirements of Manufactured Product for a period of at least six (6) months. In such case, ACC agrees to use ISI IFN ALFA-N3 in its products, to the extent it is available, in preference to use of all interferons, other than HBL interferons; provided, however, that once ACC has applied for regulatory approval or commenced sale or use of an Interferon other than ISI IFN ALFA-N3 or HBL interferon in a particular market or markets because of the unavailability of ISI IFN ALFA-N3, then ACC may thereafter continue with the regulatory approval, sale or use of such non-ISI/HBL Interferon in such markets, and such activities shall continue to fall within this Exception No. 3, even though ISI IFN ALFA-N3 becomes available after the commencement of the regulatory approval process, sale, or use of such non-ISI/HBL Interferon. Exception No. 4: Any sales under that certain agreement dated October 14, 1988 by and between ACC and -14- ZOECON CORPORATION, a Sandoz company (the "Zoecon Agreement"). Under the Zoecon Agreement, ACC has licensed to ZOECON CORPORATION rights pertaining to the use of interferon in the canine and feline species. This Exception No. 4 shall terminate and be of no further force or effect upon the expiration or termination for any reason of the Zoecon / Agreement. Exception No. 5: Any sales, aggregating less than * in retail sales per annum, provided that if the sales exceed * per year ACC will pay ISI * of the net sales under an agreement to be entered into by and between ACC and DR. MAX GARRISON and/or MICRO CHEMICAL, INC., a Texas corporation (the "Garrison Agreement"). The Garrison Agreement will provide only for a non-exclusive, non-transferrable license to DR. GARRISON or MICRO CHEMICAL, INC. or their nominee, for manufacture and/or sale exclusively within the State of Texas, of natural human interferon for use solely in the bovine species. This Exception No. 5 shall terminate, and be of no further force or effect, upon the expiration, or termination for any reason, of the Garrison Agreement. Except for sales and activities falling within Exceptions No. 1 through 5, above, ACC agrees to utilize ISI Interferon in preference to all other interferons except HBL Interferon. -15- 3.3. ACC shall maintain records of all ACC expenditures with respect to its business efforts toward development of Products hereunder and such records shall be sufficient to show the clinical indication for which each such expenditure is made. ACC shall provide ISI by January 31 of each year during the term of this Agreement, and upon the expiration of three (3) years from the date of this Agreement, a report of ongoing efforts for the development of each clinical indication for Products, including a report of all expenditures by ACC for each indication with respect to formulation development, pre-clinical and clinical testing, regulatory approval efforts, manufacturing facility development/procurement, product packaging, marketing/sales strategy, and any other areas into which ACC's reasonable business efforts in accordance with this paragraph should reasonably be categorized. Such a report shall be prepared more often if ISI so requests in writing, and if ISI pays to ACC the expenses incurred by ACC in generating such additional reports. It is understood that ISI will receive such information as ACC Technical Information, and ISI shall use it only for the purpose of monitoring ACC's efforts to develop Products under this Agreement. 3.4. Upon the expiration of three (3) years from the date of this Agreement, ACC shall provide to ISI within -16- thirty (30) days of ISI's request, copies of all data relating to the development of Products generated by ACC or by others for ACC during the term of this Agreement to that date. ACC shall expend a total of at least * over a three (3) year period, for all indications combined, toward development of Products hereunder. 3.5. This Agreement, and all rights granted hereunder by ISI to ACC, may be terminated by ISI upon the expiration of five (5) years from the date hereof, unless ACC shall be marketing Products in the United States at that date; provided, however, that such termination date shall be extended from year to year, and this Agreement shall not be terminable, so long as ACC continues to expend a minimum of * per year toward development of Products hereunder ("Extension Payments"). If ACC should elect to continue this Agreement in force by making such Extension Payments, ACC shall so notify ISI in writing within thirty (30) days of the expiration of five (5) years from the date of this Agreement. Thereupon, ACC shall have a period of twelve (12) calendar months during which to make such expenditures, and to document the same to ISI. If ACC wishes, ACC may, at its election, satisfy said -17- Extension Payment obligation by paying said Extension Payment to ISI within said twelve (12) month period, in which case said payment shall be treated as prepaid royalty, and applied to future obligations payable by ACC to ISI under ARTICLE III of this Agreement. If sufficient royalties shall not have been earned by ISI under the terms of this Agreement prior to its termination to offset all such prepaid royalties, then any excess amounts of prepaid royalties shall be nonrefundable, and shall be retained by ISI. If at any time after the expiration of five (5) years from the date hereof ACC should commence marketing Products in the United States under this Agreement, then ACC shall thereupon no longer be required to make Extension Payments to hold this Agreement in force, but ACC shall not be entitled to the return or refund of any Extension Payments theretofore made. If at anytime after the expiration of five (5) years from the date of this Agreement, ACC should no longer be marketing any Products in the U.S., then this Agreement and ACC's rights thereunder shall thereupon be terminable at the option of ISI, unless ACC begins or recommences such Extension Payments all as set forth above. Until the termination of this Agreement pursuant to ARTICLE V, ACC may hold this Agreement in force at all times after expiration of five (5) years from the date hereof, by either -18- (i) marketing Products in the U.S., or (ii) making Extension Payments. 3.6. In the United States, ACC shall commence marketing of each Product within one hundred eighty (180) days after receiving approval of the New Animal Drug Application ("NADA") for that Product. 3.7. Upon request by ISI, ACC shall provide ISI a list of each country, other than the United States, in which ACC is marketing Product, identifying the Products, and details of distribution, for each such country. 3.8. Nothing in this Agreement is intended to burden ACC with any development requirements whatsoever relating to species other than swine, cattle or poultry. 3.9. ACC shall have the right to grant sublicenses under the License granted herein. All shall sublicenses shall be made expressly subject to the terms and provisions of this Agreement. ACC shall, within thirty (30) days of the execution of each sublicense, provide to ISI a copy of each sublicense granted hereunder and shall promptly advise ISI in writing of any modification (any supply a copy of same) or termination of each sublicense. Upon termination of this Agreement, all such sublicenses shall be automatically terminated, and all such sublicenses shall contain an express provision to that effect. -19- ARTICLE IV REMITTANCES, RECORDS, REPORTS, PROJECTIONS, AND PRODUCTION CAPACITY 4.1. ACC and its Affiliates shall keep accurate records in sufficient detail to enable determination of the fees payable to ISI hereunder. ACC shall require the same of Sublicensees. ISI shall have the right to designate an independent public accountant, acceptable to and approved by ACC, its Affiliates or Sublicensees whose records are to be inspected in accordance with this paragraph, which approval shall not be unreasonably withheld. Once in each calendar year, said accountant shall have access to the records of ACC and its Affiliates and Sublicensees relating to fee payments under this Manufacturing and Supply Agreement during reasonable business hours for the purpose of verifying the accuracy of the reports and payments made during the calendar year and/or the preceding calendar year. Said accountant shall disclose to ISI only information relative to the accuracy of the reports and the payments made in accordance with this Agreement, and in no event are sales, quantities and prices to individual customers to be disclosed to ISI. Any and all fees charged by said accountant shall be paid by ISI, except if ISI's auditor should find discrepancies in ACC's and/or any of its Affiliates or Sublicensees quarterly reports that resulted in under-reporting or underpayment of fees on sales -20- of Products by a factor greater than ten percent (10%) of the amount due, ACC, its Affiliates or Sublicensee, as appropriate, shall reimburse ISI for the cost of that audit. 4.2. Payment of fees to ISI hereunder shall be made within forty-five (45) days following the end of each calendar quarter of each year for all Products sold by or for ACC and its Affiliates and or its Sublicensees during said calendar quarter, beginning with the calendar quarter in which Products are first sold by ACC, its Affiliates, or one of its Sublicensees. Such fee payment shall be accompanied by a statement certified by an officer of ACC or its Affiliate or Sublicensee as appropriate, which provide sufficient information from which to calculate the amount of fees due hereunder, including the total quantity and Net Sales Value of Products sold for which a fee has accrued during the preceding calendar quarter and the aggregate fees due. A statement shall also be submitted to ISI in the event that no sales of Products are made. 4.3. Payments hereunder shall be made in U.S. Dollars. With respect to sales of Products in countries outside the United States, manufacturing and supply fees shall accrue in the currency of the country in which the sales are made and shall be payable to ISI in U.S. Dollars at -21- the official rate of exchange prevailing on the last day of the quarter during which the royalties accrued. 4.4. ACC shall require in its agreements with all of its Sublicensees that said Sublicensee shall comply with the record keeping, fee payment and record review provisions of this Agreement. 4.5. Within ninety (90) days of the date hereof, ACC will furnish ISI with its projected requirements for Manufactured Product(s) during the remainder of 1989, and for 1990. The projected requirements for such periods shall be at least ten (10) million IU per month. Subject to Paragraph 4.6, ISI shall use its best efforts to deliver the Manufactured Product(s) in accordance with ACC's projected requirements. 4.6. ISI agrees to maintain the capacity to manufacture at least ten (10) million IU of Manufactured Product per month, through December 31, 1990, and at least fifty (50) million IU per month, from and after January 1, 1991, for sale and delivery to ACC under this Agreement. ISI also agrees to exercise its best effort to manufacture and deliver such additional quantities of Manufactured Product as may be necessary to provide ACC with its bona fide marketing requirements (hereinafter, "Additional Quantities"). If in spite of exercising its best efforts, should ISI still be -22- unable to furnish Additional Quantities requested by ACC from time to time in the future, then ACC shall have the right (but not the obligation) to fund, at ACC's sole cost and expense, such expansion of ISI's manufacturing capacity as may be necessary, in order to satisfy such requirements. 4.7. ISI agrees that ACC may place into inventory or stockpile any amounts of Manufactured Product purchased hereunder, as ACC may deem necessary to provide for its future needs. 4.8. If at any time ISI should be unable to supply Additional Quantities, then ACC may obtain and use an alternative interferon or interferons. ACC may begin clinical trials with respect to such other interferons, in anticipation of its possible requirement to use such interferons in the future. ARTICLE V WARRANTIES ISI warrants to ACC that Manufactured Product delivered to ACC, its Affiliates, or Sublicensees shall be FDA approved product. It is understood that ISI makes no other warranty, express or implied, and all implied warranties or warranties of merchantability and fitness for a particular purpose which are beyond the aforesaid stated warranty obligations are hereby disclaimed and excluded. -23- ARTICLE VI DISCLAIMERS AND INDEMNIFICATION 6.1. ISI makes no representation or warranty that the manufacture of Manufactured Products or sale of Products will not infringe any third party patent, nor does ISI assume any obligations with respect to infringements of patents of others arising as a result of ACC's activities under this Agreement except as otherwise expressly provided in this Agreement. 6.2. ISI makes no covenant either to defend any infringement charge by a third party or to initiate action against infringers of any of its patents except as otherwise expressly provided in this Agreement. 6.3 ISI makes no representation or warranty concerning the potential profitability of sales of Products and shall not be liable for failure of licensee to obtain a profit or income from such sales. 6.4. ISI SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXCEPT AS ELSEWHERE EXPRESSLY SET FORTH IN THIS AGREEMENT, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, FUNCTION OR FITNESS FOR USE OF PRODUCTS. ISI EXPRESSLY MAKES NO WARRANTY OF VALIDITY OF ITS PATENTS. 6.5. ACC agrees that it shall indemnify and save ISI harmless from any and all claims, demands, actions and -24- causes of action against ISI, whether groundless or not, in connection with any and all injuries, losses, damages or liability of any kind whatsoever, arising, directly or indirectly, out of the use, distribution, and/or sale of Products by or through ACC or its Affiliates or Sublicensees, provided that the Manufactured Product to which said claim or claims pertain complies with FDA requirements at the time of its delivery. ISI shall notify ACC in writing within ten (10) days of its receipt of any claim, demand or lawsuit. Upon assumption by ACC of its duty to defend, ACC will have control of the claim, demand or lawsuit, and except as may be necessary to prevent lapse of its legal rights, ISI shall be required to incur no expense with regard to said claim, demand or lawsuit. ISI shall, at ACC's request, provide reasonable assistance in defense of any such claim, demand or lawsuit. 6.6. ISI shall indemnify and hold harmless ACC, its employees, Affiliates and Sublicensees from any and all judgments, liabilities, costs and expenses, including attorneys' fees, in connection with any claims, demands, and lawsuits arising from the sale of Products prepared from Manufactured Product not in compliance with FDA requirements as of the time of delivery, and further in connection with any claims, demands or lawsuits alleging non-compliance with -25- applicable State or Federal Regulations during formulation/manufacture of Manufactured Products, and for infringement of any property right, including patent, trademark, copyright, or trade secret, arising out of the use of any apparatus, method or raw material by ISI to produce and/or formulate Manufactured Product. ACC shall notify ISI in writing within ten (10) days of its receipt of any claim, demand or lawsuit. Upon assumption by ISI of its duty to defend, ISI will have control of the claim, demand or lawsuit and, except as may be necessary to prevent lapse of its legal rights, ACC shall be required to incur no expense with regard to said claim, demand or lawsuit. ACC shall, at ISI's request, provide reasonable assistance in the defense of any such claim, demand or lawsuit. ARTICLE VII TERM OR TERMINATION; DEFAULT 7.1. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of seven (7) years from the date of ISI's receipt of the first purchase order for Manufactured Product hereunder. After that initial term, the Agreement shall be automatically renewed for successive three (3) year terms ("Renewal Terms") as long as the Net Sales Value of Products sold by ACC, its Affiliates, or Sublicensees exceeds * -26- * during the last calendar year of the previous term, unless ACC notifies ISI at least ninety (90) days prior to the end of the initial term or of any Renewal Term of its election to terminate this Agreement. 7.2. ISI may terminate this Agreement at any time after the end of the first Renewal Term if Net Sales Value for the last preceding calendar year did not exceed * , by providing written notice to ACC at least one hundred twenty (120) days prior to the effective date of such termination. 7.3. If ACC shall at any time during the initial term or any subsequent Renewal Term of this Agreement default in any obligation hereunder or fail to pay any payment due from ACC, and such default shall no' be cured within sixty (60) days after written notice from ISI to ACC specifying the nature of the default, ISI may terminate this Agreement, or may demand specific performance. 7.4. If ISI shall, at any time during the initial term or any subsequent Renewal Terms of this Agreement, default in any obligation hereunder and such default shall not be cured within sixty (60) days after written notice form ACC to ISI specifying the nature of the default, ACC may terminate this Agreement, or may demand specific performance. -27- 7.5. Any termination pursuant to this Article shall not relieve ISI of any obligation to fill purchase orders placed with ISI prior to termination. Similarly any termination shall not relieve ACC of any obligation to ISI to pay royalties for sales of Product(s) containing ISI Interferon delivered by ISI prior to termination. 7.6. The exercise by either Party of any right of termination shall not constitute a waiver of any other rights or remedies available to such party for violation of the terms of this Agreement or under applicable law. ARTICLE VIII CONFIDENTIALITY 8.1. ACC owns or is licensed under confidential or secret information relating to Manufactured Products and the use of same in non-human species, and it is the intention of ACC to maintain this confidentiality. 8.2. ISI Possesses trade secrets and technical and marketing information that are proprietary to ISI, and it is its intention to maintain the confidentiality of its proprietary information. 8.3. Each Party agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other Party and that the Parties may together -28- subsequently acquire in relation to Products or Manufactured Products or Reformulated Products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. 8.4. Each Party's obligation to the other (to maintain confidentiality) hereunder shall terminate with respect to any particular item and only said item of the disclosing Party's confidential information, when the recipient Party can demonstrate that such item of information: 8.4.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 8.4.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 8.4.3. Has come into the recipient Party's possession through a third party free of any obligation- of confidentiality to the disclosing Party, where said third party has acquired said information lawfully and not under circumstances forbidding its disclosure. 8.5. Neither Party will permit confidential or secret information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" -29- basis and each will maintain confidential or secret information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 8.6. Each Party will notify the other promptly if it has knowledge that a third party possesses confidential or secret information of the other Party related to Products or Reformulated Products or Manufactured Products. 8.7. ACC shall have the right to reference ISI's FDA Drug Master Files for ISI's Interferon ALFA-N3, in seeking FDA approval for Products. In addition, ACC shall have the right, on request, to receive from ISI all information and data used or developed by ISI in manufacturing Reformulated Products, in the event ACC has contracted with a third party for the manufacture of such Products. ARTICLE IX MISCELLANEOUS 9.1. Survival. ARTICLES VII, VIII, and IX shall survive any termination of this Agreement. 9.2. Purchase Orders. All purchase orders placed by ACC, its Affiliates or its Sublicensees for Manufactured Products shall be subject to the terms and conditions of this Agreement, notwithstanding any other agreements between the Parties or contrary provisions in any documents related to the orders. -30- 9.3. Force Majeure. The failure of ISI, any of its Affiliates or Sublicensees or ACC to take any act required by this License Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war, riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject said Party to any liability to the other. 9.4. Arbitration. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to resolve any such dispute. In the event they are unable to resolve any such dispute by negotiation, such dispute shall be submitted to arbitration as follows: If arbitration is initiated by ISI, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is -31- initiated by ACC, it shall be held in New York, New York in compliance with the Rules of the Commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any court of competent jurisdiction to enforce said award. 9.5. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of sending if sent to such Party by certified or registered mail or by Federal Express or a similar overnight courier service, postage or delivery charge prepaid, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as it may designate by written notice given to the other Party as follows: In case of ISI: Dr. Sam Ronel, President Interferon Sciences, Inc. 783 Jersey Avenue New Brunswick, New Jersey 08901 and Ms. Irene Frangos National Patent Development Corp. 9 West 57th Street New York, New York 10019 -32- In case of ACC: Dr. Joe Cummins, President Amarillo Cell Culture Company, Inc. 6666 Amarillo Boulevard West Amarillo, Texas 79106 9.6. Amendments to Agreement. This Agreement constitutes the entire agreement between the Parties hereto with respect to ISI's manufacture and supply of Manufactured Products and ACC's sale of Products, and supersedes all previous arrangements whether written or oral. Any amendment or modification of this License Agreement shall be effective only if made in writing, and executed by both Parties. 9.7. Assignment. This Agreement shall not be assignable by ISI to any person or entity other than an ISI Affiliate without the prior written consent of ACC, which consent shall not be unreasonably withheld. This Agreement shall not be assignable by ACC to any person or entity other than an ACC Affiliate or a Sublicensee without the prior written consent of ISI, which consent shall not be unreasonably withheld. 9.8. Enforceability. If one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. To the extent permitted by law, each Party waives any provision of law -33- which renders any provision herein invalid, illegal or unenforceable in any respect. 9.9. Nature Of Relationship. Nothing herein shall be construed to place the Parties in a relationship of partners or joint venturers, nor does this Agreement make either Party the agent or legal representative of the other for any purpose whatsoever. The Parties further agree that no representation shall be made by either Party that would create an apparent agency, employment, partnership or joint venture. Neither Party shall have the power, express or implied, to obligate or bind the other in any manner whatsoever. 9.10. Headings. The headings of the several sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.11. Waiver. No provision of this Agreement shall be deemed waived, unless such waiver is in writing and signed by the Party against which the waiver is sought to be enforced. The waiver by either of the Parties hereto of any breach of any provision hereof by the other Party shall not be construed to be either a waiver of any succeeding breach of any such provision or a waiver of the provision itself. -34- IN WITNESS WHEREOF, the Parties hereunto have caused this Manufacturing and Supply Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: AMARILLO CELL CULTURE COMPANY, INCORPORATED By: /s/ Joseph M. Cummins -------------------------------- Dr. Joseph M. Cummins ISI: INTERFERON SCIENCES, INC. By: /s/ Sam Ronel -------------------------------- Dr. Sam Ronel -35- EX-10.5 11 JOINT DEVELOPMENT MAMUFACTURING/SUPPLY AGREEMENT JOINT DEVELOPMENT AND MANUFACTURING/SUPPLY AGREEMENT THIS AGREEMENT is made and effective this 13th day of March, 1992, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with it principal place of business at 2505 Lakeview Drive, Suite 104, Amarillo, Texas 79109-1527 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its principal place of business at 2-3, Shimoishii 1-chome, Okayama 700, Japan (hereinafter "HBL") (ACC and HBL collectively referred to hereinafter as the "Parties"). WHEREAS, HBL has substantial expertise in the production and use of hamster culture derived human lympho-bastoid interferon (hereinafter "IFN-a") and has proprietary rights and know-how in the field of production, purification and formulation of IFN-a; WHEREAS, ACC desires to promote applications of its proprietary technology relating to oral administration of interferon in all species and desires to make available to its human and animal health licensees or distributors preformulated interferon-containing compositions packaged and labeled for use and sale consistent with ACC's distribution needs or ACC's grant of license to said human or animal health licensees; WHEREAS, HBL and ACC desire to enter into a joint development arrangement, pursuant to which HBL will render a broad range of support and assistance to ACC, both as an interferon supplier and as a development partner; WHEREAS, ACC desires to have the exclusive right to distribute HBL IFN-a for oral use in non-human warm-blooded species worldwide, and in human species worldwide except Japan; WHEREAS, ACC and HBL have heretofore entered into that certain Manufacturing and Supply Agreement effective October 4, 1989, which Agreement is hereby terminated, and superseded in its entirety by the present Agreement; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, HBL and ACC agree as follows: ARTICLE I DEFINITIONS 1.1. "Agreement" means this Joint Development and Manufacturing/Supply Agreement. 1.2. "Sublicensee" shall mean any person or entity licensed by ACC under patents and/or Technical Information owned by or licensed to ACC for the use and sale of interferon-containing products for oral administration to any warm-blooded species. Copies of all sublicenses and -2- documents relating thereto will be submitted to HBL within thirty (30) days of execution. 1.3. "Affiliate" means a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation, "control" means ownership either directly or indirectly of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors. 1.4. "Manufactured Product(s)" shall mean HBL interferon-containing products, which meet all product specifications contained in the Product Specification Sheet. 1.5. "Product Specification Sheet" for any Manufactured Product means a listing of product specifications for each Manufactured Product named to this Agreement, as prepared by ACC and/or the Sublicensee for whom said product is to be manufactured, and shall include all specifications necessary and appropriate under applicable laws or regulations to define the product formulation, its container, labeling and package design. 1.6. "Net Sales Value" shall mean the gross selling price of a Manufactured Product or other interferon-containing product, as the case may be, sold by ACC, its Affiliates or Sublicensees, after the product is -3- diluted into packaged dose formulations or compositions designated or detailed and labeled for oral use in any warm-blooded species, including all packaging, instructional or other charges made to a purchaser, but less ACC's actual out-of-pocket costs related to packaging, labeling, and instructional materials, and less customary trade discounts or credits allowed for return of defective products. If products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to the commercial sale of similar product to unrelated third parties in similar quantities. 1.7. "Technical Information' means all information, reports, results, inventions, licenses, know-how, improvements, materials, and any other technical and scientific data, specifications and formulae directly related to development, regulatory approval, manufacture, testing, use, marketing and/or sale of Manufactured Product or other interferon-containing compositions, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' performance under this Agreement. "ACC Technical Information" refers to Technical Information originating with ACC or which ACC has developed through its contractual relationships with third parties. For the purpose of this Agreement, ACC -4- Technical Information shall include Technical Information from Sublicensees pertinent to development, manufacture and sale of Manufactured product or other interferon-containing compositions by said Sublicensee. "HBL Technical Information" refers to Technical Information originating with HBL or which HBL has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both ACC Technical Information and HBL Technical Information. 1.8. "HBL Interferon" means the natural IFN-a used for the formulation of HBL's natural IFN-a-containing formulation(s) for use in the treatment of human renal cell carcinoma in Japan, presently under the manufacturing and commercializing approval of the Ministry of Health and Welfare in Japan, and which is produced, purified and formulated by HBL utilizing HBL Technical information. HBL Interferon shall be utilized in the formulation of Manufactured Product hereunder. ARTICLE II HBL OBLIGATIONS 2.1. Subject to the terms and conditions of this Agreement, HBL shall supply HBL Interferon for low dosage, oral use in non-human warm-blooded species worldwide, and for low dosage, oral use in human species worldwide excepting -5- Japan, exclusively to ACC and/or Sublicensee, and to no other persons or entities. HBL shall formulate, manufacture, and supply Manufactured Product in accordance with Product Specification Sheets for delivery to ACC and/or Sublicensee f.o.b. HBL's manufacturing facilities. Manufactured Product shall be delivered for shipment to ACC or its Sublicensee in tablet or lozenge form, or, at ACC's request, packaged in bulk. Manufactured Product shall be supplied in response to issuance by ACC or Sublicensee of written purchase orders delivered to HBL specifying the identity of the Manufactured Product(s), and the quantity to be supplied, along with any special instructions/requests regarding the supply and/or delivery of the specified product or products. 2.2. Manufactured Products produced by HBL hereunder shall conform to all specifications listed on the corresponding Product Specification Sheet(s). HBL shall make no change in the raw materials, place of manufacture, method of manufacture, or quality control testing of Manufactured Products unless agreed to in advance by ACC and/or Sublicensee in writing. HBL will supply with each shipment of Manufactured Products a certificate of compliance with the respective Product Specification Sheet and HBL shall provide, upon request, quality control data and records setting forth the basis of such certificate of compliance. -6- 2.3. HBL agrees to cooperate with ACC and/or Sublicensee to assist with their development of a Product Specification Sheet for each Manufactured Product. HBL agrees to allow right of reference to HBL's FDA Biologics Master File for HBL Interferon and to do such other acts that are reasonably necessary, and within HBL's control, to facilitate FDA approval of HBL Interferon-containing formulations for oral use (that is, Manufactured Products diluted into packaged dose formulations or composition designated or detailed and labeled for oral use in human or non-human warm-blooded species). HBL further agrees to provide, subject to compliance with applicable FDA regulations, sufficient HBL Interferon for formulation development, preliminary human and animal studies and clinical trials as are appropriate and necessary to support application for FDA approval and commercialization of the contemplated Manufactured Products. 2.4. Upon request by ACC, HBL will enter into an agreement with ACC for delivery of Manufactured Products in labeled containers, ready for delivery to end-users, including instructions. HBL shall be entitled to additional compensation for such packaging, labels and instructions, which compensation will be based upon HBL's actual out-of- pocket costs to provide such packaging, labelling and -7- instructions, including, without limitation, development costs. ACC and HBL agree to negotiate in good faith, upon request by ACC for such packaging, labelling, and instructions, to agree to any further matters as to which agreement may be required, such as materials employed, manufacturing and production time, delivery dates, etc. 2.5. HBL shall provide nine million dollars U.S. ($9,000,000) in funding to ACC ("Research Funding"). The funding schedule, which may be adjusted by mutual consent of the Parties, shall be as follows: During Calendar Year 1992 $3.5 million During Calendar Year 1993 $4.0 million During Calendar Year 1994 $1.5 million HBL shall not be required to advance the 1993 and 1994 amounts to ACC unless and until INDA and INADA filings required to be made by ACC under Paragraph 3.2, below, shall have been timely made. The Research Funding shall be used per business plan(s) to be provided to HBL by ACC, but is summarized as follows: R&D on products for humans, U.S. $5.7 million R&D on products for animal health $2.0 million R&D on products for humans, International $1.3 million -8- ARTICLE III CONSIDERATION; DUE DILIGENCE 3.1. HBL shall receive a transfer fee from ACC or Sublicensee in the amount of * per 200 IU, 200 mg tablet or lozenge, or comparable tablet or lozenge, which price shall include the interferon contained therein, maltose, other required ingredients, interferon assays, and technical assistance. If interferon is shipped in bulk, at ACC's request, HBL shall still be entitled to the above described transfer fee, based on the number of tablets manufactured from the bulk product. If interferon is formulated, at ACC's request, into tablets or lozenges by HBL in Japan, then in addition to the above transfer fee, HBL shall also be entitled to be reimbursed for incremental costs actually incurred by HBL with regard to tableting and packaging, including labor and materials. HBL shall also receive from ACC or Sublicensee, as consideration for the Research Funding, a fractional, undivided interest in future sales ("Royalty"), as follows: a. * on the first one hundred million dollars ($100,000,000) of Net Sales Value of interferon-containing products sold by ACC for oral use in humans, worldwide, and * on Net Sales Value -------------- * Confidential treatment has been requested -9- of all such products sold for such uses, over and above one hundred million dollars ($100,000,000); and b. * of Net Sales Value of Manufactured Products sold by ACC for oral use in animals, worldwide; and c. * of Net Sales Value of products containing interferons other than HBL interferon, for oral use in animals, worldwide, until six million dollars ($6,000,000) has been received by HBL with respect to such payments, and thereafter, * . ACC shall provide to HBL, at least annually, proposed budgets for the expenditure of the Research Funding. In addition, there shall be created an Advisory Committee consisting of at least four (4) persons, half of whom shall be named by HBL and half of whom shall be named by ACC. The Advisory Committee shall provide advice, assistance and direction to ACC, with regard to the expenditure of the Research Funding. In addition to the transfer fees and Royalty, HBL shall receive * of any license fee, option fee, or other payment, except royalty or specific research or patent expense reimbursements, which ACC may receive for the sublicense of rights under this Agreement to the sale and/or use of HBL Interferon (hereinafter, * . The transfer -10- fees payable to HBL for Manufactured Products delivered to ACC or Sublicensees shall accrue on delivery and shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which the products are sold to ACC or Sublicensees, and each calendar quarter thereafter. The * shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which ACC receives any payment from which such * fee should be calculated. HBL shall also-have access to ACC Technical Information for use in marketing HBL Interferon for use in humans in Japan, and HBL is hereby granted by ACC a limited, exclusive license under ACC Technical Information and certain of its patents for oral use of HBL Interferon in humans in Japan. HBL will pay ACC a future sales interest of * of the Net Sales Value of sales of HBL Interferon by HBL, its Affiliates, licensees or transferees, for oral use in humans in Japan. For purposes of this paragraph, "Net Sales Value" shall be calculated for sales by HBL, its Affiliates, licensees or transferees in the same manner as Net Sales Value is calculated for sales by ACC, its Affiliates or sublicensees 3.2. ACC shall apply its reasonable efforts to proceed with the development, regulatory approval process, and marketing of at least two (2) clinical indications for Manufactured Products, and shall file at least one (1) Investigatory New Drug Application ("INDA"), and one (1) Investigatory New Animal Drug Application ("INADA") for a -11- Manufactured Product with the FDA within one (1) year of the date of this Agreement. ACC shall maintain records of all ACC expenditures with respect to its business efforts toward development of Manufactured Products hereunder and such records shall be sufficient to show the clinical indication for which each such expenditure is made. ACC shall provide HBL by January 31 of each year during the term of this Agreement, a report of on-going efforts for the development of each clinical indication for Manufactured Products, including a report of all expenditures by ACC for each indication with respect to formulation development, preclinical and clinical testing, regulatory approval efforts, product packaging, marketing/sales strategy, and any other areas into which ACC's reasonable business efforts in accordance with this paragraph should reasonably be categorized. Such a report shall be prepared more often if HBL so requests in writing. It is understood that HBL will receive such information as ACC confidential information, and HBL shall use it only for the purpose of monitoring ACC's efforts to develop Manufactured Products under this Agreement. 3.3. At any time after one (1) year from the date of this Agreement, ACC shall provide to HBL within thirty (30) days of HBL's request, copies of all data relating to the development of Manufactured Products generated by ACC or -12- by others for ACC during the term of this Agreement to that date. A determination shall thereupon be made, on an indication-by-indication basis, identifying those clinical indications as to which ACC has made a "significant development effort". For the purposes of this Paragraph 3.3, a "significant development effort" shall be deemed to have been made with respect to each indication for which ACC has either (1) made expenditures of at least * for pre-clinical/clinical testing and for which ACC has submitted to FDA an INDA or an INADA, or (2) actually commenced lawful marketing of Manufactured Products for that indication in any country. 3.4. With respect to all commercially viable indications for any warm-blooded species for which the "significant development effort" criteria under Paragraph 3.3 above have not been met, HBL shall continue to supply ACC with HBL Interferon for use in such indications, but HBL shall also be free to supply HBL Interferon to any other entity, for use in such indications. This shall not be construed as a license of rights under ACC patents or patent applications, the only such license being as set forth in Paragraph 3.1. 3.5. In the United States, ACC or its Sublicensee shall commence marketing of each Manufactured Product within -13- one hundred eighty (180) days after receiving approval of the New Drug Application ("NDA") or the New Animal Drug Application ("NADA") for that Manufactured Product. 3.6. ACC shall apply for regulatory approval in Europe, Canada, and (for animal applications only) Japan, for each Manufactured Product within one (1) year of ACC's receipt of the approval of its NDA or NADA for that Manufactured Product in the United States, and ACC (or its Sublicensee) shall market that Manufactured Product in such country within one (1) year of receiving regulatory approval of that Manufactured Product in that country. For purposes of this Paragraph 3.6, "Europe" shall be deemed to be the European Economic Community ("EEC"), and application for approval and/or marketing in any EEC member nation shall satisfy the requirements of this Paragraph, with regard to Europe. Upon request by HBL, ACC shall provide HBL a list of each country, other than the United States, in which ACC or its Sublicensee is marketing Manufactured Product, identifying the Manufactured Products, and details of distribution, for each such country. ARTICLE IV MANAGEMENT, REMITTANCES, RECORDS, REPORTS, AND PROJECTIONS 4.1. ACC and its Affiliates or Sublicensees shall keep accurate records in sufficient detail to enable -14- determination of the fees and Royalty payable to HBL hereunder. ACC shall require the same of Sublicensees. HBL shall have the right to designate an independent public accountant, acceptable to and approved by ACC, its Affiliates or Sublicensees whose records are to be inspected in accordance with this paragraph, which approval shall not be unreasonably withheld. Once in each calendar year, said accountant shall have access to the records of ACC and its Affiliates and Sublicensees relating to fee and Royalty payments under this Joint Development and Manufacturing/Supply Agreement during reasonable business hours for the purpose of verifying the accuracy of the reports and payments made during the calendar year and/or the preceding calendar year. Said accountant may disclose to HBL any information relative to the accuracy of the reports and the payments made in accordance with this Agreement. Any and all fees charged by said accountant shall be paid by HBL, except if HBL's auditor should find discrepancies in ACC's and/or any of its Affiliates or Sublicensees quarterly reports that resulted in under-reporting or underpayment of fees or Royalty by a factor greater than ten percent (10%) of the amount due, ACC, its Affiliates or Sublicensee, as appropriate, shall reimburse HBL for the cost of that audit. -15- 4.2. Payment of Royalty to HBL hereunder shall be made within forty-five (45) days following the end of each calendar quarter of each year for all products sold by or for ACC and its Affiliates and/or its Sublicensees during said calendar quarter, beginning with the calendar quarter in which products are first sold by ACC, its Affiliates, or one of its Sublicensees. Such Royalty payment shall be accompanied by a statement certified by an officer of ACC or its Affiliate or Sublicensee as appropriate, which provides sufficient information from which to calculate the amount of the payments due hereunder, including the total quantity and Net Sales Value of products sold for which a Royalty has accrued during the preceding calendar quarter, and the aggregate payment due. A statement shall also be submitted to HBL in the event that no sales of products are made. 4.3. Payments hereunder shall be made in U.S. Dollars and remitted to the bank account designated by HBL. With respect to sales in countries outside the United States, Royalty shall accrue in the currency of the country in which the sales are made and shall be payable to HBL in U.S. Dollars at the official rate of exchange prevailing on the last day of the quarter during which the Royalty accrued. 4.4. ACC shall require in its agreements with all of its Affiliates or Sublicensees that said Affiliates or -16- Sublicensee shall comply with the record keeping, payment record review provisions of this Agreement. ARTICLE V WARRANTIES HBL warrants to ACC that Manufactured Products delivered to ACC, its Affiliates, or Sublicensees shall conform to all specifications listed on the Product Specification Sheet(s) for said Manufactured Product(s) at the time of its delivery, provided that HBL shall be compensated separately, as hereinbefore provided, for any packaging or labeling performed at the request of ACC. It is understood that HBL makes no other warranty, express or implied, and all implied warranties or warranties of merchantability and fitness for a particular purpose which are beyond the aforesaid stated warranty obligations are hereby disclaimed and excluded. ARTICLE VI DISCLAIMERS AND INDEMNIFICATION 6.1. HBL makes no representation or warranty that the manufacture or sale of Manufactured Products will not infringe any third party patent, nor does HBL assume any obligations with respect to infringements of patents of others arising as a result of ACC's activities under this -17- Agreement except as otherwise expressly provided in this Agreement. 6.2. HBL makes no covenant either to defend any infringement charge by a third party or to initiate action against infringers of any of its patents except as otherwise expressly provided in this Agreement. 6.3. HBL makes no representation or warranty concerning the potential profitability of sales of Manufactured Products and shall not be liable for failure of licensee to obtain a profit or income from such sales. 6.4. HBL SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXCEPT AS ELSEWHERE EXPRESSLY SET FORTH IN THIS AGREEMENT, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, FUNCTION OR FITNESS FOR USE OF MANUFACTURED PRODUCTS. 6.5. ACC agrees that it shall indemnify and save HBL harmless from any and all claims, demands, actions and causes of action against HBL, whether groundless or not, in connection with any and all injuries, losses, damages or liability of any kind whatsoever, arising, directly or indirectly, out of the use, distribution, and/or sale of Manufactured Products by or through ACC or its Affiliates or Sublicensees, provided that the Manufactured Product to which said claim or claims pertain complies with the requirements -18- of its corresponding Product Specification Sheet applicable at the time of its delivery. HBL shall notify ACC in writing within ten (10) days of its receipt of any claim, demand or lawsuit. Upon assumption by ACC of its duty to defend, ACC will have control of the claim, demand or lawsuit, and except as may be necessary to prevent lapse of its legal rights, HBL shall be required to incur no expense with regard to said claim, demand or lawsuit. HBL shall, at ACC's request, provide reasonable assistance in defense of any such claim, demand or lawsuit. ARTICLE VII TERM OR TERMINATION; DEFAULT 7.1. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of seven (7) years from the date of this Agreement. After that initial term, the Agreement shall be automatically renewed for successive three (3) year terms subject to the prior written agreement of the Parties (hereinafter called "Renewal Terms") 7.2. HBL may terminate this Agreement at any time after the end of the first Renewal Term if Net Sales Value for the last preceding calendar year did not exceed one hundred thousand dollars ($100,000), by providing written notice to ACC at least ninety (90) days prior to the effective date of such termination. -19- 7.3. If ACC shall at any time during the initial term or any subsequent Renewal Term of this Agreement default in any obligation hereunder or fail to pay any payment due, and such default shall not be cured within sixty (60) days after written notice from HBL to ACC specifying the nature of the default, HBL may terminate this Agreement, or may demand specific performance. 7.4. If HBL shall, at any time during the initial term or any subsequent Renewal Terms of this Agreement, default in any obligation hereunder and such default shall not be cured within sixty (60) days after written notice from ACC to HBL specifying the nature of the default, ACC may terminate this Agreement, or may demand specific performance. 7.5. Any termination pursuant to this Article shall not relieve HBL of any obligation to fill purchase orders placed with HBL prior to termination. 7.6. The above provisions of this ARTICLE VII notwithstanding, ACC's obligation hereunder to pay Royalty to HBL shall survive the termination of this Agreement, and shall be perpetual, if HBL timely accomplishes all of the Research Funding pursuant to Paragraph 2.5. In addition, the obligation of HBL to pay to ACC a future sales interest on -20- sales of HBL interferon for oral use in humans in Japan shall survive the termination of this Agreement, and shall be perpetual, and ACC's grant herein to HBL of a limited exclusive license under certain of its patents, as set forth and described in Section 3.1 above, is a completed grant, and shall not be subject to rescission for any cause whatsoever. 7.7. The exercise by either Party of any right of termination shall not constitute a waiver of any other rights or remedies available to such party for violation of the terms of this Agreement or under applicable law. ARTICLE VIII CONFIDENTIALITY 8.1. ACC owns or is licensed under confidential or secret information relating to interferon-containing products and the use of same in human and non-human species, and it is the intention of ACC to maintain this confidentiality. 8.2. HBL possesses trade secrets and technical and marketing information that are proprietary to HBL, and it is its intention to maintain the confidentiality of its proprietary information. 8.3. Each Party agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other Party and that the Parties may together subsequently acquire in relation to interferon-containing -21- products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. 8.4. Each Party's obligation to the other (to maintain confidentiality) hereunder shall terminate with respect to any particular item and only said item of the disclosing Party's confidential information, when the recipient Party can demonstrate that such item of information: 8.4.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 8.4.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 8.4.3. Has come into the recipient Party's possession through a third party free of any obligation of confidentiality to the disclosing Party, where said third party has acquired said information lawfully and not under circumstances forbidding its disclosure. 8.5. Neither Party will permit confidential or secret information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" basis and each will maintain confidential or secret -22- information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 8.6. Each Party will notify the other promptly if it has knowledge that a third party possesses confidential or secret information of the other Party related to interferon-containing products. 8.7. ACC shall have the right to use HBL's confidential or secret information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its Affiliates, actual and potential Sublicensees, third party contract consultants and scientific investigators (from whom ACC shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell interferon-containing products. ARTICLE IX MISCELLANEOUS 9.1. Survival. ARTICLES VII, VIII, and IX, and the obligations described in Paragraph 7.6 (subject to any conditions set forth in said Paragraph 7.6), shall survive any termination of this Agreement. 9.2. Purchase Orders. All purchase orders placed by ACC, its Affiliates or Sublicensees for Manufactured -23- Products shall be subject to the terms and conditions of this Agreement, notwithstanding any other agreements between the Parties or contrary provisions in any documents related to the orders. 9.3. Force Majeure. The failure of HBL, ACC, or any of their Affiliates or Sublicensees to take any act required by this Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject said Party to any liability to the other. 9.4. Arbitration. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to resolve any such dispute. In the event they are unable to resolve any such dispute by negotiation, such dispute shall -24- be submitted to arbitration as follows: If arbitration is initiated by HBL, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ACC, it shall be held in Tokyo, Osaka, Japan in compliance with the Rules of the Japan Commercial Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any competent court having competent jurisdiction to enforce said award. 9.5. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of sending if sent to such Party by certified or registered mail or by Federal Express or a similar overnight courier service, postage or delivery charge prepaid, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as it may designate by written notice given to the other Party as follows: -25- In case of HBL: Mr. Katsuaki Hayashibara Manager, R&D Center Hayashibara Biochemical Laboratories, Inc. 2-3, Shimoishii 1-chome Okayama 700, Japan In case of ACC: Dr. Joe Cummins, President Amarillo Cell Culture Company, Inc. 2505 Lakeview Drive, Suite 104 Amarillo, Texas 79109-1527 9.6. Amendments to Agreement. This Agreement constitutes the entire agreement between the Parties hereto with respect to all of the matters herein addressed, and supersedes all previous arrangements whether written or oral, including but not limited to the Manufacturing and Supply Agreement of October 4, 1989. Any amendment or modification of this Agreement shall be effective only if made in writing, and executed by both Parties. 9.7. Assignment. This Agreement shall not be assignable by HBL to any person or entity other than an HBL Affiliate without the prior written consent of ACC, which consent shall not be unreasonably withheld. This Agreement shall not be assignable by ACC to any person or entity other than an ACC Affiliate or a Sublicensee without the prior -26- written consent of HBL, which consent shall not be unreasonably withheld. 9.8. Enforceability. If one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. To the extent permitted by law, each Party waives any provision of law which renders any provision herein invalid, illegal or unenforceable in any respect. 9.9. Nature of Relationship. Nothing herein shall be construed to place the parties in a relationship of partners or joint venturers, nor does this Agreement make either party the agent or legal representative of the other for any purposes whatsoever. The parties further agree that no representation shall be made by either party that would create an apparent agency, employment, partnership or joint venture. Neither party shall have the power express or implied, to obligate or bind the other in any manner whatsoever. For U.S. federal income tax purposes, both parties agree that the transactions contemplated by the Agreement should be characterized as follows: a. The Research Funding to be provided by HBL pursuant to Paragraph 2.5 is in payment for the Royalty -27- granted by ACC to HBL in Paragraphs 3.1 a., b., and c., and in consideration of HBL's right to receive the "50% Fee". b. The transfer fee of $.05 per tablet or lozenge, provided in Paragraph 3.1, is compensation or reimbursement to HBL for the manufacture and delivery of product as therein described. c. The 8% royalty granted by HBL to ACC under Paragraph 3.1 is in consideration of the receipt by HBL of the limited exclusive license under the U.S. patents described in such provision. 9.10. Headings. The headings of the several sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.11. Waiver. No provision of this Agreement shall be deemed waived, unless such waiver is in writing and signed by the Party against which the waiver is sought to be enforced. The waiver by either of the Parties hereto of any breach of any provision hereof by the other Party shall not be construed to be either a waiver of any succeeding breach of any such provision or a waiver of the provision itself. 9.12. Governmental Approval. In the event HBL has to obtain the approval from the appropriate governmental authorities of Japan to deliver HBL interferon or -28- Manufactured Products to the country in where ACC, ACC's Affiliates or Sublicensees will use and/or market HBL interferon or Manufactured Products, HBL's obligation pertaining to the supply of the said materials to the said country shall be subject to such approval granted in writing to HBL. IN WITNESS WHEREOF, the Parties hereunto have caused this Joint Development and Manufacturing/Supply Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: HBL: AMARILLO CELL CULTURE COMPANY, HAYASHIBARA BIOCHEMICAL INCORPORATED LABORATORIES, INC. By: /s/ Joseph M. Cummins By: /s/ Ken Hayashibara --------------------------- ----------------------------- Dr. Joseph M. Cummins, Mr. Ken Hayashibara, President President -29- FIRST AMENDMENT TO JOINT DEVELOPMENT AND MANUFACTURING/SUPPLY AGREEMENT THIS FIRST AMENDMENT TO JOINT DEVELOPMENT AND MANUFACTURING/SUPPLY AGREEMENT is made and effective this 17th day of January, 1996, by and between AMARILLO CELL CULTURE COMPANY, INC., a Texas corporation with principal place of business at 800 W. 9th Avenue, Amarillo, Texas 79101 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. with principal place of business at 2-3, Shimoishii 1-Chome, Okayama 700, Japan (hereinafter "HBL") (ACC and HBL being hereinafter collectively referred to as the "Parties"). WHEREAS, HBL and ACC have entered into that certain Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 ("Agreement"); and further; WHEREAS, the Parties wish to clarify the definition of "Net Sales Value" as contained in the Agreement, and to modify the transfer fee payable by ACC to HBL for bulk interferon, not shipped in the form of tablets or lozenges; NOW, THEREFORE, in consideration of these presents and for other good and valuable consideration the receipt and sufficiency of which are evidenced by the execution hereof, the Parties hereby agree as follows: FIRSTLY, Section 1.6 of the Agreement, "Net Sales Value", shall be and hereby is amended to hereafter read in its entirety as follows: -1- "1.6. "Net Sales Value" shall mean the amount of cash and/or other consideration actually received by ACC or its Affiliates, with respect to the sale by ACC, its Affiliates, or Sublicensees of a Manufactured Product or other interferon-containing product, as the case may be, after the product is diluted into packaged dose formulations or compositions designated or detailed and labeled for oral use in any warm-blooded species, including all packaging, instructional or other charges made to a purchaser, but less ACC'S (or its Affiliate's) actual out-of-pocket costs related to packaging, labeling, and instructional materials, and less customary trade discounts or credits allowed for return of defective products. If products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to the commercial sale of similar products to unrelated third parties in similar quantities." SECONDLY, the introductory paragraph of Section 3.1 of the Agreement shall be and hereby is amended to hereafter read in its entirety as follows: "3.1. HBL shall receive a transfer fee from ACC or its Affiliate in the amount of * per 200 International Unit ("IU") 200 mg tablet or lozenge, or comparable tablet or lozenge, f.o.b. Okayama, Japan, which price shall include the interferon contained therein, maltose, other required ingredients, interferon assays, and technical assistance. If HBL Interferon is shipped in bulk, as may be requested by ACC for use in formulating products for use in animals, HBL shall receive in lieu of the above, the amount of * per one million (1,000,000) IU of HBL interferon, f.o.b. Okayama, Japan. If interferon is formulated, at ACC's request, into tablets or lozenges by HBL in Japan, then in addition to the above transfer fee, HBL shall also be entitled to be reimbursed for incremental Costs actually incurred by HBL with regard to tableting and packaging, including labor and materials. HBL shall also receive from ACC or its Affiliate, as consideration for the Research Funding, a fractional, undivided interest in future sales ("Royalty") , as follows:" -2- EXCEPT as hereinabove expressly amended, the Agreement shall continue in full force and effect according to its terms. IN WITNESS WHEREOF, the Parties hereto have caused this First Amendment to Joint Development and Manufacturing/Supply Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: HBL: AMARILLO CELL CULTURE HAYASHIBARA BIOCHEMICAL COMPANY INCORPORATED LABORATORIES, INC. By: /s/ Joseph Cummins By: /s/ Ken Hayashibara ----------------------------- --------------------------------- Dr. Joseph Cummins Mr. Ken Hayashibara President President -3- ADDENDUM TO MANUFACTURING/SUPPLY AGREEMENTS This Agreement is made and effective this 10th day of May, 1996, by and between Amarillo Cell Culture Company, Incorporated, a Texas corporation with its principal place of business at 800 West 9th Avenue, Amarillo, Texas 79106 (hereinafter "ACC") and Hayashibara Biochemical Laboratories, Inc., with its principal place of business at 2-3 Shimoishii 1-chome, Okayama, 700 Japan (hereinafter "HBL"). RECITALS ACC and HBL are parties to a Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 (the "Oral Interferon Manufacturing/Supply Agreement") and a Manufacturing/Supply Agreement dated June 1, 1994 (the "Non-Oral Interferon Manufacturing/Supply Agreement"), with view of ACC's and HBL's cooperation and collaboration in the development and commercialization of oral and non-oral applications of interferon in humans and animals. Each of those existing Manufacturing/Supply Agreements contemplate, in part, ACC's development and manufacture of interferon-containing products. HBL has developed patented technology relating to the stabilization and formulation of interferon-containing products. ACC desires to acquire, and HBL has expressed willingness to grant, a license to use HBL patented technology for the formulation and manufacture of stabilized interferon-containing products. THEREFORE, ACC and HBL agree as follows: ARTICLE I DEFINITIONS 1.1 The terms "Affiliate", "HBL Interferon" and "HBL Technical Information" will have the same definitions as set forth in the Oral Interferon Manufacturing/Supply Agreement and the Non-Oral Interferon Manufacturing/Supply Agreement. 1.2 "Licensed Patents" means U.S. Patent 5,489,577, titled Semi-Solid Pharmaceutical Agent And Process To Produce The Same; U.S. Patent 4,816,445, titled Crystalline a-Maltose; U.S. Patent 4,996,196, titled Novel Desiccant And Dehydration Therewith; and U.S. Patent 4,870,059, titled Dehydration Of Hydrous Matter With Anhydrous Maltose, and the patents issuing on any foreign counterparts of those U.S. patents and any other patent issuing as a result of a reissue application, continuation, reexamination, substitution or division of any of those applications or patents referred to in this paragraph. 1.3 "Licensed Product" means any HBL Interferon-containing product, the use, manufacture or sale of which would infringe one or more valid claims of Licensed Patents. 1.4 "HBL Anhydrous Maltose" refers to anhydrous maltose or other anhydrous oligosaccharide manufactured by HBL using HBL Technical Information and sold by HBL or its Affiliates for use in pharmaceutical formulations. 1.5 "Territory" means (a) the United States, Canada and Mexico for Licensed Products labeled for non-oral use in human and non-human warm-blooded species; (b) all countries of the world for Licensed Products labeled for oral-use in non-humans and (c) all countries of the world except Japan for Licensed Products labeled for oral use in humans. -2- ARTICLE II LICENSE GRANT 2.1 HBL grants to ACC and its Affiliates a non-exclusive license under Licensed Patents to make, have made, use, sell, offer for sale and import Licensed Products in the Territory. 2.2 ACC has the right to grant sublicenses under the license granted herein, but only with the prior written approval of HBL which shall not be unreasonably withheld. ARTICLE III ACC OBLIGATION 3.1 ACC will purchase its requirements for anhydrous maltose for manufacture of Licensed Products from HBL (HBL Anhydrous Maltose) and ACC agrees to provide HBL with semi-annual reports showing its projected requirements for HBL Anhydrous Maltose for the six months following. 3.2 Other than those royalties and transfer fees provided for in the existing Manufacturing/Supply Agreements, ACC will pay no royalty to HBL on sales of Licensed Products. ARTICLE IV TERM AND TERMINATION The term of the non-exclusive license granted hereunder is the same as that of the respective manufacturing/supply agreements supplemented by this Addendum. -3- ARTICLE V MISCELLANEOUS 5.1 HBL represents that it has the right to grant the non-exclusive license to Licensed Patents under Paragraph 2.1. 5.2 HBL and ACC agree that the terms of this Addendum are to be incorporated into and form part of each of the existing Oral Interferon Manufacturing/Supply Agreement and the Non-Oral Interferon Manufacturing/Supply Agreement. The terms herein are to be considered in addition to and not in amendment of any of the terms of those existing agreements) which terms remain in full force and effect. To the extent that one or more of the terms of this Addendum are determined to be inconsistent with the terms of those existing agreements, the intent of the original terms will govern the obligations of the parties. Agreed to by ACC and HBL: ACC: HBL: AMARILLO CELL CULTURE COMPANY HAYASHIBARA BIOCHEMICAL INCORPORATED LABORATORIES, INC. By: /s/ Joseph M. Cummins By: /s/ Ken Hayashibara ------------------------------- ----------------------------- Joseph M. Cummins, President Ken Hayashibara, President -4- EX-10.6 12 AMENDED AND RESTAED AGREEMENT AMENDED AND RESTATED AGREEMENT THE AGREEMENT ("Agreement") made and effective as of the 27th day of November, 1990, by and between MITSUBISHI CORPORATION, a corporation organized and existing under the laws of Japan and having its principal place of business at 6-3 Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan (hereinafter "MC") and AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas, U.S.A. 79101 (hereinafter "ACC"), is hereby amended and restated in full as of this 24th day of November 1992. W I T N E S S E T H: WHEREAS, ACC has rights and obligations under an agreement with HAYASHIBARA BIOCHEMICAL LABORATORIES (hereinafter "HBL"), a Japanese corporation, to develop HBL human interferon alpha for its low-dose oral therapeutic or prophylactic applications in humans (hereinafter "Product"); and WHEREAS, ACC owns patents, know-how and other technical data concerning the use of Product in low, orally-administered doses with numerous potential clinical indications; WHEREAS, ACC desires to achieve the development, testing, registration, production, commercialization and distribution of Product for as many clinical indications as possible, in as many countries of the world as possible, for use in humans, and desires the assistance of MC in formulating and implementing a strategy to achieve these goals; WHEREAS, MC possesses a world-wide network that is active in promoting the development, licensing, commercialization, marketing and distribution of pharmaceutical products and desires to assist ACC in achieving the above-stated goals; NOW, THEREFORE, in consideration of mutual covenants and agreements contained herein, MC and ACC agree as follows: l. APPOINTMENT. ACC hereby appoints MC as its exclusive representative, and MC accepts such appointment by ACC, to (a) license ACC's rights and/or patents and/or know-how and other technical information related to Product (in cases in which ACC deems a license to be the most appropriate path for developing, testing, registering and marketing Product for a certain indication in a certain market); (b) assist ACC to market and distribute Product (in cases in which ACC decides to develop, test, register and market Product for a certain application in a certain market under its own auspices); and (c) ship Product on behalf of ACC to all persons and entities, for all applications for humans in all countries of the world except Japan, the United States, Thailand, Kenya, Tanzania, Rwanda, Burundi, Zambia, Zimbabwe, Malawi, Botswana and Uganda (all non-excluded markets being hereinafter referred to as the "Exclusive Markets"). ACC shall not appoint any other representative or otherwise commission any person or entity other than MC to represent ACC in the licensing or distribution of Product for use in humans in the Exclusive Markets or render any services the same as, similar to, or competitive with, any of the services as provided for in Article 2 below. In addition, ACC shall not itself market or sell Product, or license any third party to develop, market or sell Product, in the Exclusive Markets other than through MC, except in accordance with the terms and conditions hereof. 2. SERVICES TO BE PROVIDED BY MC. MC shall render, or cause its subsidiaries to render on behalf of MC, the following services to ACC: (a) Development of Strategy. MC shall assist ACC in developing a global strategy for the commercialization of Product for all applications for use in humans in all major potential markets. (b) Negotiations with Potential Licensees. In cases in which ACC deems a license to be the most appropriate path to commercialization for Product in a certain market, MC shall identify potential licensees and exert its best efforts to negotiate with such potential licensees regarding a license, subject to the final approval of ACC. ACC and/or HBL may also identify potential licensees, and in such cases, ACC may negotiate directly with such potential licensees, or may authorize HBL to do so on its behalf, without MC being present, although MC shall be immediately advised of the execution of any licensing agreement. (c) Establishment of Distribution Channels. In cases in which ACC decides to develop, test, register and produce Product under its own auspices, MC shall exert its best efforts to arrange for the distribution of Product in the intended market (l) through direct sales by MC and/or (2) through direct sales by ACC arranged through the agency of MC and/or (3) through the negotiation and conclusion of agreements with local distributors, subject to the final approval of ACC. In the case of (l), ACC and MC shall negotiate the price of Product sold to MC by ACC, and MC shall have the right to determine the terms of sales to customers, including pricing. -2- In the case of (2), MC shall determine the terms of sales to customers, including pricing, subject to the final approval of ACC. (d) Shipping and Delivery. MC shall, on behalf of ACC, make necessary arrangements for the shipment and delivery of Product to licensees, distributors and customers in the Exclusive Markets. (e) Administration of Payments. MC shall administer the flow of payments due to ACC from licensees, distributors, and customers in the Exclusive Markets. MC shall not, however, be held liable by ACC for non-payment by the above parties, except where MC has otherwise agreed to serve as a guarantor of credit. (f) Registration Assistance. While primary responsibility for registering Product in markets not covered by licensing agreements rests with ACC, MC shall, if requested by ACC, employ at MC's expense to an extent deemed reasonable by MC, its global network of experts to support ACC's registration efforts in ways including, but not limited to, identifying local registration requirements, negotiating with local registration authorities, identifying and negotiating with local testing facilities, and administering the flow of registration-related information. 3. RESPONSIBILITIES OF ACC. (a) Product Development. ACC shall exert that effort which ACC deems necessary and appropriate to register and otherwise develop Product for major potential unlicensed markets covered by this Agreement. ACC does not guarantee that it will be able to achieve registration and other aspects of Product development in any market covered by this Agreement. (b) Coordination of Actions Affecting Strategy. ACC agrees to consult with MC prior to taking any action, such as shipping samples to third parties or initiating clinical tests, that may have a material impact on overall strategy in the markets covered by this Agreement; however, ACC shall make the final determination with respect to action on any such matters. In addition, MC and ACC shall jointly review any such actions that were taken in the relevant markets prior to the signing of this Agreement. (c) Supply of Information by ACC. ACC shall supply MC with such information as MC may request from time to time in order to enable MC to most effectively render the services described in Article 2 above. -3- 4. CONFIDENTIALITY. Except as permitted in writing by ACC, MC and its subsidiaries involved in assisting in the performance of the services listed in Article 2, above, shall treat as confidential and appropriately safeguard, both during the life of this Agreement and thereafter until such time as it comes into the public domain, all information clearly identified by ACC as confidential. 5. COMPENSATION TO MC. ACC shall pay MC and MC shall have the right to collect from ACC ten percent (10%) of any license fee and/or option fee, and five percent (5%) of any royalties paid to ACC or an ACC subsidiary during the life of the license, with respect to any license agreement relating to the Product in the Exclusive Markets; provided that such license agreement is executed either (a) during the term of this Agreement (or any renewal hereof), or (b) within two (2) years after the expiration of this Agreement (or any renewal hereof) in the case of a license agreement with a party contacted by MC or introduced by MC to ACC prior to such expiration. Such amounts shall be due and payable to MC within thirty (30) days after ACC's receipt of such license downpayment or option fee, or royalty, as the case may be. In addition, ACC shall pay to MC and MC shall be entitled to collect from ACC, during the period set forth in Article 8, below, a commission of five percent (5%) of the net sales value of each shipment of Product by any person or entity to any person or entity in the Exclusive Markets. All such commissions shall be due and payable to MC within thirty (30) days after ACC's receipt of payment for such shipment. For purposes of this Article, "net sales value" shall mean the invoice amount payable to ACC or an ACC subsidiary minus returns allowed by ACC. Shipping and freight insurance costs shall not be deducted before calculating payments to MC. For purposes of this Article 5, a license agreement shall be considered to be a license agreement "relating to the Product in the Exclusive Markets", to the extent it contemplates or permits sale or delivery of Product into the Exclusive Markets, or to the extent sale or delivery into the Exclusive Markets actually occurs; and in either case, the fee to which MC shall be entitled under the foregoing provisions shall be prorated, based upon the actual amount of Product sold or delivered into the Exclusive Markets. In order to simplify accounting, ACC will, to the extent feasible, enter into separate license agreements pertaining to Exclusive Markets, and to excluded markets. In the event the degree of effort required from MC to execute shipments in a particular country should in MC's opinion render the aforesaid five percent (5%) shipping commission inadequate, MC shall so notify ACC, and shall provide ACC with such data and information which MC believes justifies a -4- higher shipping commission. Under those circumstances, ACC and MC shall make a good faith effort to negotiate a reasonable and appropriate shipping commission. In the event they are unable to agree upon a shipping commission, then with respect to that country, this Agreement shall be of no further force or effect, and neither party shall have any liabilities or obligations hereunder, and ACC shall be free to employ another or other agents or consultants with respect to that country. 6. INDEMNIFICATION. ACC shall indemnify, defend and hold harmless MC from any claim, demand, suit, damage and cost arising from third party claims arising in relation to Product including, but not limited to, patent infringement disputes and product liability claims. 7. ASSIGNMENT. ACC shall not assign this Agreement partially or totally to any third party (except its wholly-owned subsidiaries) without the prior written consent of MC. No assignment shall relieve ACC of any of its obligations or liabilities to MC hereunder, including any payments due to MC unless MC so consents in writing. 8. TERM OF AGREEMENT. This Agreement shall remain in effect through November 26, 2000, and shall thereafter be automatically renewed for successive renewal periods of three (3) years, unless either party notifies the other in writing that it elects not to renew the Agreement at least twelve (12) months before the commencement of any such renewal period. Notwithstanding the expiration of the term of this Agreement, MC's appointment and compensation as exclusive shipping agent and all other terms and conditions in this Agreement shall remain in effect with regard to shipments made in connection with any license executed either (a) during the term of this Agreement (or any renewal hereof), or (b) within two (2) years after the expiration of this Agreement (or any renewal hereof) in the case of a license or agreement with a party contacted by MC or introduced by MC to ACC prior to such expiration; and in the case of shipments in the Exclusive Markets not in connection with any license by ACC, for the life of the supply relationship between ACC and the party to or for whom such shipments are made, if such supply relationship was initiated during either (a) the term of this Agreement (or any renewal hereof), or (b) within two (2) years after the expiration of this Agreement (or any renewal hereof) in the case of a supply relationship with a party contacted by MC or introduced by MC to ACC prior to such expiration. For purposes of this Agreement, a "supply relationship" shall consist of any marketing, distribution or similar arrangement, under which ACC provides Product to any person or entity, with a view toward commercial sales of Product; and a supply relationship shall be deemed to -5- have been "initiated" with a party upon the first to occur of (a) the execution of a written marketing, distribution or similar arrangement with such party, or (b) the actual commencement of delivery of Product to such party, with a view toward commercial sales. 9. MINIMUM ACTIVITY. In each country in which ACC desires to license, market or distribute Product for use in humans, MC shall be allowed to negotiate during the term of this Agreement with potential licensees or distributors (as the case may be) with respect to a particular indication, until twelve (12) months after the granting of approval. If no license or distribution arrangements have been concluded with respect to said indication within said time period, then with respect to said indication in said country, ACC shall then and thereupon be free to make its own license, marketing or distribution arrangements, and in that case, MC shall not be entitled to any portion of any licensing fee or royalties received by ACC, but shall be entitled to the shipping commission provided in Article 5 above, subject, however, to the terms and conditions of said Article 5. 10. ARBITRATION. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to resolve any such dispute. In the event they are unable to resolve any such dispute by negotiation, such dispute shall be submitted to arbitration as follows: (a) If arbitration is initiated by MC, it shall be held in the State of Texas, U.S.A., and conducted pursuant to the Commercial Arbitration Rules of the American Arbitration Association. (b) If arbitration is initiated by ACC, it shall be held in Tokyo, Japan, and conducted pursuant to the Rules of the Japan Commercial Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with, and enforced by, any court having jurisdiction to enforce said award. 11. GOVERNING LAW. This Agreement shall be governed by the substantive law of the State of Texas, without regard to conflict of law principles. 12. SEVERABILITY. If any one or more of the provisions contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, the validity, legality -6- and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired. 13. NO WAIVER. No failure or delay on the part of either party in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other right, power or privilege. 14. ENTIRE AGREEMENT. This document constitutes the full understanding between the parties with reference to the subject matter hereof, and supersedes any prior oral or written statements or agreements the parties may have had. Neither party shall claim any amendment, modification, or release from any provision of this Agreement by mutual agreement, acknowledgement, or otherwise, unless such amendment, modification or release is in a writing signed by the other party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers or representatives, and each duplicate of which shall be considered as an original. AMARILLO CELL CULTURE COMPANY, INCORPORATED By: /s/ Edward Sherwood -------------------------------------------- Name (print): Edward Sherwood Title: President MITSUBISHI CORPORATION By: /s/ Takuji Nakamura -------------------------------------------- Name (print): Takuji Nakamura Title: General Manager, Fine Chemicals Business Development Department -7- EX-10.7 13 LICENSE AGREEMENT JAPAN ANIMAL HEALTH LICENSE AGREEMENT THIS AGREEMENT is made and effective this 20th day of January, 1993, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its principal place of business at 2-3, Shimoishii 1-chome, Okayama 700, Japan (hereinafter "HBL") (ACC and HBL collectively referred to hereinafter as the "Parties"). WHEREAS, ACC and HBL have heretofore entered into that certain Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 (the "1992 Agreement"); and further WHEREAS, the 1992 Agreement contemplated the commercialization by ACC of HBL's hamster culture derived human lymphoblastoid interferon (hereafter, "HBL interferon"), for oral administration in all species worldwide, except for humans in Japan; and further WHEREAS, in the 1992 Agreement ACC granted to HBL a limited exclusive license for oral use of HBL interferon in humans in Japan; and further WHEREAS, the 1992 Agreement provided for HBL access to ACC Technical Information (as therein defined) for use in marketing HBL interferon for use in humans in Japan; and further WHEREAS, ACC now desires to grant, and HBL now desires to receive, a limited exclusive license for use of HBL interferon in animals in Japan; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, HBL and ACC agree as follows: 1. HBL shall have access to ACC Technical Information for use in marketing HBL interferon for use in animals in Japan, and HBL is hereby granted by ACC a limited exclusive license under ACC Technical Information and certain of its patents for oral use of HBL interferon in animals in Japan. HBL will pay ACC a future sales interest of * of the Net Sales Value of sales of HBL interferon by HBL, its Affiliates, licensees or transferees for oral use in animals in Japan. For purposes of this license, "Net Sales Value" shall be calculated for sales by HBL, its Affiliates, licensees or transferees in the same manner as Net Sales Value is calculated under the 1992 Agreement for sales by ACC, its Affiliates or sublicensees; and "Affiliate(s)" shall have the meaning set forth in the 1992 Agreement. 2. No license fee, option fee or other up-front payment is payable with respect to this license, the sole consideration being that set forth in Paragraph 1, above. 3. ACC is hereby relieved from the requirement, set forth in Section 3.6 of the 1992 Agreement, to apply for regulatory approval for animal applications in Japan. - -------- * Confidential treatment has been requested 4. In the event of a conflict between this Agreement and the 1992 Agreement, this Agreement shall control. Except for any such conflict, and except as expressly herein modified, the 1992 Agreement remains in full force and effect. 5. This Agreement shall remain in effect for a period of seven (7) years from the date of this Agreement. After that initial term, the Agreement shall be automatically renewed for successive three (3) year terms subject to the prior written agreement of the parties. IN WITNESS WHEREOF, the Parties hereto have caused this Japan Animal Health License Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: AMARILLO CELL CULTURE COMPANY, INCORPORATED By:/s/ Edward Sherwood ---------------------------- Dr. Edward Sherwood, President By:/s/ Joseph M. Cummins ---------------------------- Dr. Joseph M. Cummins, Director of Animal Research and Development HBL: HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. By:/s/ Ken Hayashibara ---------------------------- Mr. Ken Hayashibara, President EX-10.8 14 EMPLOYMENT CONTRACT EMPLOYMENT CONTRACT This Employment Contract ("Contract") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer"), and ALAN B. RICHARDS ("Employee"). ACC and its controlled subsidiaries shall be hereinafter collectively referred to as "ACC Companies". Employer hereby employs Employee, and Employee accepts employment, on the following terms and conditions. ARTICLE I TERM OF EMPLOYMENT 1.01. By this Contract, Employer employs Employee, and Employee accepts employment with Employer, and with such ACC Companies as Employer shall designate, until this Contract shall have been terminated by either party by the serving of six months' advance, written notice of such termination upon the other party. ARTICLE II COMPENSATION 2.01. As compensation for all services rendered under this Contract, Employee shall be paid by Employer a salary of SEVEN THOUSAND EIGHTY-THREE AND 33/100 DOLLARS ($7,083.33) per month, payable at least monthly during the term of this Contract. The amount paid is to be prorated for any partial employment period. ARTICLE III DUTIES OF EMPLOYEE 3.01. Employee is employed as Director, Clinical and Regulatory Affairs, of Employer, and shall work at 800 W. 9th Street, Amarillo, the principal offices of Employer, and at such other place(s) in the City of Amarillo as Employer may direct. Employee shall perform the duties of Director, Clinical and Regulatory Affairs, as such duties may be further set forth in the Bylaws of Employer, or by resolution of the Board of Directors of Employer. Employee shall devote his entire productive time, ability, attention and energies to the business of Employer during the term of this Contract, except as below provided, and during such time, Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any other person or organization, whether or not for compensation, without the prior consent of the Board of Directors of Employer. ARTICLE IV EMPLOYEE'S OBLIGATIONS AS TO INSURANCE 4.01. Employee agrees to submit to physical examination as may be required for the obtaining by Employer of insurance on Employee's life, and agrees to consent to the issuance of a policy or policies of insurance on his life, such policies to be owned by Employer, and naming Employer as beneficiary. Upon termination of Employee's employment for any reason, and if requested by Employee, Employer shall -2- assign any such policy to Employee, so that Employee shall have the option of keeping the policy in force at Employee's expense. The foregoing notwithstanding, Employer shall be entitled to retain the accumulated cash value of any such policy. ARTICLE V EMPLOYEE BENEFITS 5.01. If Employer provides hospital, surgical, medical, dental, group life insurance, or other fringe benefits to its employees, or any of them, at any time during the term of this Contract, Employee shall be entitled to participate in such benefits, on terms and conditions at least as favorable as those accorded to other employees of Employer, subject to insurability. ARTICLE VI REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE 6.01. Employee is authorized to incur reasonable business expenses for promoting the business of Employer, including expenditures for entertainment and travel. Employer will reimburse Employee for all such expenses upon Employee's presentation of written expense vouchers, itemizing such expenditures. ARTICLE VII PROPERTY RIGHTS OF PARTIES 7.01. Employee has had access to and become familiar with, and during the term of continued employment, -3- will continue to have access to and become familiar with, various trade secrets, consisting of formulas, devices, secret inventions, processes, compilations of information, records, and specifications owned by ACC Companies and regularly used in the operation of ACC Companies. Employee shall not disclose any such trade secrets directly or indirectly nor use them in any way either during the term of this Contract or at any time thereafter except as required in the course of his employment. All files, records, documents, drawings, specifications, equipment and similar items relating to the business of ACC Companies, whether or not prepared by Employee, shall remain the exclusive property of ACC Companies and shall not be removed from the premises of Employer under any circumstances, except in pursuit of the trade and business of ACC Companies. 7.02. On the termination of employment or whenever requested by Employer, Employee shall immediately deliver to Employer all property in Employee's possession or under Employee's control belonging to ACC Companies, including but not limited to all accounting records, computer terminals and tapes, disks, or other data storage mechanisms, accounting machines, and all office furniture and fixtures, supplies and other personal property in the possession or under the control of Employee, in good condition, ordinary wear and tear excepted, and including without limitation all correspondence -4- files, research data, and patent information or data, of every sort. 7.03. Employee does not claim any rights or interests in and to trade secrets, formulas, devices, inventions, processes, patents, applications, continuations, copyrights, trademarks, compilations of information, records, specifications, rights, interests and data of any other sort, affecting or pertaining directly or indirectly to the business of ACC Companies as now conducted, or to the patents, trade secrets, and other rights now owned by ACC Companies. 7.04. Employee agrees that he will promptly and fully inform and disclose to Employer all inventions, designs, improvements and discoveries that Employee may have during the term of this Contract that pertain or relate to the business of ACC Companies or to any experimental work carried on by ACC Companies, whether conceived by Employee alone or with others and whether or not conceived during regular working hours. All such inventions, designs, improvements and discoveries shall be the exclusive property of Employer. Employee shall assist ACC Companies in obtaining patents on all such inventions, designs, improvements and discoveries deemed patentable by ACC Companies, and shall execute all documents and do all things necessary to obtain such patents for Employer or ACC Companies. 7.05. It is contemplated that Employee in the course of his employment will be engaged in work involving -5- various patents and secret processes owned by ACC Companies. All experiments, developments, formulas, patterns, devices, secret inventions and compilations of information, records, and specifications regarding such matters are trade secrets, which Employee shall not disclose directly or indirectly to anyone other than ACC Companies or their agents, or use in any way, either during the term of this Contract or at any time after the termination of this Contract, except as required in the course and scope of his employment. 7.06. During the term of this Contract, Employee shall not directly or indirectly either as an employee, employer, consultant, agent, principal, partner, stock holder, corporate officer, director, or in any other individual or representative capacity engage or participate in any business that is in competition in any manner whatsoever with the business of ACC Companies; provided, however, that Employee may without restriction invest in professionally managed mutual funds, where the investment decision regarding specific securities is made by the fund manager, and not by Employee; and Employee may purchase, own and sell stock or other securities of pharmaceutical companies, as long as Employee is not directly or indirectly through one or more intermediaries in control of or controlled by or under common control with any such company. Furthermore, upon the termination of this Contract, Employee expressly agrees not to engage or participate directly or indirectly in any business that is in -6- competition with the business of ACC Companies, for a period of three (3) years; and further provided, that no business will be considered to be in competition with ACC Companies unless its business relates to the manufacture, sale, testing or development of products containing alpha interferon. Employer and Employee recognize and agree that ACC Companies may obtain or develop additional technologies from time to time, and if that is the case, Employer may expand the terms of this non-competition provision by giving written notice to Employee of the additional technologies that are to be protected. 7.07. In the event of a breach by Employee of any provisions of this Article VII, the parties hereto agree that Employer, in addition to any other remedies to which Employer may be entitled at law, shall be entitled to the remedy of specific performance, it being understood and agreed by the parties hereto that damages may be difficult to ascertain, and that an award of damages would in all probability not sufficiently compensate Employer for any breach by Employee of such provisions. ACC Companies are intended third-party beneficiaries of the provisions of this Article VII. ARTICLE VIII RESTRICTED STOCK GRANT 8.01. Employer has heretofore granted to Employee a restricted stock grant. It is the desire and intention of Employer and Employee that said stock grant remain in force; -7- for purposes of clarification, said terms and conditions are herein set forth, so that the provisions contained in this Article VIII do not constitute a new grant, but are by way of confirmation of the existing grant. Should the provisions in this Article VIII vary in any manner from the provisions of any prior grant, these present provisions shall control. Where required by applicable laws or regulations, or by administrative necessity, the Board of Directors of Employer may prescribe additional terms and conditions regarding the issuance and administration of the restricted stock grant, as long as such additional terms and conditions (1) do not conflict with the terms and conditions hereinafter set forth, and (2) are no less favorable than those applying to the restricted stock grants received by other employees of Employer. 8.02. Employee has received from Employer a restricted stock grant of forty thousand (40,000) shares of the voting common stock of Employer. No certificates shall be issued, and the grant shall be subject to forfeiture, and said shares shall enjoy no rights with respect to voting, dividends, liquidation, or any other matter, but shall simply have the status of unissued shares, until the following events occur, at which time the hereinafter stipulated number of shares subject to this grant shall be released from restrictions, and certificates therefor shall be issued: -8- (a) FDA approval of any Hayashibara Biochemical Laboratories' Interferon-containing product owned or licensed by an ACC Company, for use in humans, for sale in the U.S.: 29,000 shares. (b) Sale of all or substantially all of the assets of Employer; sale by any ACC Company(s) of all or substantially all of the rights of the ACC Companies, collectively, to rights, patents, products and technology relating to the use of interferon-containing products in humans; a tender offer by any person or entity not currently a shareholder of Employer, for 50% or more of the issued and outstanding stock of Employer; or a merger, consolidation, or other reorganization of Employer, pursuant to which Employer is not the surviving company: 40,000 shares. In the event of the occurrence of any the events described in this Paragraph (b), Employee shall receive from Employer the number of shares in question, prior to the consummation of the stated event, so that he may and shall participate in said stated event on the same basis as other shareholders of Employer. (c) Initial public offering of common stock of Em- ployer: 40,000 shares. In the event of an initial public offering, the subject shares shall be issued to Employee prior to the com- mencement of said offering. Employer shall not be required to negotiate piggy-back regis- tration rights on behalf of any of its share- holders, but if it does so, Employee shall be entitled to participate in said piggy-back registration on the same basis as other share- holders of Employer. (d) Expiration of eight (8) years from September 1, 1992: 40,000 shares. 8.03. Any other provision of this Article VIII notwithstanding, no more than 40,000 shares in the aggregate, from all events combined, shall ever be issuable to Employee pursuant to this restricted stock grant. -9- 8.04. In the event of the death or complete disability of Employee, or a voluntary termination of employment (which shall include the resignation of Employee, or the giving of a notice of termination of this Contract, or a successor or amended employment contract, by Employee pursuant to Section 1.01, above), any stock not theretofore issued to Employee shall be forfeited. 8.05. Upon the giving of a notice of termination of this Contract (or a successor or amended employment contract) by Employer pursuant to Section 1.01, above, then upon discharge of Employee by Employer, fifty percent (50%) of the stock not theretofore issued shall be forfeited, and the other fifty percent (50%) shall be issued forthwith to Employee. 8.06. The shares subject to the restricted grant are shares of the common stock of Employer as presently constituted, but if and whenever, prior to the issuance by Employer of any shares of the stock subject to this grant, Employer shall effect a subdivision or reduction of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the stock outstanding without receiving compensation in money, services or property, the number of shares of stock then remaining subject to this grant, and not theretofore issued, shall (a) in the event of an increase in the number of outstanding shares, be proportionately increased, and (b) in -10- the event of a reduction in the number of outstanding shares, be proportionately reduced. ARTICLE IX ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL 9.01. This Contract supersedes all other agreements, either oral or in writing, between the parties to this Contract with respect to the employment of Employee by Employer. This Contract contains the entire understanding of the parties and all of the covenants and agreements between the parties with respect to such employment. 9.02. This Contract may be amended only by an instrument signed in writing by both parties; and provided further, that no amendment may be executed on behalf of Employer, except pursuant to a resolution of the Board of Directors of Employer. 9.03. The following provisions shall survive the expiration of this Agreement: ARTICLES VII, VIII and IX. IN WITNESS WHEREOF, this Contract is executed by the undersigned as of this 4th day of March, 1994. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Alan B. Richards By: /s/ Edward Sherwood - ----------------------------- ------------------------------- ALAN B. RICHARDS EDWARD SHERWOOD, President -11- AMENDMENT TO EMPLOYMENT CONTRACT THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer") and ALAN B. RICHARDS ("Employee"). WHEREAS, Employer and Employee have heretofore entered into that certain Employment Contract (the "Contract"), dated March 4, 1994; and further WHEREAS, the Contract has not been terminated by either Employer or Employee pursuant to Section 1.01 thereof; and further WHEREAS, on April 16, 1996, Employer declared a twenty percent (20%) stock dividend to all holders of record of its common stock as of such date (the "Stock Dividend"); and further WHEREAS, Employer and Employee desire to hereby amend certain provisions of the Contract; THEREFORE, in consideration of these presents and for other good and valuable consideration the receipt and sufficiency of which are evidenced by the execution hereof, Employer and Employee hereby agree that the Contract shall be amended as follows: 1. Employer and Employee agree that, notwithstand- ing the first sentence of Section 8.02 of the Contract and giving effect to the Stock Dividend, Employer's obligations to -1- Employee pursuant to Section 8.02(c) of the Contract shall be fully satisfied and discharged upon the issuance by Employer to Employee, simultaneously with the consummation of an initial public offering of common stock of Employer, of thirty thousand (30,000) shares of the voting common stock of Employer, and the deposit to Employer's payroll tax withholding account, for benefit of Employee, of ninety thousand dollars ($90,000.00) cash. After such issuance of stock and such withholding deposit, Employer shall have no more obligations whatsoever to Employee under any provision of Article VIII of the Contract. 2. Employee acknowledges and agrees that his rights to a piggyback registration under certain circumstances, as set forth in Section 8.02(c) of the Contract, pertain only to an initial public offering of common stock by Employer; and that from and after the consummation of said initial public offering, Employee shall have no rights to any piggyback registration, including without limitation, the right to participate in a piggyback registration (if any) which might be effected by Employer from time to time in the future, on behalf of any other shareholder. 3. Except as herein expressly amended, all terms and conditions of the Contract shall remain in full force and effect, as therein provided. -2- IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of this the 1st day of May, 1996. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Alan B. Richards By:/s/ Joseph M. Cummins - --------------------------- ----------------------------- ALAN B. RICHARDS Joseph M. Cummins, President -3- EX-10.9 15 EMPLOYMENT CONTRACT EMPLOYMENT CONTRACT This Employment Contract ("Contract") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer"), and JOSEPH M. CUMMINS ("Employee"). ACC and its controlled subsidiaries shall be hereinafter collectively referred to as "ACC Companies". Employer hereby employs Employee, and Employee accepts employment, on the following terms and conditions. ARTICLE I TERM OF EMPLOYMENT 1.01. By this Contract, Employer employs Employee, and Employee accepts employment with Employer, and with such ACC Companies as Employer shall designate, until this Contract shall have been terminated by either party by the serving of six months' advance, written notice of such termination upon the other party. ARTICLE II COMPENSATION 2.01. As compensation for all services rendered under this Contract, Employee shall be paid by Employer a salary of TEN THOUSAND AND NO/100 DOLLARS ($10,000.00) per month, payable at least monthly during the term of this Contract. The amount paid is to be prorated for any partial employment period. ARTICLE III DUTIES OF EMPLOYEE 3.01. Employee is employed as Director of Animal Research and Development, and shall work at 800 9th Street, Amarillo, the principal offices of Employer, and at such other place(s) in the City of Amarillo as Employer may direct. Employee shall perform the duties of Director of Animal Research and Development, as such duties may be further set forth in the Bylaws of Employer, or by resolution of the Board of Directors of Employer. Employee shall devote his entire productive time, ability, attention and energies to the business of Employer during the term of this Contract, except as below provided, and during such time, Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any other person or organization, whether or not for compensation, without the prior consent of the Board of Directors of Employer. ARTICLE IV EMPLOYEE'S OBLIGATIONS AS TO INSURANCE 4.01. Employee agrees to submit to physical examination as may be required for the obtaining by Employer of insurance on Employee's life, and agrees to consent to the issuance of a policy or policies of insurance on his life, such policies to be owned by Employer, and naming Employer as beneficiary. Upon termination of Employee's employment for any reason, and if requested by Employee, Employer shall -2- assign any such policy to Employee, so that Employee shall have the option of keeping the policy in force at Employee's expense. The foregoing notwithstanding, Employer shall be entitled to retain the accumulated cash value of any such policy. ARTICLE V EMPLOYEE BENEFITS 5.01. If Employer provides hospital, surgical, medical, dental, group life insurance, or other fringe benefits to its employees, or any of them, at any time during the term of this Contract, Employee shall be entitled to participate in such benefits, on terms and conditions at least as favorable as those accorded to other employees of Employer, subject to insurability. ARTICLE VI REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE 6.01. Employee is authorized to incur reasonable business expenses for promoting the business of Employer, including expenditures for entertainment and travel. Employer will reimburse Employee for all such expenses upon Employee's presentation of written expense vouchers, itemizing such expenditures. ARTICLE VII PROPERTY RIGHTS OF PARTIES 7.01. Employee has had access to and become familiar with, and during the term of continued employment, -3- will continue to have access to and become familiar with, various trade secrets, consisting of formulas, devices, secret inventions, processes, compilations of information, records, and specifications owned by ACC Companies and regularly used in the operation of ACC Companies. Employee shall not disclose any such trade secrets directly or indirectly nor use them in any way either during the term of this Contract or at any time thereafter except as required in the course of his employment. All files, records, documents, drawings, specifications, equipment and similar items relating to the business of ACC Companies, whether or not prepared by Employee, shall remain the exclusive property of ACC Companies and shall not be removed from the premises of Employer under any circumstances, except in pursuit of the trade and business of ACC Companies. 7.02. On the termination of employment or whenever requested by Employer, Employee shall immediately deliver to Employer all property in Employee's possession or under Employee's control belonging to ACC Companies, including but not limited to all accounting records, computer terminals and tapes, disks, or other data storage mechanisms, accounting machines, and all office furniture and fixtures, supplies and other personal property in the possession or under the control of Employee, in good condition, ordinary wear and tear excepted, and including without limitation all correspondence -4- files, research data, and patent information or data, of every sort. 7.03. With the exception of inventor royalties currently owned by Employee, arising out of his previous employment by the University of Illinois and Texas A&M University, and relating to certain royalty payments receivable by Employee with respect to certain licenses heretofore granted by said Universities, Employee hereby promises and agrees to convey and assign to Employer any and all other rights or interests he may now have in and to trade secrets, formulas, devices, inventions, processes, patents, applications, continuations, copyrights, trademarks, compilations of information, records, specifications, rights, interests and data of every other sort, affecting or pertaining directly or indirectly to the business of ACC Companies as now conducted, or to the patents, trade secrets, and other rights nor owned by ACC Companies. In further clarification of the preceding sentence, it is not Employee's intention to retain individually any such rights or interests, other than those heretofore specifically excepted. Except for the rights heretofore excepted, Employee does not claim any rights or interests in and to trade secrets, formulas, devices, inventions, processes, patents, applications, continuations, copyrights, trademarks, compilations of information, records, specifications, rights, interests and data of any other sort, affecting or pertaining directly or indirectly to the business of ACC -5- Companies as now conducted, or to the patents, trade secrets, and other rights now owned by ACC Companies. 7.04. Employee agrees that he will promptly and fully inform and disclose to Employer all inventions, designs, improvements and discoveries that Employee may have during the term of this Contract that pertain or relate to the business of ACC Companies or to any experimental work carried on by ACC Companies, whether conceived by Employee alone or with others and whether or not conceived during regular working hours. All such inventions, designs, improvements and discoveries shall be the exclusive property of Employer. Employee shall assist ACC Companies in obtaining patents on all such inventions, designs, improvements and discoveries deemed patentable by ACC Companies, and shall execute all documents and do all things necessary to obtain such patents for Employer or ACC Companies. 7.05. It is contemplated that Employee in the course of his employment will be engaged in work involving various patents and secret processes owned by ACC Companies. All experiments, developments, formulas, patterns, devices, secret inventions and compilations of information, records, and specifications regarding such matters are trade secrets, which Employee shall not disclose directly or indirectly to anyone other than ACC Companies or their agents, or use in any way, either during the term of this Contract or at any time -6- after the termination of this Contract, except as required in the course and scope of his employment. 7.06. During the term of this Contract, Employee shall not directly or indirectly either as an employee, employer, consultant, agent, principal, partner, stock holder, corporate officer, director, or in any other individual or representative capacity engage or participate in any business that is in competition in any manner whatsoever with the business of ACC Companies; provided, however, that Employee may without restriction invest in professionally managed mutual funds, where the investment decision regarding specific securities is made by the fund manager, and not by Employee; and Employee may purchase, own and sell stock or other securities of pharmaceutical companies, as long as Employee is not directly or indirectly through one or more intermediaries in control of or controlled by or under common control with any such company. Furthermore, upon the termination of this Contract, Employee expressly agrees not to engage or participate directly or indirectly in any business that is in competition with the business of ACC Companies, for a period of three (3) years; and further provided, that no business will be considered to be in competition with ACC Companies unless its business relates to the manufacture, sale, testing or development of products containing alpha interferon. Employer and Employee recognize and agree that ACC Companies may obtain or develop additional technologies from time to -7- time, and if that is the case, Employer may expand the terms of this non-competition provision by giving written notice to Employee of the additional technologies that are to be protected. 7.07. In the event of a breach by Employee of any provisions of this Article VII, the parties hereto agree that Employer, in addition to any other remedies to which Employer may be entitled at law, shall be entitled to the remedy of specific performance, it being understood and agreed by the parties hereto that damages may be difficult to ascertain, and that an award of damages would in all probability not sufficiently compensate Employer for any breach by Employee of such provisions. ACC Companies are intended third-party beneficiaries of the provisions of this Article VII. ARTICLE VIII RESTRICTED STOCK GRANT 8.01. Employer has heretofore granted to Employee a restricted stock grant. It is the desire and intention of Employer and Employee that said stock grant remain in force; for purposes of clarification, said terms and conditions are herein set forth, so that the provisions contained in this Article VIII do not constitute a new grant, but are by way of confirmation of the existing grant. Should the provisions in this Article VIII vary in any manner from the provisions of any prior grant, these present provisions shall control. Where required by applicable laws or regulations, or by -8- administrative necessity, the Board of Directors of Employer may prescribe additional terms and conditions regarding the issuance and administration of the restricted stock grant, as long as such additional terms and conditions (1) do not conflict with the terms and conditions hereinafter set forth, and (2) are no less favorable than those applying to the restricted stock grants received by other employees of Employer. 8.02. Employee has received from Employer a restricted stock grant of forty thousand (40,000) shares of the voting common stock of Employer. No certificates shall be issued, and the grant shall be subject to forfeiture, and said shares shall enjoy no rights with respect to voting, dividends, liquidation, or any other matter, but shall simply have the status of unissued shares, until the following events occur, at which time the hereinafter stipulated number of shares subject to this grant shall be released from restrictions, and certificates therefor shall be issued: (a) FDA approval of any Hayashibara Biochemical Laboratories' Interferon-containing product owned or licensed by an ACC Company, for use in humans, for sale in the U.S.: 29,000 shares. (b) Sale of all or substantially all of the assets of Employer; sale by any ACC Company(s) of all or substantially all of the rights of the ACC Companies, collectively, to rights, patents, products and technology relating to the use of interferon-containing products in humans; a tender offer by any person or entity not currently a shareholder of Employer, for 50% or more of the issued and outstanding stock of -9- Employer; or a merger, consolidation, or other reorganization of Employer, pursuant to which Employer is not the surviving company: 40,000 shares. In the event of the occurrence of any the events described in this Paragraph (b), Employee shall receive from Employer the number of shares in question, prior to the consummation of the stated event, so that he may and shall participate in said stated event on the same basis as other shareholders of Employer. (c) Initial public offering of common stock of Em- ployer: 40,000 shares. In the event of an initial public offering, the subject shares shall be issued to Employee prior to the com- mencement of said offering. Employer shall not be required to negotiate piggy-back regis- tration rights on behalf of any of its share- holders, but if it does so, Employee shall be entitled to participate in said piggy-back registration on the same basis as other share- holders of Employer. (d) Expiration of eight (8) years from September 1, 1992: 40,000 shares. 8.03. Any other provision of this Article VIII notwithstanding, no more than 40,000 shares in the aggregate, from all events combined, shall ever be issuable to Employee pursuant to this restricted stock grant. 8.04. In the event of the death or complete disability of Employee, or a voluntary termination of employment (which shall include the resignation of Employee, or the giving of a notice of termination of this Contract, or a successor or amended employment contract, by Employee pursuant to Section 1.01, above), any stock not theretofore issued to Employee shall be forfeited. -10- 8.05. Upon the giving of a notice of termination of this Contract (or a successor or amended employment contract) by Employer pursuant to Section 1.01, above, then upon discharge of Employee by Employer, fifty percent (50%) of the stock not theretofore issued shall be forfeited, and the other fifty percent (50%) shall be issued forthwith to Employee. 8.06. The shares subject to the restricted grant are shares of the common stock of Employer as presently constituted, but if and whenever, prior to the issuance by Employer of any shares of the stock subject to this grant, Employer shall effect a subdivision or reduction of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the stock outstanding without receiving compensation in money, services or property, the number of shares of stock then remaining subject to this grant, and not theretofore issued, shall (a) in the event of an increase in the number of outstanding shares, be proportionately increased, and (b) in the event of a reduction in the number of outstanding shares, be proportionately reduced. ARTICLE IX ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL 9.01. This Contract supersedes all other agreements, either oral or in writing, between the parties to this Contract with respect to the employment of Employee by Employer. This Contract contains the entire understanding of -11- the parties and all of the covenants and agreements between the parties with respect to such employment. 9.02. This Contract may be amended only by an instrument signed in writing by both parties; and provided further, that no amendment may be executed on behalf of Employer, except pursuant to a resolution of the Board of Directors of Employer. 9.03. The following provisions shall survive the expiration of this Agreement: ARTICLES VII, VIII and IX. IN WITNESS WHEREOF, this Contract is executed by the undersigned as of this 4th day of March, 1994. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Alan B. Richards By:/s/ Joseph M. Cummins - --------------------------- ----------------------------- ALAN B. RICHARDS Joseph M. Cummins, President -12- AMENDMENT TO EMPLOYMENT CONTRACT THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer") and JOSEPH M. CUMMINS ("Employee"). WHEREAS, Employer and Employee have heretofore entered into that certain Employment Contract (the "Contract"), dated March 4, 1994; and further WHEREAS, the Contract has not been terminated by either Employer or Employee pursuant to Section 1.01 thereof; and further WHEREAS, on April 16, 1996, Employer declared a twenty percent (20%) stock dividend to all holders of record of its common stock as of such date (the "Stock Dividend"); and further WHEREAS, Employer and Employee desire to hereby amend certain provisions of the Contract; THEREFORE, in consideration of these presents and for other good and valuable consideration the receipt and sufficiency of which are evidenced by the execution hereof, Employer and Employee hereby agree that the Contract shall be amended as follows: 1. Employer and Employee agree that, notwithstanding the first sentence of Section 8.02 of the Contract and giving effect to the Stock Dividend, Employer's obligations to Employee pursuant to Section 8.02(c) of the Contract shall be fully satisfied and discharged upon the issuance by Employer to Employee, -1- simultaneously with the consummation of an initial public offering of common stock of Employer, of thirty thousand (30,000) shares of the voting common stock of Employer, and the deposit to Employer's payroll tax withholding account, for benefit of Employee, of ninety thousand dollars ($90,000.00) cash. After such issuance of stock and such withholding deposit, Employer shall have no more obligations whatsoever to Employee under any provision of Article VIII of the Contract. 2. Employee acknowledges and agrees that his rights to a piggyback registration under certain circumstances, as set forth in Section 8.02(c) of the Contract, pertain only to an initial public offering of common stock by Employer; and that from and after the consummation of said initial public offering, Employee shall have no rights to any piggyback registration, including without limitation, the right to participate in a piggyback registration (if any) which might be effected by Employer from time to time in the future, on behalf of any other shareholder. 3. Section 1.01 of the Contract is hereby amended, and shall hereinafter read in its entirety as follows: "1.01 By this Contract, Employer employs Employee and Employee accepts employment with Employer and with such ACC Companies as Employer shall designate, through December 31, 1999; however, this Contract may be terminated earlier by Employer for cause, at its option, by giving written notice of termination to Employee, without prejudice to any other remedy to which Employer may be entitled either at law, in equity or under this Contract. "For cause," as used in this Section 1.01, shall mean and include any of the following events: -2- (a) Misappropriation or embezzlement by Employee involving Employer or an ACC Company; (b) The conviction in any jurisdiction of Employee for any crime involving an ACC Company which constitutes a felony; or (c) Employee's material violation of any of the material provisions of this Contract; provided, however, that Employer shall give written notice of Employee's violation of such provisions and Employee shall have a period of twenty (20) business days to cure such violation. (d) Employee shall have become Disabled (as de- fined in Section 2.01, below), and said Dis- ability shall have continued for a period of twelve (12) consecutive months, or a period of twelve (12) months in any twenty-four (24) month period. All determinations regarding the existence and continuation of a Disability shall be made as provided in Section 2.01, below. Termination of this Contract for cause shall be effective upon written notice thereof to Employee. Employee shall thereupon be entitled to compensation earned prior to the date of termination, computed pro rata up to and including the date of termination, shall be entitled to no further compensation, and will be relieved of all duties and obligations under this Contract as of the date of termination; provided, however, that the provisions of Article VII ("Property Rights of Parties"), and Article IX ("Entirety of Agreement; Amendment; Survival"), shall survive both the expiration of this Contract, or any earlier termination." 4. Section 2.01 of the Contract is hereby amended, by adding the following at the end of the present 2.01: "In the event Employee becomes Disabled (as hereinafter defined), Employee shall continue to receive compensation from employer as follows: (i) during the first three (3) months following a determination of Disability, Employee shall receive compensation at the rate of one hundred percent (100%) of salary; -3- (ii) during the fourth through the sixth month following a determination of Disability, Employee shall receive compensation at the rate of seventy-five percent (75%) of salary; (iii) during the seventh through the ninth month following a determination of Disability, Employee shall receive compensation at the rate of fifty percent (50%) of salary; and (iv) during the tenth through the twelfth month following a determination of Disability and thereafter during the continuance of such Disability until such time as this Contract may be terminated as hereinbefore provided, Employee shall receive compensation at the rate of twenty-five percent (25%) of salary. For purposes of determining the percentage of salary and the duration of payment thereof to which Employee is entitled following a determination of Disability, if Employee resumes full-time employment hereunder after such determination and thereafter becomes Disabled again, such succeeding period of Disability shall be deemed a continuation of the prior period of Disability unless a period of at least six continuous months of active full-time employment has elapsed since the conclusion of the prior period of Disability. Notwithstanding anything to the contrary contained in this Section 2.01: (i) any and all amounts payable to Employee hereunder during any period of Disability shall be reduced by any disability income insurance proceeds paid to Employee under any policies owned by and paid for by the Employer; and (ii) Employee shall be conclusively deemed to be Disabled for purposes of this Agreement during any period in which he receives disability insurance proceeds from an insurance carrier pursuant to clause (i). For all purposes of this Contract, "Disability" (including the adjective "Disabled") shall mean Employee's inability by reason of physical or mental incapacity to perform the customary duties of his employment for a period of three (3) consecutive months or a period of three (3) months in any -4- consecutive six (6) month period. If any dispute arises as to the existence of Employee's Disability, such dispute shall be resolved by two licensed physicians, one selected by the Board of Directors of Employer (other than Employee) and one selected by Employee. If the two physicians so selected cannot agree as to whether or not Employee is Disabled, the two physicians so selected shall designate a third physician and the determination of two of the three physicians so selected as to whether or not Employee is Disabled shall be final and binding on the parties for all purposes." 5. Except as herein expressly amended, all terms and conditions of the Contract shall remain in full force and effect, as therein provided. IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of this the 1st day of May, 1996. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ JOSEPH M. CUMMINS By: /s/ Charles Hughes - --------------------------- ----------------------------- JOSEPH M. CUMMINS Charles Hughes Vice-President, Finance and Administration -5- EX-10.10 16 EMPLOYMENT CONTRACT EMPLOYMENT CONTRACT This Employment Contract ("Contract") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer"), and CHARLES HUGHES ("Employee"). ACC and its controlled subsidiaries shall be hereinafter collectively referred to as "ACC Companies". Employer hereby employs Employee, and Employee accepts employment, on the following terms and conditions. ARTICLE I TERM OF EMPLOYMENT 1.01. By this Contract, Employer employs Employee, and Employee accepts employment with Employer, and with such ACC Companies as Employer shall designate, until this Contract shall have been terminated by either party by the serving of six months' advance, written notice of such termination upon the other party. ARTICLE II COMPENSATION 2.01. As compensation for all services rendered under this Contract, Employee shall be paid by Employer a salary of SIX THOUSAND ONE HUNDRED SIXTY-SEVEN AND NO/100 DOLLARS ($6,167.00) per month, payable at least monthly during the term of this Contract. The amount paid is to be prorated for any partial employment period. ARTICLE III DUTIES OF EMPLOYEE 3.01. Employee is employed as Chief Financial Officer of Employer, and shall work at 800 9th Street, Amarillo, the principal offices of Employer, and at such other place(s) in the City of Amarillo as Employer may direct. Employee shall perform the duties of Chief Financial Officer, as such duties may be further set forth in the Bylaws of Employer, or by resolution of the Board of Directors of Employer. Employee shall devote his entire productive time, ability, attention and energies to the business of Employer during the term of this Contract, and during such time, Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any other person or organization, whether or not for compensation, without the prior consent of the Board of Directors of Employer. ARTICLE IV EMPLOYEE'S OBLIGATIONS AS TO INSURANCE 4.01. Employee agrees to submit to physical examination as may be required for the obtaining by Employer of insurance on Employee's life, and agrees to consent to the issuance of a policy or policies of insurance on his life, such policies to be owned by Employer, and naming Employer as beneficiary. Upon termination of Employee's employment for any reason, and if requested by Employee, Employer shall -2- assign any such policy to Employee, so that Employee shall have the option of keeping the policy in force at Employee's expense. The foregoing notwithstanding, Employer shall be entitled to retain the accumulated cash value of any such policy. ARTICLE V EMPLOYEE BENEFITS 5.01. If Employer provides hospital, surgical, medical, dental, group life insurance, or other fringe benefits to its employees, or any of them, at any time during the term of this Contract, Employee shall be entitled to participate in such benefits, on terms and conditions at least as favorable as those accorded to other employees of Employer, subject to insurability. ARTICLE VI REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE 6.01. Employee is authorized to incur reasonable business expenses for promoting the business of Employer, including expenditures for entertainment and travel. Employer will reimburse Employee for all such expenses upon Employee's presentation of written expense vouchers, itemizing such expenditures. ARTICLE VII PROPERTY RIGHTS OF PARTIES 7.01. Employee has had access to and become familiar with, and during the term of continued employment, -3- will continue to have access to and become familiar with, various trade secrets, consisting of formulas, devices, secret inventions, processes, compilations of information, records, and specifications owned by ACC Companies and regularly used in the operation of ACC Companies. Employee shall not disclose any such trade secrets directly or indirectly nor use them in any way either during the term of this Contract or at any time thereafter except as required in the course of his employment. All files, records, documents, drawings, specifications, equipment and similar items relating to the business of ACC Companies, whether or not prepared by Employee, shall remain the exclusive property of ACC Companies and shall not be removed from the premises of Employer under any circumstances, except in pursuit of the trade and business of ACC Companies. 7.02. On the termination of employment or whenever requested by Employer, Employee shall immediately deliver to Employer all property in Employee's possession or under Employee's control belonging to ACC Companies, including but not limited to all accounting records, computer terminals and tapes, disks, or other data storage mechanisms, accounting machines, and all office furniture and fixtures, supplies and other personal property in the possession or under the control of Employee, in good condition, ordinary wear and tear excepted, and including without limitation all correspondence -4- files, research data, and patent information or data, of every sort. 7.03. Employee does not claim any rights or interests in and to trade secrets, formulas, devices, inventions, processes, patents, applications, continuations, copyrights, trademarks, compilations of information, records, specifications, rights, interests and data of any other sort, affecting or pertaining directly or indirectly to the business of ACC Companies as now conducted, or to the patents, trade secrets, and other rights now owned by ACC Companies. 7.04. Employee agrees that he will promptly and fully inform and disclose to Employer all inventions, designs, improvements and discoveries that Employee may have during the term of this Contract that pertain or relate to the business of ACC Companies or to any experimental work carried on by ACC Companies, whether conceived by Employee alone or with others and whether or not conceived during regular working hours. All such inventions, designs, improvements and discoveries shall be the exclusive property of Employer. Employee shall assist ACC Companies in obtaining patents on all such inventions, designs, improvements and discoveries deemed patentable by ACC Companies, and shall execute all documents and do all things necessary to obtain such patents for Employer or ACC Companies. 7.05. It is contemplated that Employee in the course of his employment will be engaged in work involving -5- various patents and secret processes owned by ACC Companies. All experiments, developments, formulas, patterns, devices, secret inventions and compilations of information, records, and specifications regarding such matters are trade secrets, which Employee shall not disclose directly or indirectly to anyone other than ACC Companies or their agents, or use in any way, either during the term of this Contract or at any time after the termination of this Contract, except as required in the course and scope of his employment. 7.06. During the term of this Contract, Employee shall not directly or indirectly either as an employee, employer, consultant, agent, principal, partner, stock holder, corporate officer, director, or in any other individual or representative capacity engage or participate in any business that is in competition in any manner whatsoever with the business of ACC Companies; provided, however, that Employee may without restriction invest in professionally managed mutual funds, where the investment decision regarding specific securities is made by the fund manager, and not by Employee; and Employee may purchase, own and sell stock or other securities of pharmaceutical companies, as long as Employee is not directly or indirectly through one or more intermediaries in control of or controlled by or under common control with any such company. Furthermore, upon the termination of this Contract, Employee expressly agrees not to engage or participate directly or indirectly in any business that is in -6- competition with the business of ACC Companies, for a period of three (3) years; and further provided, that no business will be considered to be in competition with ACC Companies unless its business relates to the manufacture, sale, testing or development of products containing alpha interferon. Employer and Employee recognize and agree that ACC Companies may obtain or develop additional technologies from time to time, and if that is the case, Employer may expand the terms of this non-competition provision by giving written notice to Employee of the additional technologies that are to be protected. 7.07. In the event of a breach by Employee of any provisions of this Article VII, the parties hereto agree that Employer, in addition to any other remedies to which Employer may be entitled at law, shall be entitled to the remedy of specific performance, it being understood and agreed by the parties hereto that damages may be difficult to ascertain, and that an award of damages would in all probability not sufficiently compensate Employer for any breach by Employee of such provisions. ACC Companies are intended third-party beneficiaries of the provisions of this Article VII. ARTICLE VIII RESTRICTED STOCK GRANT 8.01. Employer hereby grants to Employee a re- stricted stock grant, subject to the terms and conditions hereinafter set forth in this Article VIII. Where required by -7- applicable laws or regulations, or by administrative necessity, the Board of Directors of Employer may prescribe additional terms and conditions regarding the issuance and administration of the restricted stock grant, as long as such additional terms and conditions (1) do not conflict with the terms and conditions hereinafter set forth, and (2) are no less favorable than those applying to the restricted stock grants received by other employees of Employer. 8.02. The restricted stock grant is for twenty-five thousand (25,000) shares of the voting common stock of Employer. No certificates shall be issued, and the grant shall be subject to forfeiture, and said shares shall enjoy no rights with respect to voting, dividends, liquidation, or any other matter, but shall simply have the status of unissued shares, until the following events occur, at which time the hereinafter stipulated number of shares subject to this grant shall be released from restrictions, and certificates therefor shall be issued: (a) FDA approval of any Hayashibara Biochemical Laboratories' Interferon-containing product owned or licensed by an ACC Company, for use in humans, for sale in the U.S.: 17,857 shares. (b) Sale of all or substantially all of the assets of Employer; sale by any ACC Company(s) of all or substantially all of the rights of the ACC Companies, collectively, to rights, patents, products and technology relating to the use of interferon-containing products in humans; a tender offer by any person or entity not currently a shareholder of Employer, for 50% or more of the issued and outstanding stock of -8- Employer; or a merger, consolidation, or other reorganization of Employer, pursuant to which Employer is not the surviving company: 25,000 shares. In the event of the occurrence of any the events described in this Paragraph (b), Employee shall receive from Employer the number of shares in question, prior to the consummation of the stated event, so that he may and shall participate in said stated event on the same basis as other shareholders of Employer. (c) Initial public offering of common stock of Em- ployer: 25,000 shares. In the event of an initial public offering, the subject shares shall be issued to Employee prior to the com- mencement of said offering. Employer shall not be required to negotiate piggy-back regis- tration rights on behalf of any of its share- holders, but if it does so, Employee shall be entitled to participate in said piggy-back registration on the same basis as other share- holders of Employer. (d) Expiration of eight (8) years from June 1, 1994: 25,000 shares. 8.03. Any other provision of this Article VIII notwithstanding, no more than 25,000 shares in the aggregate, from all events combined, shall ever be issuable to Employee pursuant to this restricted stock grant. 8.04. In the event of the death or complete disability of Employee, or a voluntary termination of employment (which shall include the resignation of Employee, or the giving of a notice of termination of this Contract, or a successor or amended employment contract, by Employee pursuant to Section 1.01, above), any stock not theretofore issued to Employee shall be forfeited. -9- 8.05. Upon the giving of a notice of termination of this Contract (or a successor or amended employment contract) by Employer pursuant to Section 1.01, above, then upon discharge of Employee by Employer, fifty percent (50%) of the stock not theretofore issued shall be forfeited, and the other fifty percent (50%) shall be issued forthwith to Employee. 8.06. The shares subject to the restricted grant are shares of the common stock of Employer as presently constituted, but if and whenever, prior to the issuance by Employer of any shares of the stock subject to this grant, Employer shall effect a subdivision or reduction of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the stock outstanding without receiving compensation in money, services or property, the number of shares of stock then remaining subject to this grant, and not theretofore issued, shall (a) in the event of an increase in the number of outstanding shares, be proportionately increased, and (b) in the event of a reduction in the number of outstanding shares, be proportionately reduced. ARTICLE IX ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL 9.01. This Contract supersedes all other agreements, either oral or in writing, between the parties to this Contract with respect to the employment of Employee by Employer. This Contract contains the entire understanding of -10- the parties and all of the covenants and agreements between the parties with respect to such employment. 9.02. This Contract may be amended only by an instrument signed in writing by both parties; and provided further, that no amendment may be executed on behalf of Employer, except pursuant to a resolution of the Board of Directors of Employer. 9.03. The following provisions shall survive the expiration of this Agreement: ARTICLES VII, VIII and IX. IN WITNESS WHEREOF, this Contract is executed by the undersigned as of this 1st day of June, 1994. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Charles Hughes By:/s/ Edward Sherwood - --------------------------- ---------------------------------- CHARLES HUGHES EDWARD SHERWOOD, President -11- AMENDMENT TO EMPLOYMENT CONTRACT THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation ("Employer") and CHARLES HUGHES ("Employee"). WHEREAS, Employer and Employee have heretofore entered into that certain Employment Contract (the "Contract"), dated June 1, 1994; and further WHEREAS, the Contract has not been terminated by either Employer or Employee pursuant to Section 1.01 thereof; and further WHEREAS, on April 16, 1996, Employer declared a twenty percent (20%) stock dividend to all holders of record of its common stock as of such date (the "Stock Dividend"); and further WHEREAS, Employer and Employee desire to hereby amend certain provisions of the Contract; THEREFORE, in consideration of these presents and for other good and valuable consideration the receipt and sufficiency of which are evidenced by the execution hereof, Employer and Employee hereby agree that the Contract shall be amended as follows: 1. Employer and Employee agree that, notwithstand- ing the first sentence of Section 8.02 of the Contract and giving effect to the Stock Dividend, Employer's obligations to -1- Employee pursuant to Section 8.02(c) of the Contract shall be fully satisfied and discharged upon the issuance by Employer to Employee, simultaneously with the consummation of an initial public offering of common stock of Employer, of nineteen thousand (19,000) shares of the voting common stock of Employer, and the deposit to Employer's payroll tax withholding account, for benefit of Employee, of fifty-five thousand dollars ($55,000.00) cash. After such issuance of stock and such withholding deposit, Employer shall have no more obligations whatsoever to Employee under any provision of Article VIII of the Contract. 2. Employee acknowledges and agrees that his rights to a piggyback registration under certain circumstances, as set forth in Section 8.02(c) of the Contract, pertain only to an initial public offering of common stock by Employer; and that from and after the consummation of said initial public offering, Employee shall have no rights to any piggyback registration, including without limitation, the right to participate in a piggyback registration (if any) which might be effected by Employer from time to time in the future, on behalf of any other shareholder. 3. Except as herein expressly amended, all terms and conditions of the Contract shall remain in full force and effect, as therein provided. -2- IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of this the 1st day of May, 1996. EMPLOYEE: EMPLOYER: AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Charles Hughes By:/s/ Edward Sherwood - --------------------------- ---------------------------------- CHARLES HUGHES EDWARD SHERWOOD, President -3- EX-10.11 17 MNAFACTURING/SUPPLY AGREEMENT MANUFACTURING/SUPPLY AGREEMENT THIS AGREEMENT is made and effective this 1st day of June, 1994, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan (hereinafter "HBL") (ACC and HBL collectively referred to hereinafter as the "Parties"). WHEREAS, HBL has substantial expertise in the production and use of HBL Interferon (hereinafter defined) and has proprietary rights and know-how in the field of production, purification and formulation of HBL Interferon; WHEREAS, HBL and ACC have heretofore entered into that certain Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 (hereinafter, the "Development Agreement") regarding development of interferon-containing products for oral administration; WHEREAS, ACC and HBL now desire to promote applications of technology relating to non-oral administration of interferon in all species and ACC desires to use, formulate, test, and/or market interferon or interferon-containing products for such purposes; WHEREAS, ACC also desires to be able to sell HBL Interferon to persons or entities who may formulate their own -1- interferon-containing products for non-oral applications, and who may test and market such products, or alternatively, who may contract with ACC or others to formulate, test or market such products; WHEREAS, it is the desire of HBL and ACC that ACC have the exclusive right to use, formulate, test or market HBL Interferon for non-oral use in both humans and non-human warm-blooded species in North America; and the exclusive right to sell or otherwise distribute HBL Interferon to other persons or entities for use, formulation, testing, or marketing of non-oral applications in both human and non-human warm-blooded species in North America; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, HBL and ACC agree as follows: ARTICLE I DEFINITIONS 1.1. "Agreement" means this Manufacturing/Supply Agreement. 1.2. "Affiliate" means a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation, "control" means ownership either directly or indirectly of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors. -2- 1.3. "Technical Information" means all information, reports, results, inventions, licenses, know-how, improvements, materials, and any other technical and scientific data, specifications and formulae directly related to development, regulatory approval, manufacture, testing, use, marketing and/or sale of HBL Interferon or other interferons or interferon-containing compositions, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' performance under this Agreement. "ACC Technical Information" refers to Technical Information originating with ACC or which ACC has developed or has obtained through its contractual relationships with third parties. "HBL Technical Information" refers to Technical Information originating with HBL or which HBL has developed or has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both ACC Technical Information and HBL Technical Information. 1.4. "HBL Interferon" means the natural Interferon-alpha ("IFN-a") used for the formulation of natural IFN-a-containing formulation(s) for use in the treatment of human renal cell carcinoma and Hepatitis B in Japan, presently under the manufacturing and commercializing approval of the Ministry of Health and Welfare in Japan, and which is produced by HBL utilizing HBL Technical Information. -3- ARTICLE II HBL OBLIGATIONS 2.1. Subject to the terms and conditions of this Agreement, HBL shall manufacture and supply HBL Interferon for nonoral use in human and non-human warm-blooded species in the United States, Canada and Mexico (herein, "North America") exclusively to ACC, and to no other persons or entities, for either use, formulation, testing and/or marketing by ACC, or for resale or other distribution by ACC to other persons or entities for use, formulation, testing, and/or marketing; provided, however, that ACC shall not resell or otherwise distribute HBL Interferon to other persons or entities for formulation, testing and/or marketing by such other persons or entities without first obtaining HBL's written approval, which approval shall not be unreasonably withheld. HBL shall manufacture and supply HBL Interferon for delivery to ACC f.o.b. HBL's manufacturing facilities, or for delivery at other locations by agreement of the Parties, packaged in bulk, and such product shall be supplied in response to issuance by ACC of written purchase orders delivered to HBL specifying the quantity to be supplied, along with any special instructions/requests regarding the supply and/or delivery of the product. 2.2. HBL agrees to allow right of reference to HBL's FDA Biologics Master File(s) for HBL Interferon (and corresponding Canadian files) and to do such other acts as are reasonably necessary, and within HBL's control, to facilitate US FDA (or -4- Canadian or Mexican) approval of HBL interferon-containing formulations for non-oral use. ARTICLE III CONSIDERATION 3.1. HBL shall receive a transfer fee from ACC in the amount of eight dollars ($8.00) per million (1,000,000) International Units of HBL Interferon. ARTICLE IV REMITTANCES 4.1. Payments hereunder shall be made in U.S. Dollars and remitted to the bank account designated by HBL, and shall be due upon shipment of product, or if product is delivered to ACC at an HBL facility, upon delivery. ARTICLE V WARRANTIES HBL makes no warranty, express or implied, and all implied warranties or warranties of merchantability and fitness for a particular purpose are hereby disclaimed and excluded. ARTICLE VI DISCLAIMERS AND INDEMNIFICATION 6.1. HBL makes no representation or warranty that the manufacture or sale of Manufactured Products will not infringe any third party patent, nor does HBL assume any obligations with respect to infringements of patents of others arising as a result -5- of ACC's activities under this Agreement except as otherwise expressly provided in this Agreement. 6.2. HBL makes no covenant either to defend any infringement charge by a third party or to initiate action against infringers of any of its patents except as otherwise expressly provided in this Agreement. 6.3. HBL makes no representation or warranty concerning the potential profitability of sales of Manufactured Products and shall not be liable for failure of licensee to obtain a profit or income from such sales. 6.4. HBL SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESEN- TATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, DESIGN, FUNCTION OR FITNESS FOR USE OF MANUFACTURED PRODUCTS. 6.5. ACC agrees that it shall indemnify and save HBL harmless from any and all claims, demands, actions and causes of action against HBL, whether groundless or not, in connection with any and all injuries, losses, damages or liability of any kind whatsoever, arising, directly or indirectly, out of the use, distribution, and/or sale of HBL Interferon by or through ACC. HBL shall notify ACC in writing within ten (10) days of its receipt of any claim, demand or lawsuit. Upon assumption by ACC of its duty to defend, ACC will have control of the claim, demand or lawsuit, and except as may be necessary to prevent lapse of its legal rights, HBL shall be required to incur no expense with regard to said claim, demand or lawsuit. HBL shall, at ACC's request, -6- provide reasonable assistance in defense of any such claim, demand or lawsuit. ARTICLE VII TERM OR TERMINATION; DEFAULT 7.1. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of five (5) years from the date of this Agreement. After said initial term, the Agreement shall be automatically renewed for successive five (5) year terms subject to the prior written agreement of the Parties (hereinafter called "Renewal Terms"). 7.2. If ACC shall at any time during the initial term or any subsequent Renewal Term of this Agreement default in any obligation hereunder or fail to pay any payment due, and such default shall not be cured within sixty (60) days after written notice from HBL to ACC specifying the nature of the default, HBL may terminate this Agreement, or may demand specific performance. 7.3. If HBL shall, at any time during the initial term or any subsequent Renewal Terms of this Agreement, default in any obligation hereunder and such default shall not be cured within sixty (60) days after written notice from ACC to HBL specifying the nature of the default, ACC may terminate this Agreement, or may demand specific performance. 7.4. Any termination pursuant to this Article shall not relieve HBL of any obligation to fill purchase orders placed with HBL prior to termination. -7- 7.5. The exercise by either Party of any right of termination shall not constitute a waiver of any other rights or remedies available to such party for violation of the terms of this Agreement or under applicable law. ARTICLE VIII CONFIDENTIALITY 8.1. ACC owns or is licensed under confidential or secret information relating to interferon-containing products and the use of same in human and non-human species, and it is the intention of ACC to maintain this confidentiality. 8.2. HBL possesses trade secrets and technical and marketing information that are proprietary to HBL, and it is its intention to maintain the confidentiality of its proprietary information. 8.3. Each Party agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other Party and that the Parties may together subsequently acquire in relation to interferon-containing products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. 8.4. Each Party's obligation to the other (to maintain confidentiality) hereunder shall terminate with respect to any particular item and only said item of the disclosing Party's confidential information, when the recipient Party can demonstrate that such item of information: -8- 8.4.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 8.4.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 8.4.3. Has come into the recipient Party's possession through a third party free of any obligation of confidentiality to the disclosing Party, where said third party has acquired said information lawfully and not under circumstances forbidding its disclosure. 8.5. Neither Party will permit confidential or secret information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" basis and each will maintain confidential or secret information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 8.6. Each Party will notify the other promptly if it has knowledge that a third party possesses confidential or secret information of the other Party related to interferon-containing products. 8.7. ACC shall have the right to use HBL's confidential or secret information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its Affiliates, actual and potential purchasers or transferees, third-party contract -9- consultants and scientific investigators (from whom ACC shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell interferon-containing products. ARTICLE IX MISCELLANEOUS 9.1. Survival. ARTICLES VII, VIII, and IX shall survive any termination of this Agreement. 9.2. Force Majeure. The failure of HBL, ACC, or any of their Affiliates to take any act required by this Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war, riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject either Party to any liability to the other. 9.3. Arbitration. The Parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the Parties agree to engage in good faith negotiations to resolve any such dispute. In -10- the event they are unable to resolve any such dispute by negotiation, such dispute shall be submitted to arbitration as follows: If arbitration is initiated by HBL, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ACC, it shall be held in Tokyo, Osaka, Japan in compliance with the Rules of the Japan Commercial Arbitration Association. The arbitration award shall be final and binding upon the Parties hereto and may be filed with and enforced by any competent court of competent jurisdiction to enforce said award. 9.4. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of sending if sent to such Party by certified or registered mail or by an overnight courier service, postage or delivery charge prepaid, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as it may designate by written notice given to the other Party as follows: In case of HBL: Mr. Katsuaki Hayashibara Manager, R&D Center Hayashibara Biochemical Laboratories, Inc. 2-3, Shimoishii l-chome Okayama 700, Japan In case of ACC: Dr. Edward Sherwood, President Amarillo Cell Culture Company, Inc. 800 W. 9th Amarillo, Texas 79101 -11- 9.5. Amendments to Agreement. This Agreement constitutes the entire agreement between the Parties hereto with respect to all of the matters herein addressed, and supersedes all previous arrangements whether written or oral, covering the same subject matter. Any amendment or modification of this Agreement shall be effective only if made in writing, and executed by both Parties. This Agreement does not replace, supersede or amend the Development Agreement, which is and remains in full force and effect. In the event of a conflict between this Agreement and the Development Agreement, the terms of the Development Agreement shall control. 9.6. Assignment. This Agreement shall not be assignable by HBL to any person or entity other than an HBL Affiliate without the prior written consent of ACC, which consent shall not be unreasonably withheld. This Agreement shall not be assignable by ACC to any person or entity other than an ACC Affiliate without the prior written consent of HBL, which consent shall not be unreasonably withheld. 9.7. Enforceability. If one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. To the extent permitted by law, each Party waives any provision of law which renders any provision herein invalid, illegal or unenforceable in any respect. -12- 9.8. Nature of Relationship. Nothing herein shall be construed to place the Parties in a relationship of partners or joint venturers, nor does this Agreement make either party the agent or legal representative of the other for any purposes whatsoever. The Parties further agree that no representation shall be made by either party that would create an apparent agency, employment, partnership or joint venture. Neither party shall have the power express or implied, to obligate or bind the other in any manner whatsoever. 9.9. Headings. The headings of the several sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.10. Waiver. No provision of this Agreement shall be deemed waived, unless such waiver is in writing and signed by the Party against which the waiver is sought to be enforced. The waiver by either of the Parties hereto of any breach of any provision hereof by the other Party shall not be construed to be either a waiver of any succeeding breach of any such provision or a waiver of the provision itself. 9.11. Governmental Approval. In the event HBL has to obtain the approval from the appropriate governmental authorities of Japan to deliver HBL Interferon to the country in which ACC will use and/or market HBL interferon or products containing HBL Interferon, HBL's obligation pertaining to the supply of the said -13- product to the said country shall be subject to such approval granted in writing to HBL. 9.12. No Third-Party Beneficiaries. This Agreement contemplates no third-party beneficiaries, and no person or entity, other than the Parties or their permitted assignees, shall have any rights whatsoever under this Agreement. IN WITNESS WHEREOF, the Parties hereunto have caused this Manufacturing/Supply Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: HBL: AMARILLO CELL CULTURE COMPANY, HAYASHIBARA BIOCHEMICAL INCORPORATED LABORATORIES, INC. By:/s/ Edward Sherwood By:/s/ Ken Hayashibara --------------------------- ------------------------------ Dr. Edward Sherwood Mr. Ken Hayashibara President President -14- EX-10.12 18 SETTLEMENT AGREEMENT SETTLEMENT AGREEMENT BETWEEN: AMARILLO CELL CULTURE COMPANY INCORPORATED, A Texas Corporation with its principal place of business at 800 W. 9th Avenue, Amarillo, Texas 79101 (hereinafter called "ACC") AND INTERFERON SCIENCES INC. with its principal place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901 (hereinafter called "ISI") AND PHARMA PACIFIC MANAGEMENT PTY. LTD. of 103-105 Pipe Road, Laverton, Victoria, Australia (hereinafter called "PPM") AND PHARMA PACIFIC PTY. LTD. of 103-105 Pipe Road, Laverton, Victoria, Australia (hereinafter called "PPP") AND PHARMA PACIFIC LTD., c/o 81 Carlton Gore Road, Newmarket, Auckland, New Zealand (hereinafter called "PPL") AND FERNZ CORPORATION LIMITED, 81 Carlton Gore Road, Newmarket, Auckland, New Zealand A. Whereas ACC has entered into an agreement with ISI on 20th October 1989, which provides, inter alia, that ACC grants to ISI licenses to use the Licensed Patents to make the Licensed Products in the Territory. ("The ACC/ISI Agreement") B. ACC has instituted proceedings against Fernz Corporation Limited, PPM, PPP and PPL (collectively referred to as "Fernz") alleging that Fernz has infringed ACC Patent No. 222457 ("the New Zealand Patent"). Fernz has counterclaimed by alleging, inter alia, that the New Zealand Patent is not valid. The proceedings are 4/27/95 issued out of the High Court of New Zealand Auckland Registry being C.L. No. 52-93. ("the New Zealand Proceedings") C. PPM has instituted opposition proceedings in Australia opposing the grant of Australian Patent Application No. 625431 (12227/88) in the name of Texas A & M University System. ("the Australian Proceedings") D. PPM has instituted opposition proceedings in Europe opposing the grant of ACC's European Patent, being Patent No. 0341258 ("the European Opposition Proceedings"). E. Fernz denies the allegations of infringement. F. ACC denies that its New Zealand Patent is invalid. G. The parties wish to settle the Proceedings on the terms and conditions as set out hereafter. H. ACC and ISI have amended the ACC/ISI Agreement to transfer ISI rights to sublicense Licensed Patents back to ACC. THE PARTIES AGREE AS FOLLOWS: 1. ACC shall grant to PPM a non-exclusive sub-license of the Licensed Patents to make, have made, use and sell Licensed Products labeled for use only in human species in the Territory and for the Term as set out in the PPM/ACC Sub-License Agreement ("the Fernz License"). 2. In the event that there are residual rights in Licensed Patents held by ACC for which PPM would require a license to make, use and sell the Licensed Products in the Territory, then ACC covenants not to sue PPM in respect of those residual rights. 3. Immediately upon this Settlement Agreement becoming effective in accordance with the provisions of clause 6 herein the parties shall by consent seek an order that the claims which each has made against the other in the New Zealand Proceedings be dismissed with no order as to costs. Each party shall bear its own costs of and incidental to the New Zealand proceedings. 4. PPM shall discontinue its opposition to the Australian Proceedings. Each of the parties to the Australian Proceedings shall bear its own costs of and incidental to the Australian Proceedings. 4/27/95 -2- 5. PPM shall discontinue its opposition to the European Opposition Proceedings. Each of the parties to the European Opposition Proceedings shall bear its own costs of and incidental to the European Opposition Proceedings. 6. This Settlement Agreement shall become effective upon the execution of the Fernz License. 7. ACC and ISI hereby release and forever discharge Fernz and all of its subsidiaries, related companies, affiliates, holding company, directors, servants, advisors, consultants and agents from and against any and all claims, demands, actions, proceedings, or costs whatsoever which ACC and ISI have or may have or, but for the execution of these terms of settlement, might otherwise have had before execution of these terms of settlement arising out of or in any way connected with: (i) the New Zealand Proceedings; (ii) the Australian Proceedings; (iii) the European Opposition Proceedings; and (iv) any conduct by Fernz or its subsidiaries, related companies, affiliates, holding company, directors, servants, advisors, consultants and agents in respect of the manufacture, use, sale, distribution, or dealing in low dose oral interferon tablets or formulations which infringe or allegedly infringe the New Zealand Patent and any counterparts of the New Zealand Patent in any jurisdiction in the world. It is understood that such release and discharge shall not apply to any breach or alleged breach of the terms of the Fernz License. 8. Fernz hereby releases and forever discharges ACC and ISI and all of their subsidiaries, related companies, affiliates, holding company, directors, servants, advisors, consultants and agents from and against any and all claims, demands, actions, proceedings or costs whatsoever which Fernz has or may now have or, but for the execution of these terms of settlement, might otherwise have had before the execution of these terms of settlement arising out of or in any way connected with: (i) the New Zealand Proceedings; (ii) the Australian Proceedings; and (iii) the European Opposition Proceedings. 4/27/95 -3- 9. This Settlement Agreement shall be governed by and construed in accordance with the laws of New Zealand and all parties hereby submit to the exclusive jurisdiction of the courts of New Zealand. DATED this 27th day of April, 1995. /s/ Joseph M. Cummins Date: 27 April 1995 - ----------------------------------------- -------------- Signed : Joseph M. Cummins, President For and on behalf of AMARILLO CELL CULTURE COMPANY, INCORPORATED /s/ Larry Gordon Date: 27 April 1995 - ----------------------------------------- -------------- Signed by: Larry Gordon, Vice President & General Counsel For and on behalf of INTERFERON SCIENCES, INC. /s/ Robert Reis Date: 27 April 1995 - ----------------------------------------- -------------- Signed by: Robert Reis, General Manager For and on behalf of PHARMA PACIFIC MANAGEMENT PTY. LTD. 4/27/95 -4- /s/ Robert Reis Date: 27 April 1995 - ----------------------------------------- -------------- Signed by: Robert Reis, General Manager For and on behalf of PHARMA PACIFIC PTY. LTD. /s/ Date: 27 April 1995 - ----------------------------------------- -------------- Signed by: For and on behalf of PHARMA PACIFIC LTD. /s/ Date: 27 April 1995 - ----------------------------------------- -------------- Signed by: For and on behalf of FERNZ CORPORATION LIMITED 4/27/95 -5- EX-10.13 19 LICENSE AGREEMENT OF ACC/ISI AMENDMENT OF ACC/ISI LICENSE AGREEMENT This Agreement is made and effective this 27th day of April, 1995, by and between Amarillo Cell Culture Company, Incorporated, a Texas corporation with its principal place of business at 800 West 9th Avenue, Amarillo, Texas 79101 (hereinafter "ACC") and Interferon Sciences, Inc., with its principal place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901 (hereinafter "ISI") (ACC and ISI are hereinafter collectively referred to as the "Parties"). Whereas ACC and ISI entered into a license agreement effective October 20, 1989, in which ACC granted a limited exclusive license to ISI, with right to sublicense, to use the Licensed Patents, to make, use and sell the Licensed Products in the Territory (the "ACC/ISI License Agreement"). ACC has instituted proceedings against Fernz Corporation Limited and other companies (collectively referred to as "Fernz") in proceedings before the High Court of New Zealand Auckland Registry being C.L. No. 52-93, alleging that Fernz has infringed New Zealand Patent No. 222457, and Fernz has counterclaimed alleging, inter alia, that the New Zealand Patent is not valid. ISI is named as a counterclaim defendant in the New Zealand proceedings. Pharma Pacific Management Pty. Ltd. ("PPM"), a subsidiary of Fernz Corporation Limited, has instituted opposition proceedings in Australia opposing the grant of Australian Patent Application No 625431 (12227/88) in the name of Texas A & M University System. 4/27/95 PPM has instituted opposition proceedings in Europe opposing grant of European Patent No. 0341258. The patents and patent applications contested by Fernz and PPM are among the Licensed Patents in the ACC/ISI License Agreement. ACC alleges that ISI is in breach of certain material obligations under the ACC/ISI License Agreement. ISI has not yet sublicensed any rights under the ACC/ISI License Agreement. ISI, ACC and PPM have indicated willingness to settle the pending litigation and opposition matters by grant of a sublicense to PPM and purchase of shares of stock in ISI by ACC and PPM. ACC desires that ISI grant back to ACC the right to sublicense Licensed Patents under the ACC/ISI Agreement so that ACC can enter the Sublicense Agreement, attached as Exhibit A, with PPM in settlement of the pending litigation and patent opposition matters. ACC, ISI and PPM have indicated willingness to execute the Settlement Agreement attached as Exhibit B. NOW, THEREFORE, in consideration of the premises and other valuable consideration, ACC and ISI agree as follows: 1. ISI and ACC agree to execute the Settlement Agreement with PPM attached as Exhibit B. -2- 4/27/95 2. ACC shall purchase shares of stock in ISI to the value of Six Hundred Twenty Five Thousand Dollars ($625,000.00) within two (2) business days of receipt by ACC of collected funds from payment by PPM under Paragraph 3 of the Sublicense Agreement. The per share stock price shall be Two Dollars ($2.00) per share. The issue and sale of the ISI Common Stock to ACC has not been and will not be registered under the Securities Act of 1933, as amended (the "Act"), in reliance upon the applicability of Section 4(2) of the Act to the transaction contemplated hereby. In furtherance of such reliance, certificates representing the ISI Common Stock will bear a restrictive legend to the effect that the ISI Common Stock may not be sold without registration under the Act, absent an available exemption from the registration provisions of the Act, and appropriate "stop transfer" instructions will be issued to the transfer agent for ISI Common Stock. ACC acknowledges that it has had access to such knowledge about ISI as is customarily found in a registration statement filed under the Act, agrees that it is acquiring the ISI Common Stock for investment and not with a view to distribution and acknowledges that ISI has no obligation to register the ISI Common Stock under the Act. In addition, ACC agrees that for a period of two years from the date hereof, it will not sell, pledge, hypothecate or otherwise transfer the ISI Common Stock without the express prior written consent of ISI. 3. ISI hereby grants back to ACC ISI's right to grant sublicenses under the license granted in Section 2.2 of the ACC/ISI License Agreement provided that ISI shall retain the -3- 4/27/95 right to grant sublicenses under the ACC/ISI agreement for use of ISI Interferon under Licensed Patents, and ISI acknowledges that such grant back effectively converts its coexclusive license under Licensed Patents and under ACC Technical Information to a nonexclusive license. 4. ACC shall pay ISI one-half (1/2) of all royalties in excess of ACC's royalty obligations to ACC's licensor, Texas A&M University System (TAMUS), received by ACC from PPM under Paragraph 4 of the PPM/ACC Sub-license Agreement. After deduction of its obligations to TAMUS, ACC shall also pay ISI one-half (1/2) all royalties, option fees, license fees or other payments received by ACC from any other sublicensee of Licensed Patents except specific research or patent expense reimbursements, and except payments received for sale of its stock at the fair market value thereof. 5. ACC contends that ISI has breached its obligation under Section 3.6 of the ACC/ISI License Agreement to expend at least One Hundred Thousand Dollars ($100,000.00) over the three-year period commencing on the date of that Agreement for the use of non-human interferons for human indications. ACC hereby forgives and releases ISI for any claim ACC has against ISI based on that alleged breach of contract. 6. ISI hereby grants back to ACC all rights held by ISI under the ACC/ISI License Agreement pertinent to use of non-human interferons in humans, thus discharging ISI from -4- 4/27/95 additional payments with respect to such indications under Paragraph 3.7 of the ACC/ISI License Agreement. 7. ACC hereby releases ISI from its obligation under Paragraph 3.7 of the ACC/ISI Agreement to expend a minimum of Fifty Thousand Dollars ($50,000) per year toward development of Licensed Products related to the use of human interferon in humans. 8. Sections 1.8, and 1.9 of the ACC/ISI License Agreement shall be revised as follows: 1.8 "Licensed Patent(s)" means those United States Patents and patent applications listed in Exhibit "A" hereof, and any continuations, continuations-in-part, divisions, reissues or extensions thereof, and each foreign counterpart of each United States Patent and patent application listed in Exhibit "A" and any extensions thereof. 1.9 Licensed Product(s) means dose formulations or compositions containing ISI Interferon and designated, detailed, or labeled for oral use in human species, and which are within the scope of a claim of a Licensed Patent in the country where such products arc manufactured or sold. 9. Paragraphs 6.1-6.5 under Article VI, Enforcement of Licensed Patents, shall be deleted in their entirety and replaced with the following: -5- 4/27/95 6.1 Each of the parties to this Agreement shall immediately give notice in writing to the other parties of any infringement or threatened infringement of any of the Licensed Patents which at any time comes to its knowledge. 6.2 Where an infringement of any Licensed Patent occurs by a third party in a country where ISI or an Affiliated Company or agent is selling Licensed Products for use in that country then ACC and ISI agree to meet and negotiate to define the most practical business and economically feasible strategy for action to address the matter. Facts pertinent to such discussions shall include, but are not limited to, whether or not the third party infringing product is regulation compliant, and the extent of negative impact sales of such product has had or reasonably will have on the market for the Licensed Product in the country. 6.3 ACC or ACC's licensor shall have the option, at their own expense, to institute proceedings for infringement. If the alleged infringing product is not regulation compliant, ACC shall take reasonable steps to stop such regulation noncompliant activity by request or petition to the relevant policing regulatory agency. If the infringing product is being sold by a third party in compliance with applicable drug regulations, -6- 4/27/95 ISI can request that ACC bring an infringement action against that third party at the equally shared cost of ISI and ACC. If ACC institutes such infringement action, royalties payable by ISI in the country of infringement shall be paid into an interest bearing escrow account in the joint names of ACC and ISI, established by ACC and approved by ISI, until such time as the matter is resolved or a court of appropriate authority finally determines the validity or otherwise of the Licensed Patent being asserted in the infringement action. If the Licensed Patent is held invalid and the court's decision is not or cannot be appealed and if the Licensed Patent is the only basis for identifying ISI's product as a Licensed Product, the royalties paid into escrow shall be refunded to ISI with accrued interest; otherwise the royalties paid into escrow shall be paid to ACC with accrued interest. ISI and ACC shall be entitled to recover their share of the costs from any damages awarded in such action, and any settlement shall be with the consent of ISI which shall not be unreasonably withheld. If ACC does not institute such action within ninety (90) days of ISI's written request, ISI's obligation to pay royalties on sales of Licensed Products in the country of infringement shall be suspended for the duration of the infringing activity. -7- 4/27/95 6.4 In the event that proceedings are instituted by any third party against ISI for infringement of any of the Licensed Patents, then ACC shall indemnify ISI in respect of all costs, claims, demands, proceedings or liabilities (including all legal fees) made or incurred by ISI as a consequence of defending such infringement proceedings. 10. Paragraph 11.2, Arbitration, shall be amended to read as follows: 11.2 Dispute Resolution/Arbitration The parties hereto desire to avoid and settle without litigation any future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to resolve any such dispute. In the event they are unable to resolve any such dispute by negotiation, such dispute shall be resolved as follows: Any dispute between ACC and ISI regarding whether or not an ISI product is a Licensed Product, thus requiring that ISI's sales of same are subject to payment of royalties under Paragraph 3.1, shall be resolved by decision of an Independent Patent Attorney ("IPA") satisfactory to both ISI and ACC at their joint cost and expense. The IPA shall be selected from patent attorneys in the country where ACC contends that a product sold by ISI is a Licensed Product(s) under the terms of this agreement. The IPA shall provide a reasoned decision -8- 4/27/95 based on brief/exhibits by ACC, response brief/exhibits by ISI and reply/exhibits (if any) by ACC. ACC and ISI agree to accept the decision of the IPA. If the IPA finds that the product in dispute is a Licensed Product, ISI will pay ACC all royalties due on sales of the Licensed Product with the next account and payment to ACC under Article IV. Any other dispute shall be submitted to arbitration as follows: If arbitration is initiated by ISI, it shall be held in the State of Texas, U.S.A. in compliance with the commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ACC it shall be held in New York New York, in compliance with the commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any competent court having competent jurisdiction to enforce said award. 11. Article VIII Warranty of the ACC/ISI License Agreement shall be amended to include new Paragraph 8.4 as follows: 8.4 The Licensed Patents are believed to be valid. For the purposes of this Agreement, a Licensed Patent, when granted, shall be presumed valid unless held invalid by a court of competent jurisdiction. -9- 4/27/95 12. Exhibit "A" to the ACC/ISI License Agreement shall be amended to add the following: "Method for Prevention of Parasitic Infection" as described and claimed in U.S. Patent No. 5,215,741, issued June 1, 1993. 13. All other terms of the ACC/ISI License Agreement, to the extent that they are not inconsistent with the amendments recited herein, shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate by their duly authorized representatives as of the date first above written. ACC: ISI: AMARILLO CELL CULTURE INTERFERON SCIENCES, INC. COMPANY, INCORPORATED /s/ JOSEPH M. CUMMINS /s/ LAWRENCE M. GORDON - ----------------------------------- ----------------------------------- By: Joseph M. Cummins, President By: Larry Gordon, Vice President & General Counsel -10- 4/27/95 EX-10.14 20 PPM/ACC SUB-LICENSE AGREEMENT PPM/ACC SUB-LICENSE AGREEMENT BETWEEN: PHARMA PACIFIC MANAGEMENT PTY. LTD. of 103-105 Pipe Road, Laverton, Victoria Australia (hereinafter called "PPM") of the one part, AND AMARILLO CELL CULTURE COMPANY INCORPORATED, a Texas Corporation with its principal place of business at 800 W. 9th Avenue, Amarillo Texas 79101 (hereinafter called "ACC") of the second part WHEREAS: A. Pursuant to an Agreement made the 20th day of October 1989 ACC granted to Interferon Sciences, Inc. ("ISI") a license pursuant to the Licensed Patents (as that term is therein defined) to make, have made, use and sell Licensed Products (as that term is therein defined), with the right to grant sub-licenses to third parties. B. ACC and ISI have amended that Agreement inter alia to transfer ISI's right to sublicense Licensed Patents back to ACC. C. ACC wishes to grant to PPM rights to use the Licensed Patents. THIS AGREEMENT PROVIDES AS FOLLOWS: 1. DEFINITIONS: "Affiliated Company" means any company, corporation, partnership or other business entity which is a subsidiary of PPM or of which PPM is a subsidiary, or which is a subsidiary of a company of which PPM is also a subsidiary or which otherwise controls or is under common control with PPM. In the case of a corporation or company "control" means ownership, either directly or indirectly of at least Fifty Percent (50%) of the shares of stock entitled to vote for the election of directors. 4/27/95 "Individual Patent" means any one or more of any continuation, continuations-in-part, divisions, reissues or extensions, each foreign counterpart and any patent application or any patent comprising the Licensed Patents. "Licensed Patent" means those United States Patents and patent applications listed in Schedule 1 and any continuations, continuations-in-part, divisions, reissues or extensions thereof, and each foreign counterpart of each United States Patent and patents and patent applications listed in Schedule 1 and any extensions thereof. "Licensed Product" means dose formulations or compositions comprising human interferon designated, detailed or labelled for use in humans, including human interferon produced using recombinant DNA technology but excluding interferonalpha secreted by normal non-transformed human leukocytes in response to viral induction. "Net Sales Value" means the arms length gross selling price paid to PPM or its Affiliate Company or agents for Relevant Licensed Products exclusive of documented costs of packaging materials, charges for freight, insurance, taxes, and exclusive of customary discounts, refunds, credits, rebates and the like. In the case of a sale by PPM to an Affiliated Company royalties shall be calculated on the price which would be charged if the transaction were an arms length transaction with an unrelated company. Best evidence of such price shall be the average price actually charged by PPM or any Affiliated Company to any unrelated third parties in the then most recent sales of Relevant Licensed Products. "Territory" means all countries of the world except Japan. "Relevant Licensed Product" means a product the manufacture, use or sale of which would constitute an infringement of the Licensed Patent without the license or consent of the proprietor of the Licensed Patent (or any other relevant licensor or party having the right to grant a license). 2. LICENSE GRANT ACC hereby grants to PPM, a royalty bearing non-exclusive sublicense under the Licensed Patents to make, have made, use and sell Licensed Products labeled for use only in human species in the Territory. 3. RESEARCH AND PATENT REIMBURSEMENT In consideration of the grant of the license contained herein, PPM shall, within 48 hours of PPM's receipt and execution of a facsimile copy of this Agreement executed by ACC and the Settlement Agreement executed by ACC and ISI and PPM's receipt of a facsimile copy of the amendment to the ACC/ISI License Agreement executed 4/27/95 -2- by ACC and ISI, pay by wire transfer to ACC the sum of US * toward reimbursement of ACC for research and expenses incurred in connection with Licensed Patents. 4. ROYALTY PPM shall pay to ACC royalties as follows: (i) A * royalty on sales of Relevant Licensed Products sold within or sold and intended by PPM for use within the United States of America. (ii) A * royalty on sales of Relevant Licensed Products sold within or sold and intended by PPM for use within those countries other than the United States of America in which Individual Patents are currently in force and for so long as they remain in force. (iii) No royalties in those countries other than those described in clause 4(i) and 4(ii) above in which ACC does not hold a Licensed Patent. The obligation to pay a royalty shall be imposed only once on each Relevant Licensed Product when sold within or sold and intended by PPM for use within the countries referred to in clause 4(i) and 4(ii) regardless of the number of Licensed Patents embracing the Relevant Licensed Product for the manufacture, use or sale of such Relevant Licensed Product and regardless of intervening sales between PPM and any Affiliated Company. Royalties shall be calculated on Net Sales Value. 5. LICENSE FEE PPM shall also pay to ACC by wire transfer a license fee in the sum of US * which fee shall be deducted from the first royalty payments due by PPM to ACC pursuant to clause 4 herein in respect of sales of Relevant Licensed Products. 6. MANUFACTURE In consideration of the payment of the sums set out in clauses 3 and 5 and the royalties on sales set out in clauses 4(i) and 4(ii), PPM shall be entitled to manufacture Licensed Products in New Zealand or elsewhere in the Territory without having to pay any additional monies for such manufacture to ACC. PPM shall be entitled to carry out the manufacture, sale and distribution of the Licensed Products itself or engage agents, distributors or other third parties to do so. - ----------- * Confidential Treatment has been requested. 4/27/95 -3- 7. TERM This Agreement shall remain in effect until one day before the date of the last to expire of the Licensed Patents unless terminated in accordance with the provisions of this Agreement. Where one or more patents comprising the Licensed Patents expires on different due dates in different countries, the Relevant Licensed Products sold shall not bear royalties unless, at the time of sale of the Relevant Licensed Products in, or intended by PPM for use in, a country, the Licensed Patents in that country are still in force. 8. WARRANTIES ACC covenants, agrees and warrants to PPM that: (i) The Licensed Patents are believed to be valid. For the purpose of this Agreement, a Licensed Patent, when granted, shall be presumed valid unless held invalid by a court of competent jurisdiction. (ii) No third parties' patents or other rights will be infringed by PPM's licensed activities pursuant to this Agreement provided that the elements of such activities that are alleged to provide basis for a claim of infringement are specifically described in a Licensed Patent, and provided further that ACC makes no warranty regarding noninfringement of Hoffmann-LaRoche U.S. Patent No. 4,503,035 or any counterparts thereof. (iii) ACC has the capacity to enter into this Agreement and to grant the rights and licenses granted herein to the extent they are consistent with the rights held by ACC under the relevant agreements identified in subclause (v) below. (iv) ACC has not granted any rights to third parties in respect of the Licensed Patents regarding use of interferon in humans, except for grants by ACC to ISI and to Hayashibara Biochemical Laboratories, Inc. ("HBL") of rights in Japan. (v) ACC shall not grant any rights or licenses to any third parties inconsistent with the grant of rights to PPM hereunder. (vi) The only relevant agreements governing the rights and licenses in respect of the Licensed Patents currently in effect are the agreements referred to in Recital A, an agreement dated 13 March 1992 granting to HBL rights to make, use or sell interferon-containing products in Japan, ACC's license agreement with Texas A&M University System ("TAMUS") dated 22 March 1988 and the related Patent Assignment dated 21 April 1994 by TAMUS to ACC of New Zealand Patent No. 222,457. 4/27/95 -4- (vii) ACC shall make all royalty, and other payments due under, and shall not breach any of the terms of, nor shall it surrender the license granted to it under, the Agreement made between TAMUS and ACC on 22 March 1988. 9. INFORMATION: ACC shall keep PPM advised of any patents, continuations, continuations-in-part, divisions, reissues or extensions, re-examination requests, notices of opposition, applications for revocation, progress of applications for opposition or revocation, cessation or expiry of patents in a timely manner in respect of the Licensed Patents. PPM shall keep all such information confidential. 10. ACCOUNTS AND PAYMENT PPM shall within 45 days after the end of each calendar quarter provide ACC with a report of sales of the Relevant Licensed Products and the amounts due for royalties. The report shall provide sufficient information from which to calculate the amount of royalties payable including the total quantity and Net Sales Value of all Relevant Licensed Product sold during the preceding calendar quarter and the amounts payable to ACC. A statement shall also be submitted even where no amounts are payable to ACC. PPM shall at the same time remit to ACC the amount due. 11. CURRENCY All royalties and other payments due shall be made in U.S. dollars in the United States. Where sales are made in countries outside the United States, royalties shall accrue in the currency in which the sales are made and royalties shall be payable to ACC in U.S. dollars at the official rate of exchange prevailing on the 20th day following the conclusion of each calendar quarter. 12. BOOKS AND RECORDS PPM shall keep proper books of accounts which clearly indicate the volume of sales and all other financial data and documentation necessary for calculation of the Net Sales Value of the Relevant Licensed Products and the amounts due in respect of royalties. PPM shall also require its Affiliate Companies and its agents to keep books of accounts and manufacturing and shipping records and to make periodic reports of same to PPM as necessary and appropriate to enable PPM to calculate the amounts due in respect of royalties. ACC may nominate an independent public accountant, acceptable to and approved by PPM (which approval shall not be unreasonably withheld), once in each calendar 4/27/95 -5- year, to inspect the books of account of PPM and other records and reports deemed reasonably necessary for inspection by said accountant during reasonable business hours for the purpose of verifying the accuracy of the reports and payments made by PPM during the preceding calendar year. Such accountant shall not disclose any information related to PPM's financial matters but shall certify to ACC the accuracy of the reports and payments made by PPM in accordance with this Agreement. All fees charged by such accountant shall be paid by ACC except if there are discrepancies in PPM's quarterly reports which result in under reporting or under payment by a factor greater than 10% of the amount due. In such instance PPM shall reimburse ACC for the accountant's costs other than as required by law. ACC shall not make any public disclosure of the PPM reports or royalty rates referred to in this agreement. To the extent disclosure of such information to a third party is required in the ordinary course of ACC's business, such disclosure shall be made subject to the recipient's agreement to hold such information in confidence. 13. PATENT VALIDITY If an Individual Patent in any country comprising the Territory, shall in any action for infringement or proceeding for revocation or re-examination be declared to be invalid on any ground whatsoever, all royalties payable in respect of sales of Relevant Licensed Products solely under that Individual Patent (and not under any other Individual Patent) in or intended for use in that country shall, as from the date of any final order or declaration of invalidity, cease to be payable. From the commencement of any such action or proceeding, PPM shall pay royalties accruing in the relevant country into an interest bearing escrow account in the joint names of ACC and PPM, established by ACC and approved by PPM, until such time as the matter is resolved or a court of appropriate authority finally determines the validity or otherwise of the Individual Patent. If the Individual Patent is held invalid and the court's decision is not or cannot be appealed, the royalties paid into escrow shall be refunded to PPM with accrued interest; otherwise the royalties paid into escrow shall be paid to ACC with accrued interest. 14. ASSIGNMENT Any assignment by ACC of rights in Licensed Patents shall be subject to the ACC Agreement with ISI dated 20th October 1989 and as amended the 27th day of April, 1995, prior grants by ACC to HBL of rights in Japan, and this sublicense agreement. 15. SUB-LICENSES PPM shall not have the right to grant Sub-Licenses under the License granted to it, provided, however, that PPM shall have the right to contract with an Affiliated 4/27/95 -6- Company or an agent to manufacture, to distribute or to sell Licensed Products on behalf of PPM under this Agreement. 16. SCOPE OF RIGHTS GRANTED PPM has reviewed ACC's pre-existing relevant license agreements with Texas A & M University System dated 22 March 1988, and the agreement with ISI dated 20 October 1989 and as amended on the 27th day of April, 1995, and PPM acknowledges its understanding that ACC/ISI cannot grant any rights to PPM beyond those or inconsistent with those now held by ACC under those pre-existing agreements. PPM and ACC agree that the terms and scope of rights granted hereunder shall be interpreted accordingly. 17. PATENT FEES ACC shall pay all renewal and other fees necessary to keep the Licensed Patents in force and valid. 18. INFRINGEMENT Each of the parties to this Agreement shall immediately give notice in writing to the other parties of any infringement or threatened infringement of any of the Licensed Patents which at any time comes to its knowledge. Where an infringement of any Individual Patent occurs by a third party in a country where PPM or an Affiliated Company or agent is selling Relevant Licensed Products for use in that country then ACC and PPM agree to meet and negotiate to define the most practical business and economically feasible strategy for action to address the matter. Facts pertinent to such discussions shall include, but are not limited to, whether or not the third party infringing product is regulation compliant, and the extent of negative impact sales of such product has had or reasonably will have on the market for the Relevant Licensed Product in the country. ACC or ACC's licensor shall have the option, at their own expense, to institute proceedings for infringement. If the alleged infringing product is not regulation compliant, ACC shall take reasonable steps to stop such regulation noncompliant activity by request or petition to the relevant policing regulatory agency. If the infringing product is being sold by a third party in compliance with applicable drug regulations, PPM can request that ACC bring an infringement action against that third party at the equally shared cost of PPM and ACC. If ACC institutes such infringement action, royalties payable by PPM in the country of infringement shall be paid into escrow in accordance with the provisions of clause 13 herein; PPM and ACC shall be entitled to recover their share of the costs from any damages awarded in such action; and any settlement shall be with the consent of PPM which shall not 4/27/95 -7- be unreasonably withheld. If ACC does not institute such action within ninety (90) days of PPM's written request, PPM's obligation to pay royalties on sales of Relevant Licensed Products in the country of infringement shall be suspended for the duration of the infringing activity. In the event that proceedings are instituted by any third party against PPM for infringement of any of the Licensed Patents, then ACC shall indemnify PPM in respect of all costs, claims, demands, proceedings or liabilities (including all legal fees) made or incurred by PPM as a consequence of defending such infringement proceedings. 19. APPLICATIONS FOR REGULATORY APPROVAL OF LICENSED PRODUCTS PPM shall use its best efforts to assure that its licensed activities hereunder shall be compliant with all applicable laws, regulations and rules in the country in the Territory where such activities are or will be conducted. With each quarterly statement from PPM to ACC under clause 10 above, PPM shall advise ACC of all applications for regulatory approval of manufacture or use or sale of Licensed Products hereunder which are pending, made, withdrawn or granted in countries where there exists an Individual Patent. PPM shall also provide ACC with copies of any advertising, package inserts, clinical reports and the like intended for public dissemination detailing the claims of therapeutic efficacy made or to be made by PPM or its Affiliates for Licensed Products in each country where Licensed Products are to be distributed for sale. To the extent such information is not otherwise available to the public ACC shall hold such information in confidence and not disclose it to any third party. 20. GRANT OF RESIDUAL RIGHTS In the event that for whatever reason, any residual rights in Licensed Patents reside in ACC, which cannot or have not been granted to PPM pursuant to this Agreement, which PPM might require in order to make, use and sell the Licensed Products in the Territory, then ACC hereby covenants not to sue PPM on the basis of said residual rights in Licensed Patents. 21. PURCHASE OF ISI STOCK PPM agrees to purchase stock in ISI to the value of US $125,000.00 by wire transfer within 48 hours of PPM's receipt and execution of a facsimile copy of this Agreement executed by ACC and the Settlement Agreement executed by ACC and ISI and PPM's receipt of a facsimile copy of the amendment to the ACC/ISI License Agreement executed by ACC and ISI. The per share stock price shall be Two Dollars (U.S. $2.00) per share. 4/27/95 -8- The issue and sale of the ISI Common Stock to PPM has not been and will not be registered under the Securities Act of 1933, as amended (the "Act"), in reliance upon the applicability of Section 4(2) of the Act to the transaction contemplated hereby. In furtherance of such reliance, certificates representing the ISI Common Stock will bear a restrictive legend to the effect that the ISI Common Stock may not be sold without registration under the Act, absent an available exemption from the registration provisions of the Act, and appropriate "stop transfer" instructions will be issued to the transfer agent for ISI Common Stock. PPM acknowledges that it has had access to such knowledge about ISI as is customarily found in a registration statement filed under the Act, agrees that it is acquiring the ISI Common Stock for investment and not with a view to distribution, and acknowledges that ISI has no obligation to register the ISI Common Stock under the Act. In addition, PPM agrees that for a period of two years from the date hereof, it will not sell, pledge, hypothecate or otherwise transfer the ISI Common Stock, without the express prior written consent of ISI. 22. VENUE Should suit be brought by ACC under this Sub-License Agreement, venue shall be in the State of Victoria, Australia; and if suit should be brought by PPM under this Sub-License Agreement, venue shall be in the State of Texas, USA. 23. DISPUTE RESOLUTION Any dispute between ACC and PPM regarding whether or not a Licensed Product is a Relevant Licensed Product, thus requiring that PPM's sales of same are subject to payment of royalties under clause 4 shall be resolved by decision of an Independent Patent Attorney ("IPA") satisfactory to both PPM and ACC at their joint cost and expense. The IPA shall be selected from patent attorneys in the country where ACC contends that the Licensed Product(s) sold by PPM is a Relevant Licensed Product(s) under the terms of this agreement. The IPA shall provide a reasoned decision based on brief/exhibits by ACC, response brief/exhibits by PPM and reply/exhibits (if any) by ACC. ACC and PPM agree to accept the decision of the IPA. If the IPA finds that the Licensed Product in dispute is a Relevant Licensed Product, PPM will pay ACC all royalties due on sales of the Relevant Licensed Product with the next account and payment to ACC under clause 10 hereof 24. TERMINATION This Agreement shall only be terminated by ACC as provided hereafter and not otherwise. In the event that PPM does not pay royalties properly due under this Agreement, as determined by an IPA under clause 23 above, in any country comprising the Territory then PPM agrees to cease and desist its sales of the Relevant Licensed Product in that country and to submit to a voluntary injunction 4/27/95 -9- against infringement in that country or shall make payment of all royalties then accrued and due in that country. If PPM is otherwise in default under this Agreement for non-payment of royalties in a country comprising the Territory, ACC shall forward to PPM a notice in writing specifying that PPM is in default in paying royalties with respect to such country and requiring PPM to rectify the default within 30 days. In the event PPM does not make the payment properly due in respect to such country within the 30 days then ACC shall be entitled to terminate the license in that country. 25. NOTICES All notices that are required or authorized to be given under this Agreement shall be in writing and may be served by sending express air mail post, personal delivery or telex or facsimile to the registered office of the other party and shall be deemed to have been duly served in the case of such postage on the third business day after the date upon which the notice was properly addressed and so posted or in the case of personal delivery upon actual delivery or in the case of telex or facsimile when the error-free correct answer back code is received. DATED this 27th day of April, 1995. /s/ Robert Reis - ------------------------------------------- Signed by: Robert Reis, General Manager For and on behalf of PHARMA PACIFIC MANAGEMENT PTY. LTD. /s/ Joseph M. Cummins - ------------------------------------------- Signed by: Joseph M. Cummins, President For and on behalf of AMARILLO CELL CULTURE COMPANY, INCORPORATED 4/27/95 -10- SCHEDULE I AMARILLO CELL CULTURE CO., INC. 800 WEST 9TH AVENUE AMARILLO, TEXAS 79101 USA 1. "METHOD OF REGULATING APPETITE AND EFFICIENCY OF FOOD UTILIZATION EMPLOYING INTERFERON" as described and claimed in United States Patent No. 4,497,795 issued February 5, 1985 in the USA. Also issued in Argentina, Australia, Canada, France, Italy, New Zealand, and South Africa. Pending in Germany. 2. "METHOD OF USING INTERFERON IN LOW DOSAGE TO REGULATE APPETITE AND EFFICIENCY OF FOOD UTILIZATION" as described and claimed in United States Patent No, 4,820,515 issued April 11, 1989 in the USA. Also issued in Argentina, Australia, Canada, France, Italy, New Zealand, and South Africa. Pending in Germany. 3. "LOW DOSAGE OF INTERFERON TO ENHANCE VACCINE EFFICIENCY" as described and claimed in United States Patent No, 4,820,514 issued April 11, 1989 in the USA. Also issued in Australia, Austria, Belgium, France, Germany, United Kingdom, Italy, Luxembourg, Netherlands, New Zealand, Sweden and Switzerland. 4. "TREATMENT OF IMMUNO-RESISTANT DISEASE" as described and claimed in United States Patent No, 5,019,382 issued May 28, 1991. Also issued in South Africa and New Zealand. Filed in Australia, Canada, Denmark, Ireland, Korea, Norway, the OAPI countries, and the European Patents Community (EPC). 5. "METHOD FOR REDUCING SIDE EFFECTS OF CANCER THERAPY" as described and claimed in United States Patent No, 5,017,371 issued May 21, 1991. Also issued in Australia, Austria, Belgium, France, Germany, Hungary, Italy, Luxembourg, Netherlands, Sweden, Switzerland, and United Kingdom. Filed in Canada and Japan. 4/27/95 -11- 6. "METHOD FOR PREVENTION OF PARASITIC INFECTlON" as described and claimed in U.S. Patent No. 5,215,741 issued June 1, 1993 in the USA. 7. "PHARMACEUTICAL COMPOSITION CONTAINING INTERFERON FOR BUCCAL ADMINISTRATION" as described and claimed in European Patent No. 03431258, issued March 2, 1994 in Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland, and United Kingdom. The patents will expire November 6, 2007. 4/27/95 -12- EX-10.15 21 LICENSES AND SUPPLY AGREEMENT LICENSE AND SUPPLY AGREEMENT THIS AGREEMENT is made and effective this 10th day of July, 1995, by and between VELDONA AFRICA, INC., a Texas corporation with its principal place business at 800 West 9th Avenue, Amarillo, Texas 79101, USA (hereinafter "VA") and INNOVATIVE THERAPEUTICS, LTD., a Kenyan corporation with its principal place of business at 1.5 Kitasuru Rd., P.O. Box 24593, Nairobi, Kenya (hereinafter "ITL"). VA and ITL are hereinafter collectively referred to as the "Parties". WHEREAS, VA and/or its suppliers have substantial expertise in the production and use of HBL Interferon (hereinafter defined) and have proprietary rights and know-how in the field of production, purification and formulation of HBL Interferon; WHEREAS, ITL desires to act as the exclusive distributor of pre-formulated interferon-containing compositions packaged and labeled for sale for oral use in humans in Kenya and for such purpose, to purchase HBL Inteferon from VA; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, ITL and VA agree as follows: ARTICLE I DEFINITIONS 1.1. "Affiliate" means a corporation, company, partnership, or other business entity which controls or is controlled by, or is under common control with, the designated party. In the case of a corporation, "control" means ownership either directly or indirectly of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors. 1.2. "Agreement" means this License and Supply Agreement. 1.3. "HBL Interferon" means the natural human interferon-alpha which is produced by Hayashibara Biochemical Laboratories, Inc. (HBL) utilizing HBL Technical Information under the manufacturing and commercializing approval of the Ministry of Health and Welfare in Japan. - 1 - 1.4. "Invention" means the use of interferon-alpha or interferon-alpha-containing products in warm-blooded species. 1. 5 . "Licensed Indications" shall mean the Acquired Immunodeficiency Syndrome (AIDS) and chronic infection with the hepatitis B virus, or any other indication which shall become a Licensed Indication pursuant to Section 3.4. 1.6. "Licensed Product" means dose formulations or compositions containing any interferon (i.e., not just HBL Interferon) and designated, detailed, or labeled for oral use for any indication in humans. 1.7. "Technical Information" means all information, reports, results, inventions, licenses, know-how, improvements, materials, and any other technical and scientific data, specifications and formulae directly related to development, regulatory approval, manufacture, testing, use, marketing and/or sale of Licensed Product, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' performance under this Agreement. "VA Technical Information" refers to Technical Information originating from VA or which VA has developed through its contractual relationships with third parties. "ITL Technical Information" refers to Technical Information originating from ITL or which ITL has obtained through its contractual relationships with third parties. When not otherwise specified herein "Technical Information" means both VA Technical Information and ITL Technical Information. 1.8. "VA" and "ITL" shall mean and include not only the indicated company, but also its Affiliates and permitted assignees. ARTICLE II SUPPLY OF HBL INTERFERON 2.1. Subject to registration approval and to the terms and conditions of this Agreement, VA shall supply HBL Interferon to ITL on an exclusive basis for oral use in humans for the treatment of Licensed Indications in Kenya. HBL Interferon shall be delivered to ITL at the hereinafter stipulated price, f.o.b. Nairobi, Kenya. ITL shall pay all Kenyan customs, duties, or fees imposed on HBL Interferon delivered to ITL. HBL Interferon shall be supplied as provided in - 2 - Paragraph 2.3, below, in response to issuance by ITL of written purchase orders delivered to VA specifying the quantity to be supplied, along with any special instructions/requests regarding the supply and/or delivery of the product. 2.2. VA agrees to make available the right of reference to VA's or HBL's FDA Biologics Master File for HBL Interferon as applicable to facilitate regulatory approval of HBL Interferon-containing formulations for oral use in humans for the treatment of Licensed Indications in Kenya. 2.3. Product Deliverability. VA shall provide to ITL, for the consideration set forth in Article III of this Agreement, HBL Interferon under the following conditions: HBL Interferon delivered under this Agreement by VA to ITL may be delivered in the form of lozenges containing One Hundred Fifty (150) International Units of HBL Interferon each. Such lozenges may contain such other ingredients as are permitted to be contained in lozenges approved by U.S. FDA for U.S. trials and/or sales, and the exact composition of such lozenges shall be disclosed in writing by VA to ITL. These HBL Interferon-containing lozenges will be provided in labelled containers, ready for delivery to end-users, including instructions. VA reserves the right to change the HBL Interferon concentration, in consultation with ITL, based on clinical trial results obtained by either VA or ITL. All shipments of HBL Interferon shall be subject to VA having received from ITL written purchase orders at least ninety (90) days prior to any delivery date requested by ITL. Such written purchase orders shall specify the quantity of HBL Interferon to be delivered and the date by which such delivery is required. Payment for all deliveries shall be made in cash or current funds in an amount sufficient to pay for the requested delivery, or by a letter of credit guaranteeing payment, satisfactory to VA as to form and issuer, with such payment to be made at least thirty (30) days prior to the requested date of delivery to ITL. Any condition or circumstance described in Paragraph 9.2 ("Force Majeure"), whether suffered by or affecting VA, or its supplier, HBL, shall excuse performance hereunder until such condition and its effects on supply of HBL Interferon shall have been alleviated. Within ninety (90) days of the date hereof, and at least ninety (90) days prior to the commencement of each calendar year during the term of this Agreement, ITL will furnish VA with -3- its projected requirements for HBL IFN during the next succeeding calendar year. ITL may amend its projected requirements from time-to-time, provided, however, that VA shall be obligated only to make its best effort to comply with any projections in excess of annual projections received by it at least ninety (90) days prior to the commencement of the calendar year in question. Under no circumstances shall VA be required to deliver to ITL hereunder, an amount of HBL IFN which exceeds the amount VA is able, in good faith, to acquire from HBL or HBL's contract manufacturer. Subject to the foregoing, VA shall use its best efforts to deliver HBL IFR in accordance with ITL's projected requirements. ARTICLE III LICENSE GRANT; PURCHASE OF PRODUCT 3.1. License to Distribute and Sell Product. VA hereby grants to ITL an exclusive license to sell (either directly or through distributors) Licensed Product for oral use in humans for the treatment of the Acquired Immunodeficiency Syndrome and the treatment of chronic infection with hepatitis B virus, in Kenya during the term of this Agreement. If regulatory approval for the use of Licensed Product in the treatment of a Licensed Indication in Kenya allows regulatory approval to be obtained in Uganda and/or Tanzania, this license shall be extended to those countries for the applicable Licensed Indication at the time marketing approval of Licensed Product is obtained. During the term of this Agreement, neither ITL nor any of its principals shall use, test, formulate, market or otherwise employ any other interferon or interferon-containing products in humans in any manner. For purchase of HBL Interferon, ITL shall pay VA the amounts set forth below. 3.2. Price for HBL Interferon. As payment for HBL Interferon purchased by ITL from VA pursuant to this Agreement, ITL shall pay to VA * for each HBL Interferon-containing lozenge. 3.3. Restrictions on Use and Sale. Neither ITL nor any of its principals shall use, test, formulate, market or otherwise employ HBL Interferon for any use whatsoever, except for the testing and marketing of HBL Interferon-containing lozenges for oral use in the treatment of Licensed Indications in humans in Kenya with the following exception. ITL may submit a protocol to VA for a clinical trial of Licensed Product for use in the treatment of a human disease condition other than - ----------- * Confidential Treatment has been requested. - 4 - a Licensed Indication. If the protocol and any and all applications for regulatory approval are approved by VA as set forth in Section 3.5, below, and regulatory approval to market Licensed Product is obtained by ITL, the disease condition shall become a Licensed Indication subject to all of the provisions of this Agreement. 3 4. Data and Clinical Trials. During the term of this Agreement, VA and ITL shall share with each other relevant clinical trial results obtained by either of them pertaining to oral use of HBL Interferon in the treatment of Licensed Indications in humans, and each Party hereto shall grant to the other, rights of reference, for any purpose not inconsistent with the other terms and provisions of this Agreement, to all pertinent regulatory filings. VA shall have the right to include data generated from ITL sponsored clinical trials in regulatory submissions outside of Kenya. If such data is used as a primary source to obtain distribution approval in a country other than Kenya, VA shall transfer to ITL, contemporaneous with the gaining of final regulatory approval, the equivalent of * in Licensed Product for each marketing approval, after the first one, obtained outside of Kenya. ITL shall at its expense conduct all clinical trials and seek all necessary approvals in Kenya. At least 60 days prior to the initiation of any clinical trial to be conducted under the terms of this Agreement, the final protocol for that clinical trial must be submitted by ITL to VA for approval. No such clinical trial will be initiated without the prior written approval of VA. VA shall provide to ITL, free of charge, HBL IFN-containing lozenges and placebo lozenges necessary to conduct approved clinical trials on the condition that ITL will manage the clinical trials and insure that they are conducted in a manner consistent with a protocol approved by VA. VA reserves the right to terminate lozenge deliveries and seek damages if the approved protocol is not adhered to by ITL, its collaborators or investigators. At least 30 days prior to the submission by ITL of any application for regulatory approval of Licensed Product for a Licensed Indication or any other disease condition studied under the terms of this Agreement, the final version of the application must be provided by ITL to VA for approval. No such application for regulatory approval will be submitted by ITL without the prior written approval of VA. - ----------- * Confidential Treatment has been requested. - 5 - ARTICLE IV TERM OR TERMINATION; DEFAULT 4.1. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of five (5) years from the date of this Agreement. 4.2. If either Party shall at any time during the term of this Agreement default in any obligation hereunder or fail to pay any payment due, and such default shall not be cured within sixty (60) days after written notice from the other Party specifying the nature of the default, the noticing Party may terminate this Agreement, or may demand specific performance. 4.3. Any termination pursuant to this Article shall not relieve either Party of any obligation to fill purchase orders placed prior to termination, or to pay for any product actually delivered, at any time during the term of the Agreement. 4.4. If this Agreement is terminated by either party for any reason prior to the term set forth in Section 4.1, above, neither ITL nor any of its principals shall use, test, formulate, market or otherwise employ any interferon-containing product for any purpose in humans for a period of four (4) years from the date of termination. ARTICLE V PATENT APPLICATIONS, OWNERSHIP, AND ENFORCEMENT ITL understands and acknowledges that VA currently owns no issued patents in Kenya. Furthermore, VA has no obligation under this Agreement to file any patent applications in Kenya. VA may, however, in its sole discretion, file one or more patent applications in Kenya. As between ITL and VA, VA shall have the sole right to file patent applications covering the Invention, or the manufacture or sale of Licensed Product, or any other interferon-containing products, for use in warm-blooded species. Any VA patents which cover the treatment of Licensed Indications in humans in Kenya, if and when issued, shall then and thereupon be and become subject to the terms and conditions of this Agreement for the consideration hereinbefore expressed, and for no additional consideration, and shall be deemed licensed to ITL, and such license shall continue in force and effect until the termination of this Agreement under other provisions hereof ITL shall cooperate fully with VA in all matters relating to the filing, issuance or maintenance of any such patents. In the event any - 6 - such patents issue or otherwise become effective in Kenya, the enforcement of any and all such patents, including without limitation the prosecution of any lawsuits to enforce such patents, shall be at the sole discretion of VA; provided, however, that if ITL should request such enforcement, and advance all funds necessary to enforce such patents (including without limitation legal fees and expenses) and indemnify VA against any loss, cost or expense arising from such enforcement action, then VA shall use its best efforts to enforce such patents. ARTICLE VI WARRANTY 6.1. VA represents and warrants that as of the date of this Agreement, it is the exclusive owner of the right to sell and distribute HBL IFN for oral use in warm-blooded species in Kenya. 6.2. ITL warrants that all of its operations and activities in Kenya will be in compliance with applicable laws, statutes and regulations. ARTICLE VII DISCLAIMERS AND INDEMNIFICATION 7.1. VA makes no representation or warranty that the sale of Licensed Product will not infringe any third party patent, nor does VA assume any obligations with respect to infringements of patents of others arising as a result of ITL's activities under this Agreement. 7.2. VA makes no covenant to defend any infringement charge by a third party, nor, except as otherwise herein expressly provided, to initiate action against infringers of any VA Patent. 7.3. Neither ITL nor VA makes any representation or warranty concerning the potential profitability of sales of Licensed Product. 7.4. VA SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, OPERATION OR FITNESS FOR USE OF LICENSED PRODUCT OR HBL INTERFERON OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO LICENSED PRODUCT, HBL - 7 - INTERFERON, OR PATENTS. VA EXPRESSLY MAKES NO WARRANTY OF VALIDITY OF ANY PATENTS NOW OR HEREINAFTER LICENSED HEREUNDER. 7. 5. ITL shall at all times during the continuance of this Agreement offer for sale and sell the Licensed Products as goods manufactured by VA and shall not make any representation or give any warranty in respect of the Licensed Products other than those notified in writing from time to time by VA to ITL. 7.6. ITL shall sell the Licensed Products in the same condition as they are received by it from VA and shall not alter, remove or in any way tamper with the Licensed Products or with any marks or numbers on the Licensed Products. 7.7. ITL undertakes to and agrees with VA that at all times during the continuance of this Agreement it will use its best endeavors to promote and extend sales of the Licensed Products throughout Kenya or as otherwise agreed by advertising and by the distribution of printed matter subject however to the specific prior approval in writing, in all cases, of VA to the formal manner, extent and wording of such advertising and such distributed matter and without recourse to VA for any expense incurred unless such expense is specifically authorized by VA in writing. 7. 8. ITL shall use every effort to safeguard the property rights and interest of VA in its patents, trademarks, emblems and other intellectual property rights in or relating to the Licensed Products and will assist VA at the request of VA in taking all steps to defend the rights of VA other than by institution of legal proceedings. 7.9. ITL shall observe all directions and instructions given to it by VA in relation to the sale and distribution of the Licensed Products and in the absence of any such directions or instructions in relation to any particular matter will act in such manner as ITL reasonably considers to be most beneficial to VA's interests. 7.10. ITL shall comply with all applicable laws, bye laws and requirements of any governmental or regulatory authority in relation to the sale and distribution of the Licensed Products. 7.11. ITL shall indemnify and keep indemnified VA from and against any and all loss, damage or liability suffered and legal fees and costs incurred by VA resulting from breach of this Agreement including any act, neglect or default by ITL's employees, agents or licensees. - 8 - 7.12. VA shall indemnify and keep indemnified ITL or HBL and against any and all loss, damage or liability suffered and legal fees and costs incurred by ITL resulting from breach of this Agreement including any act, neglect or default by VA's employees, agents or licensees. ARTICLE VIII CONFIDENTIALITY 8.1. VA owns or is licensed under confidential or secret information relating to interferon-containing products and the use of same in human and non-human species, and it is the intention of VA to maintain this confidentiality. 8.2. Each Party agrees to maintain confidential and secret all Technical Information which has been or may be disclosed or provided to it by the other Party or that the Parties may together subsequently acquire. 8.3. Each Party's obligation to the other (to maintain confidentiality) hereunder shall terminate with respect to any particular item and only said item of the disclosing Party's confidential information, when the recipient Party can demonstrate that such item of information: 8.3.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 8.3.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 8.3.3. Has come into the recipient Party's possession through a third party free of any obligation of confidentiality to the disclosing Party, where said third party has acquired said information lawfullly and not under circumstances forbidding its disclosure. 8.4. Neither Party will permit confidential or secret information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" basis and each will maintain confidential or secret information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 8.5. Each Party will notify the other promptly if it has knowledge that a third party possesses confidential or secret information of the other Party related to interferon-containing products. - 9 - 8.6. lTL shall have the right to use VA's confidential or secret information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its Affiliates, third-party contract consultants and scientific investigators (from whom ITL shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to test and/or sell Licensed Product in Kenya. ARTICLE IX MISCELLANEOUS 9.1. Survival. ARTICLES IV, VII, VIII and IX shall survive any termination of this Agreement. 9.2. Force Majeure. The failure of ITL, VA, or any of their Affiliates to take any action required by this Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war, riot, sabotage, accident, disease (human or animal), embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject said Party to any liability to the other. 9.3. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of sending if sent to such Party by certified or registered mail or by DHL Worldwide Express or a similar courier service, postage or delivery charge prepaid, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as it may designate by written notice given to the other Party as follows: - 10 - In case of ITL: Casey Burns Animal Agro Products, Ltd. 1.5 Kitasuru Road P.O. Box 24593 Nairobi, Kenya In case of VA: Martin J. Cummins Veldona Africa, Inc. 800 West 9th Avenue Amarillo, Texas 79101 USA 9.4. Amendments to Agreement. This Agreement constitutes the entire Agreement between the Parties hereto with respect to all of the matters herein addressed, and supersedes all previous arrangements whether written or oral except that certun agreement by and between ITL and ACC Kenya, Inc. (now Veldona Africa, Inc.) dated October 26, 1991 which shall remain in full force. Any amendment or modification of this Agreement shall be effective only if made in writing, and executed by both Parties. Each party hereby releases any claims or causes of action against the other party arising from any prior agreement, and each party acknowledges it currently has no claims or causes of action against the other party. 9.5. Assignment. This Agreement shall not be assignable by ITL to any person or entity other than a ITL Affiliate without the prior written consent of VA. This Agreement shall not be assignable by VA to any person or entity other than an VA Affiliate without the prior written consent of ITL. 9.6. Enforceability. If one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. To the extent permitted by law, each Party waives any provision of law which renders any provision herein invalid, illegal or unenforceable in any respect. 9.7. Nature of Relationship. Nothing herein shall be construed to place the parties in a relationship of partners or joint venturers, nor does this Agreement make either Party the - 11 - agent or legal representative of the other for any purposes whatsoever. The parties further agree that no representation shall be made by either Party that would create an apparent agency, employment, partnership or joint venture. Neither Party shall have the power, express or implied, to obligate or bind the other in any manner whatsoever. 9.8. Headings. The headings of the several sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.9. Waiver. No provision of this Agreement shall be deemed waived, unless such waiver is in writing and signed by the Party against which the waiver is sought to be enforced. The waiver by either of the Parties hereto of any breach of any provision hereof by the other Party shall not be construed to be either a waiver of any succeeding breach of any such provision or a waiver of the provision itself 9.10. Governmental Approval. In the event VA or its supplier has to obtain approval from any governmental authorities to deliver HBL Interferon under this Agreement, VA's obligation pertaining to the supply of the said materials shall be subject to such approval being granted. 9.11. Venue. Any action brought by VA to enforce or construe this Agreement, or for damages hereunder, shall be brought in a court in the Republic of Kenya. Any action brought by ITL to enforce or construe this Agreement, or for damages hereunder, shall be brought in a court of appropriate jurisdiction (state or federal, as the case may be) in Potter County, Texas, U.S.A. 9.12. Trademarks. VA reserves the right to select the name under which Licensed Product will be marketed in Kenya, Uganda and Tanzania, with the exception of the drug registered in Kenya for AIDS conditions which shall be called "KEMRON(R)". - 12 - IN WITNESS WHEREOF, the Parties hereunto have caused this License and Supply Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. VA: ITL: VELDONA AFRICA INC. INNOVATIVE THERAPEUTICS, LTD. By: /s/ MARTIN J. CUMMINS By: /s/ CASEY BURNS - ---------------------------------- --------------------------------------- Martin J. Cummins Casey Burns President Managing Director - 13 - EX-10.16 22 PRICING AMENDMENT PRICING AMENDMENT VELDONA AFRICA, INC. AND INNOVATIVE THERAPEUTICS, LTD. THIS PRICING AMENDMENT is entered into and effective this 5th day of December 1995, by and between VELDONA AFRICA, INC., a Texas corporation with principal place of business at 800 West 9th Avenue, Amarillo, Texas 79101 USA ("VA"), and INNOVATIVE THERAPEUTICS, LTD., a Kenyan corporation with principal place of business at 1.5 Kitasuru Road, P.O. Box 24593, Nairobi, Kenya ("ITL"). VA and ITL are hereinafter collective referred to as the "Parties." WHEREAS, VA and ITL have heretofore entered into a Letter Agreement dated October 26, 1991, entitled "Payment to ACC on the 80,000 Tablets Imported by ITL under Import License 013156"; and a License and Supply Agreement dated July 10, 1995; and further WHEREAS, the Parties desire to amend the pricing provisions set forth in said Agreements, as hereinafter provided; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, VA and ITL agree as follows: In Section 2.3, "Product Deliverability," of the License and Supply Agreement, the sentence which presently reads "These HBL Interferon-containing lozenges will be provided in labelled containers, ready for delivery to end-users, including instructions," is hereby amended to read as follows: "These HBL Interferon-containing lozenges will be provided packaged in bulk, without labelled containers or instructions, and ITL shall provide at its expense such packaging, labelling, and instructions as may be required for distribution and delivery to end-users." Section 3.2 of the License and Supply Agreement is hereby amended in its entirety, to read as follows: "3.2 Price for HBL Interferon. As payment for HBL Interferon purchased by ITL from VA pursuant to this Agreement, ITL shall pay to VA the following prices: 3.2.1 Until the first to occur of October 31, 1996, or the completion of payment by ITL to VA for 200,000 lozenges from and after December 1, 1995, the price shall be * per lozenge. 3.2.2 Thereafter, the price shall be * per lozenge. 3.2.3 The parties stipulate and agree that as of December 1, 1995, * was owed by ITL to VA for purchase of lozenges delivered prior to that date; accordingly, during such time as the purchase price (as provided above) is * per lozenge, an additional * per lozenge (for a total of * per lozenge) shall be paid by ITL to VA, to be applied to the reduction of said indebtedness; and during such time as the purchase price (as provided above) is * per lozenge, ITL shall pay to VA an additional * per lozenge to be applied to the reduction of said indebtedness; in each case, until and only until such indebtedness shall have been fully reduced, at which time ITL shall no longer be required to make said incremental payments, but shall pay only the amounts set forth in Paragraphs 3.2.1 and 3.2.2, above. Except as herein explicitly provided, the License and Supply Agreement of July 10, 1995 between VA and ITL is and shall remain in full force and effect; however, the Letter Agreement of October 26, 1991 between VA and ITL is superseded by this Pricing Amendment, and shall have no further force or effect. - ----------- * Confidential Treatment has been requested. -2- IN WITNESS WHEREOF, the Parties hereto have caused this Pricing Amendment to be executed in duplicate by their duly authorized representatives as of the date first above written. VA: ITL: VELDONA AFRICA, INC. INNOVATIVE THERAPEUTICS, LTD. By: /s/ Martin J. Cummins By: /s/ Casey Burns -------------------------- ------------------------ Martin J. Cummins Casey Burns President Managing Director -3- EX-10.17 23 LICENSE AGREEMENT License Agreement Between MCGILL UNIVERSITY and AMARlLLO CELL CULTURE COMPANY, INC. Effective the 25th of September, 1995 1 PREAMBLE 1.1 Identification of the Parties 1.1.1 This LICENSE AGREEMENT is entered into between MCGILL UNIVERSITY (hereinafter referred to "MCGILL"), with principal offices at 845 Sherbrooke St. W., Montreal, Quebec, Canada H3A 2T5, and AMARILLO CELL CULTURE COMPANY, INC. (hereinafter referred to as "ACC"), a corporation organized under the laws of the State of Texas, having a principal office at 800 W. 9th, Amarillo, Texas 79101, U.S.A. 1.1.2 This LICENSE AGREEMENT is effective as of the date indicated above. 1.2 Licensee Representations 1.2.1 ACC desires to obtain exclusive license rights to the LICENSED PATENT, under the terms and conditions of this LICENSE AGREEMENT. 1.2.2 ACC represents that it has sponsored clinical studies of the use of interferon in the treatment of hepatitis B and C under the supervision of Dr. Elliot Alpert of the Deparment of Medicine of MCGILL. 1.2.3 Dr. Elliot Alpert of MCGILL's Department of Medicine has developed technology which might be patentable in some countries, relating to a method for the treatment of hepatitis B and C infection using interferon. 1.2.4 ACC desires to support additional research on this method for the treatment of hepatitis B and C infection using interferon and to support the efforts to obtain patent protection on this method 1.3 Licensor Representations 1.3.1 MCGILL is the owner of the entire right, title and interest in the LICENSED PATENT. 1.3.2 Dr. Elliot Alpert, M.D. of the Department of Medicine, the MCGILL inventor of the invention embodied in the LICENSED PATENT, as defined herein, has assigned his interest(s) in the LICENSED PATENT to MCGILL which has the exclusive right to enter into this LICENSE AGREEMENT granting ACC exclusive rights to the LICENSED PATENT. 1.3.3 MCGILL is an institution of higher education and is not in the business of commercially developing ideas, inventions, or other types of intellectual property which are a byproduct of research performed to further MCGILL's goals and objectives. 1 1.4 Now Therefore In consideration of the foregoing premises, the mutual covenants and obligations hereinafter contained, and other good and valuable consideration, MCGILL and ACC agree as follows: 2 DEFINITIONS 2.1 Usage For the purposes of this LICENSE AGREEMENT, the following terms, words, and phrases, when used in the singular or plural, shall have the meanings given to them in this Section. 2.2 Licensor "MCGILL UNIVERSITY," as abbreviated "MCGILL," means the university by that name having its principal office at 845 Sherbrooke St. W., Montreal, Quebec, Canada H3A 2T5, and shall also include all AFFILIATES. MCGILL is the licensor in this LICENSE AGREEMENT. 2.3 Licensee "AMARILLO CELL CULTURE COMPANY, INC.", as abbreviated "ACC," means the corporation by that name having a principal office at 800 W 9th, Amarillo, TX 79101 and shall also include all AFFILIATES. ACC is the licensee in this LICENSE AGREEMENT. 2.4 Affiliate "AFFILIATE" means, with respect to a party of this LICENSE AGREEMENT, any individual or entity which directly or indirectly controls, is controlled by, or is under common control with such party. The term "control" means possession, direct or indirect, of the powers to direct or cause the direction of the management or policies of a person or entity; whether through ownership of equity participation, voting securities, or beneficial interests; by contract; by Agreement; or otherwise. 2.5 Calendar Year "CALENDAR YEAR" means a period of twelve (12) months in the Gregorian Calendar beginning on January l and ending on December 31. 2.6 Date of Commercialization "DATE OF COMMERCIALIZATION" means the date that the LICENSED PRODUCT(S) are first marketed or publicly made available. 2.7 Distributor "DISTRIBUTOR" means any person or ENTITY engaged by ACC, or any agent or representative of ACC, to distribute any LICENSED PRODUCT(S) to any RETAIL OUTLET or END USER, either directly or indirectly through other distributors. - 2- 2.8 Effective Date "EFFECTIVE DATE" means the date indicated above upon which which this LICENSE AGREEMENT becomes effective. 2.9 End User "END USER" means any person licensed to USE LICENSED PRODUCT(S) for his/her own personal use, or any ENTITY licensed to USE LICENSED PRODUCT(S) in the regular conduct of its own business and not for licensing to other ENTITIES or individuals. 2.10 Entity "ENTITY" means a corporation, an association, a joint venture, a partnership, a trust, a business, an individual, a government or political subdivision thereof, including an agency, or any other organization which can exercise independent legal standing. 2.11 Fair Market Value "FAIR MARKET VALUE" means the gross sales price or value which ACC would realize from an unaffiliated, unrelated buyer in an arm's length sale or exchange of consideration for an identical item or service sold or provided in the same quantity and at the same time and place as the sale or exchange for which the FAIR MARKET VALUE is to be determined. 2.12 License Agreement "LICENSE AGREEMENT" means the license agreement, defined by the document in which this paragraph appears. This LICENSE AGREEMENT is between MCGILL, as licensor, and ACC as licensee. Also included in this LICENSE AGREEMENT are all Exhibits attached hereto and all amendments which may be made thereto. 2.13 Licensed Patent "LICENSED PATENT(S)" means (1) those patent applications or patent(s) listed in Exhibit A, which is attached hereto and made a part hereof, any continuations, continuations-in-part, divisions, patents of addition, reissues, reexaminations, or extensions of any of the foregoing, provided that MCGILL is the owner thereof, and (2) patent(s) issuing on the patent applications listed in Exhibit A, all applications for United States or foreign patents based on the listed United States patents and listed patent applications, any patents granted hereafter on said United States or foreign applications, and any continuations, continuations-in-part, divisions, patents of addition, applications for reissue, reissues, reexaminations, or extensions of any of the foregoing, provided that MCGILL is the owner thereof. 2.14 Licensed Product "LICENSED PRODUCT" means any product with label or package insert instructions, apparatus or method, the production, manufacture, sale, lease, USE, or practice of which would infringe one or more valid LICENSED PATENT claims. 3 2.l5 Net Sales 2.15.1 "NET SALES" means gross monies; or the monetary equivalent of consideration, Invoiced, billed, or received by ACC (whether received by ACC from an AFFILIATE, DISTRIBUTOR, RETAlL OUTLET, or some other party, not a SUBLICENSEE) attributable to ACC's sale, lease, or Transfer of any LICENSED PRODUCT; less qualifying costs directly attributable to) such USE, sales, lease, or transfer and actually allowed or borne by ACC. Such qualifying costs shall be limited to costs of the following 2.15.1.1 DISTRIBUTOR discounts 2.15.12 Credits or refunds, not exceeding the original or customary billing or invoice amount, for claims or returns. 2.15.1.3 Packaging. 2.15.1.4 Prepaid transportation insurance premiums. 2.15.1.5 Prepaid outbound transportation expenses. 2.15.1.6 Handling charges. 2.15.1.7 Taxes; including sales, use, turnover, excise, import, export, and other taxes or duties, separately billed or invoiced, and borne by ACC, imposed by a government agency on such sales, lease, or transfer. 2.15.2 A LICENSED PRODUCT shall be deemed sold, leased, or transferred at the time ACC bills, invoices, ships, or received payment for such LICENSED PRODUCT. 2.15.3 In the event any LICENSED PRODUCT is incorporated into a larger product or broader USE, not considered in its totality to be a licensed PRODUCT, the monetary value of such incorporated LICENSED PRODUCT shall be the higher (A) the money received by ACC for similar LICENSED PRODUCT PRODUCT in an Equivalent quantity and in an arm's length transaction with a unauthorized third party, occurring, at or near the same time and location, or (B) after taking into consideration ACC's cost of the larger product with the incorporated LICENSED PRODUCT, that portion of the money or monetary equivalent of the larger product, fairly attributable to the value added or saved by incorporation of the Licensed Product. 2.15.4 LICENSED PRODUCT(S) USED in testing clinical trials, or as marketing samples to dcvelop or promote the LICENSED PRODUCT(S) shall not be lncluded as LICENSED PRODUCT(S) sold, leased, or transferred under the definition of NET SALES; provided the LICENSED PRODUCT(S) are supplied to the user at no cost. 2.16 Research Agreement "RESEARCH AGREEMENT" means the sponsored research agreement for collaboration at the Phase II/III stage of development of the LICENSED PATENT(S). 4 2.17 Retail Outlet "RETAIL OUTLET" shall mean any person, firm, or ENTITY through which any LICENSED PRODUCT is made directly available to END USERS through the purchase of a direct or implied license for such LICENSED PRODUCT(S). 2.18 Sublicensee "SUBLICENSEE" means any ENTITY, not a DISTRIBUTOR, RETAIL OUTLET, or an AFFILIATE of ACC, which is licensed by ACC, pursuant to the authority granted in this LICENSE AGREEMENT, with rights to the LICENSED PATENT(S) beyond those rights commonly granted an END USER. 2.19 Territory "TERRITORY" means the world. 2.20 Use "USE" means any form of practice or utilization of the LICENSED PATENT, LICENSED PRODUCT(S), or any portion thereof. 3 GRANT 3.1 Grant of Rights 3.1.1 Subject to the terms and conditions of this LICENSE AGREEMENT, MCGILL hereby grants to ACC exclusive royalty-bearing license rights to practice in the TERRITORY the LICENSED PATENT for the term of this LICENSE AGREEMENT. 3.1.2 This grant will extend to and authorize the manufacture, sale, lease or other transfer of LICENSED PRODUCTS(S) through an AFFILIATE, DISTRIBUTOR, or RETAIL OUTLET and shall authorize END USERS' USE of LICENSED PRODUCT(S) transferred by ACC or ACC's AFFILIATES, DISTRIBUTORS, or RETAIL OUTLETS. 3.2 Rights to Sublicense 3.2.1 The license rights granted under this LICENSE AGREEMENT shall specifically include the right for ACC to grant sublicenses. ACC agrees that any sublicense it grants to any third party shall be granted under the following conditions: 3.2.1.1 Any sublicense grant of rights to the LICENSED PATENT shall require MCGILL's written approval prior to execution by the proposed sublicensee. Any sublicense shall not be valid until written approval is obtained from MCGILL. Such approval shall not be unreasonably withheld. 3.2.1.2 All sublicenses granted by ACC shall expressly provide that all ACC's obligations to MCGILL in this LICENSE AGREEMENT shall be binding upon the SUBLICENSEE, 5 as if the SUBLICENSEE were a party to this LICENSE AGREEMENT. Each sublicense shall specifically reference this LICENSE AGREEMENT and all rights retained by MCGILL or required to be granted back to MCGILL from ACC or a SUBLICENSEE. 3.2.1.3 ACC shall annually forward to MCGILL a copy of royalty reports received by ACC from its SUBLICENSEE(S) during the preceding CALENDAR YEAR. Such reports must contain adequate detail to allow MCGILL to confirm the accuracy of royalty payments received from each SUBLICENSEE. 3.2.1.4 All royalty payments made by SUBLICENSEE, as required by this LICENSE AGREEMENT, shall be made in United States currency, unless otherwise approved in advance by MCGILL. 3.2.1.5 No sublicense agreement shall relieve ACC of any of its obligations under this LICENSE AGREEMENT, including the obligation to pay MCGILL royalties on LICENSED PRODUCTS. 3.2.1.6 Each sublicense agreement shall include a provision stating that the sublicense agreement shall automatically be modified or terminated, in whole or in part, upon any modification or termination, in whole or in part, of this LICENSE AGREEMENT. Such modification or termination of the sublicense agreement shall be consistent with and reflect the modifications or termination of this LICENSE AGREEMENT. 3.3 Rights Reserved 3.3.1 Notwithstanding the exclusive license granted herein, MCGILL specifically reserves the rights to manufacture, have manufactured or USE the LICENSED PATENT for its own internal, academic, non-commercial purposes, including continuing research, development, testing, and other similar USES. MCGlLL's reserved rights under this section shall not include the right to grant END USER licenses to any nonaffiliated third parties. 3.3.2 This LICENSE AGREEMENT shall not be interpreted or construed as granting to ACC rights, express or implied, by estoppel or otherwise, to any patents, patent applications, inventions, methods, technical information, confidential information, proprietary information, expertise, know-how, trade secrets, or knowledge not specifically licensed by this LICENSE AGREEMENT as LICENSED PATENT; and all rights not expressly granted ACC by this LICENSE AGREEMENT are expressly reserved by MCGILL. The words used in this Subsection are intended to have their broadest possible meanings, and are not to be limited by definitions set forth in this LICENSE AGREEMENT. 3.4 Rights Granted Back To Licensor 3.4.1 ACC hereby grants to MCGILL nonexclusive, nontransferable license rights to USE any patented or non-patented technology, know-how, developments and INVENTIONS relating to the method for the treatment of hepatitis B or C infection using interferon, necessary for Dr. Alpert to further his research and in such case such USE shall be specifically limited to MCGILL's internal, academic non-commercial purposes only. 6 4 TERM AND TERMINATION 4.1 Term of Agreement The term of this LICENSE AGREEMENT shall commence on its EFFECTIVE DATE and shall end on the date upon which the last to expire of the LICENSED PATENT claims expires, whether by statute or otherwise, unless it earlier terminates by operation of law or by acts of the parties in accordance with the terms of this LICENSE AGREEMENT. 4.2 Licensee's Rights to Termination ACC may terminate this LICENSE AGREEMENT at any given time by giving written notice of its intent to terminate at least sixty (60) days prior to actual termination. 4.3 Licensor's Rights to Termination 4.3.1 This LICENSE AGREEMENT may be terminated, in whole or in part, by MCGILL if ACC fails to timely make royalty payments or reports, or breaches any other material portion of this LICENSE AGREEMENT and does not cure such failure or breach within thirty (30) days following notice from McGill specifying such failure or breach. 4.3.2 In the event ACC ceases conducting business in the normal course, becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets, or avails itself of, or becomes subject to, any proceedings under the U.S. Federal Bankruptcy Act or any other statute of any state or country relating to insolvency or the protection of creditor rights, this LICENSE AGREEMENT shall immediately and automatically terminate at the occurrence of any such event. 4.4 Results of Termination 4.4.1 Termination of this LICENSE AGREEMENT shall not release MCGILL or ACC from any obligation or liability to the other which shall have matured prior to termination, nor shall termination rescind or require repayment of any payment or consideration made or given by either party, except as otherwise provided herein. If the terms of this LICENSE AGREEMENT expressly state that a right or obligation shall survive termination of this LICENSE AGREEMENT, such right or obligation shall survive termination to the degree necessary to allow complete fulfillment or discharge of the right or obligation. The following rights and obligations, in addition to others as provided herein, shall survive termination. (A) ACC shall make all reports as required herein prior to termination, and additionally shall prepare a termination report as reasonably required by MCGILL. (B) ACC shall pay all royalties or other payments due MCGILL accrued or accruable for payment prior to or after termination, and all such royalties and payments accruable prior to termination shall become immediately due and payable at the time of termination. (C) At all times both before and for two (2) years after termination, ACC shall maintain all records required to be kept herein and shall allow MCGILL audit privileges as defined herein. 4.4.2 Upon termination of this LICENSE AGREEMENT, all rights granted ACC shall cease and ACC shall then only have a right to exercise its own rights in the LICENSED PATENT(S). 7 5 LICENSING CONSIDERATION 5.1 License Issue Fee In consideration of the license granted herein, the costs incurred and services rendered by MCGILL, ACC shall, on the EFFECTIVE DATE, pay to MCGILL a license issue fee of five thousand United States dollars (US $5,000). The license issue fee shall be nonrefundable; however, it may be credited against royalties required by this LICENSE AGREEMENT. During any payment period, no credit given shall exceed fifty percent (50%) of the amount of earned royalty payable to MCGILL. 6 ROYALTIES 6.1 Earned Royalties In consideration for the license granted in this LICENSE AGREEMENT, ACC shall make payments to MCGILL in the manner designated below, an earned royalty of two percent (2%) of NET SALES beginning on the DATE OF COMMERCIALIZATION and continuing until termination of this LICENSE AGREEMENT. 6.2 Earned Royalty Adjustments 6.2.1 Upon the expiration or abandonment of LICENSED PATENT(S) in each country, ACC shall have no obligation to pay MCGILL any further royalties in such country. 6.2.2 Should a suit be brought in a United States District Court or a request for reexamination be made at the US Patent and Trademark Office challenging the validity of all patent claims of a LICENSED PATENT or the proprietary nature of the LICENSED PATENT, all earned royalties payable by ACC to MCGILL, according to this LICENSE AGREEMENT, shall be paid into an escrow account, acceptable to both MCGILL and ACC, and shall be held pending final determination of the challenge. If the challenge results in a final determination invalidating such claims or proprietary nature of the LICENSED PATENT, all royalties held in escrow shall be returned to ACC. If all or a significant part of the claims are upheld or if the proprietary nature of the LICENSED PATENT is upheld against the challenge, the escrowed royalties shall be paid to MCGILL. 6.2.3 ACC shall continue to pay earned royalties under this LICENSE AGREEMENT notwithstanding any actual or alleged infringement of the LICENSED PATENT. 6.2.4 If ACC is obligated to pay royalties to a third party in order to distribute a LICENSED PRODUCT, ACC shall have a right to withhold from the payments to MCGILL the royalties paid to such third party provided that the payments to MCGILL shall not be reduced to less than fifty percent (50%) of the amount specified in this Agreement. 6.3 Minimum Royalty 6.3.1 In order to maintain the license granted herein, ACC shall pay to MCGILL an annual minimum royalty of ten thousand United States dollars (US $10,000) for each calendar year this LICENSE AGREEMENT is in effect, beginning with the third anniversary of the EFFECTlVE DATE. Should this LICENSE AGREEMENT terminate after the third anniversary of the EFFECTIVE DATE 8 on a date other than an anniversary of the EFFECTIVE DATE of this LICENSE AGREEMENT, a prorated portion of the minimum royalty amount shall be paid. 6.3.2 Minimum royalty payments shall be nonrefundable and shall be credited only against earned royalties payable by ACC to MCGILL in the calendar year for which the minimum is payable. 6.4 Pass Through Royalty 6.4.1 In addition to all other royalties payable hereunder, ACC shall pay to MCGILL a "pass through royalty" of forty percent (40%) on all royalty payments and all other considerations (which shall specifically include, but not be limited to, all license issue fees, earned royalties, minimum royalties and milestone payments but which shall exclude research and development payments, grants, equity payments and manufacturing payments) received for LICENSED PRODUCT(S) by ACC from any SUBLICENSEE; where such royalty payments and considerations are exchanged for rights granted pursuant to this LICENSE AGREEMENT beyond those rights normally granted END USERS. 6.4.2 Pass through royalty payments shall be paid to MCGILL in conjunction with ACC's earned royalty payments. Pass through royalty payments shall be accompanied by written reports, as required with ACC's earned royalty payments, sufficient to allow MCGILL to audit the activities of each SUBLICENSEE. 6.5 Single Royalty per Product No provision of this LICENSE AGREEMENT shall be construed as requiring the payment of more than a single royalty per single LICENSED PRODUCT practiced, USED, manufactured, produced, sold, leased or transferred by ACC regardless of the number of patentable or patented claims in the LICENSED PATENT incorporated into the LICENSED PRODUCT. 6.6 Diligence Payments 6.6.1 If ACC has not filed an investigational new drug (IND)) or similiar application with the Canadian Health and Welfare Canada (Health Protection Branch) and/or the U.S. Food and Drug Administration, relating to the LICENSED PRODUCT, within twelve (12) months of the EFFECTIVE DATE, ACC shall pay MCGILL fifty thousand United States dollars (US $50,000) in order to maintain rights under this LICENSE AGREEMENT. 6.6.2 If ACC has not commenced Phase II Clinical Trials in the United States or Canada on LICENSED PRODUCT within thirty-six (36) months of the EFFECTIVE DATE, ACC shall pay MCGILL fifty thousand United States dollars (US $50,000) in order to maintain rights under this LICENSE AGREEMENT. 6.6.3 If ACC has not commenced Phase III Clinical Trials in the United Stales or Canada on LICENSED PRODUCT within forty-eight (48) months of the EFFECTIVE DATE, ACC shall pay MCGILL fifty thousand United States dollars (US $50,000) in order to maintain rights under this LICENSE AGREEMENT. 6.7 Milestone Payments ACC shall, upon the first occurrence of the following development milestones, immediately make payments to MCGILL of the amounts listed below: 9 Event Amount ----- ------ Filing of IND on LICENSED PRODUCT US$ 5,000 New Drug Application (NDA) submission US$ 50,000 on LICENSED PRODUCT NDA Approval of LICENSED PRODUCT US$120,000 6.8 Research Program Within six months of the EFFECTIVE DATE of this Agreement ACC shall negotiate in good faith a mutually acceptable RESEARCH AGREEMENT with MCGILL with terms and consideration as usual and customary for MCGILL's Phase II/III clinical trials and to notify MCGILL when these clinical trials become necessary. The RESEARCH AGREEMENT shall include a budget, reports, accounting requirements, budget overrun limitations and a mutually acceptable research proposal. 7 PAYMENTS AND REPORTS 7.1 Payments 7.1.1 Any amount due MCGILL as the result of each LICENSED PRODUCT being USED, sold, leased, or transferred pursuant to the license rights granted through this LICENSE AGREEMENT shall accrue at the time ACC receives payment for such LICENSED PRODUCT. All amounts accrued for the benefit of MCGILL shall be deemed held in trust for the benefit of MCGILL until payment of such amounts is made pursuant to this LICENSE AGREEMENT. 7.1.2 Unless otherwise specified in this LICENSE AGREEMENT, all payment amounts due MCGILL under this LICENSE AGREEMENT shall be paid within forty five (45) days following the end of the CALENDAR YEAR in which such payment accrues or ACC otherwise incurs the obligation to pay such amounts. 7.1.3 All such payments shall be remitted to MCGILL's address given in the notification provision of this LICENSE AGREEMENT or to such other address as MCGILL shall direct. 7.1.4 ACC shall pay to MCGILL a one-time late fee of 20% of any payment required under this LICENSE AGREEMENT, if the payment is more than fifteen (15) days late. Such late fee shall be paid within thirty (30) days after the date on which the required payment was due. In addition, ACC shall pay to MCGILL interest on any amounts not paid when due. Such interest will accrue from the fifteenth (15) day after the payment was due at a rate of five percent (5%) per annum, and the interest payment will be due and payable on the first day of each month after interest begins to accrue until full payment of all amounts due MCGILL is made. 7.2 Payments in United States Dollars ACC shall make payment of any amounts due MCGILL under this LICENSE AGREEMENT in United States dollars. 10 7.3 Reports 7.3.1 ACC shall keep, at its own expense, accurate books of account, using accepted accounting procedures, detailing all data necessary to calculate and easily audit any payments due MCGILL from ACC under this LICENSE AGREEMENT. 7.3.2 Each payment made to MCGILL shall be accompanied by a written report summarizing, in sufficient detail to allow MCGILL to verify all payment amounts, the data used to calculate the amounts paid. Each report pertaining to royalty payments for the applicable accounting period shall specifically include the following, as applicable: (A) NET SALES amounts. (B) Royalties due. (C) Gross consideration amounts, including sales revenues, fees, revenues, or monies invoiced, billed or received for all LICENSED PRODUCTS. (D) Qualifying costs, by category of cost, deducted from gross consideration to derive NET SALES. (E) Number of LICENSED PRODUCT(S) sold. (F) NET SALES broken down by country. (G) Date ACC or an AFFILIATE sells each LICENSED PRODUCT. (H) Any offset amounts claimed by ACC. 8 PERFORMANCE 8.1 Best Efforts During the term of this LICENSE AGREEMENT, ACC shall use its reasonable efforts to commercialize the LICENSED PATENT in at least one country in the TERRITORY. 9 PATENT MAINTENANCE 9.1 Licensor to maintain LICENSED PATENT 9.1.1 ACC shall be solely responsible for the payment of all preparation, filing, maintenance and other fees required in order to maintain the LICENSED PATENT(S) for which ACC desires to maintain the license rights. At least thirty (30) days prior to the time payment of such fees is required, ACC shall make the necessary payment and give MCGILL written notice that such fees have been paid. If MCGILL does not timely receive such notice or if ACC notifies MCGILL that it will not make a payment because it no longer has an interest in a LICENSED PATENT in a certain country, MCGILL may, in its discretion, pay the fees and in such case MCGILL shall have a right to exercise its own rights to such LICENSED PATENT in such country. 9.1.2 ACC shall have the ultimate responsibility for meeting all payment, cost, and filing deadlines concerning the LICENSED PATENT(S). ACC shall have no claim of damages against MCGILL, its officers, administrators, or employees, should any such payment or cost not be made or any such deadline not be met, and MCGILL's failure to meet any such deadline or pay any such fee or cost shall not be considered a breach of this LICENSE AGREEMENT. 11 10 WARRANTIES 10.1 No warranty of merchantability of LICENSED PATENT MCGILL WARRANTS THAT IT HAS OBTAINED ALL OF DR. ALPERT'S RIGHTS, TITLE AND INTEREST IN THE LICENSED PATENT(S), AND THAT TO MCGILL'S KNOWLEDGE, NO OTHER PERSON OR ENTITY OTHER THAN ACC OWNS ANY RIGHTS, TITLE OR INTEREST IN THE LICENSED PATENT(S). MCGILL MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE LICENSED PATENT, NOT EXPRESSLY SET FORTH IN THIS AGREEMENT. ALL MCGILL DELIVERABLES ARE MADE AVAILABLE TO ACC STRICTLY ON AN "AS IS" BASIS. MCGILL DOES NOT WARRANT THAT THE LICENSED PATENT IS ERROR FREE OR THAT IT WILL MEET ACC REQUIREMENTS. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED AND EXCLUDED. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF LICENSED PATENT, DELIVERABLES, AND ANY PRODUCTS, SERVICES OR METHODS BASED ON THE LICENSED PATENT IS ASSUMED BY ACC. 10.2 No warrant of liability for LICENSED PRODUCT MCGILL MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES, EXPRESS OR IMPLIED, AND ASSUMES NO LIABILITIES OR RESPONSIBILITES WITH RESPECT TO THE USE, SALE, OR OTHER DISPOSITION BY ACC, ANY AFFILIATE, VENDEES OR TRANSFEREES OF LICENSED PRODUCT(S). 11 INFRINGEMENT 11.1 Obligation to notify Should ACC become aware of any infringement or potential infringement of the LICENSED PATENT, ACC shall give MCGILL prompt written notice detailing the facts concerning such infringement or potential infringement. 11.2 Obligation to enforce In the event ACC shall have actual notice of a substantial infringement of a LICENSED PATENT intellectual property rights, ACC shall have the obligation, within six (6) months of receiving notice, to (A) stop the infringement, (B) file suit against the infringer, or (C) provide MCGILL with reasonable evidence showing that the infringer intends to enter into a sublicense or settlement agreement in which future infringement will be halted. Should such obligation not be fulfilled, MCGILL shall have the right, as its sole remedy, at its own expense and for its own benefit, to bring any action it deems necessary to stop the infringement and recover any damages, profits, and awards which might be obtained and to change, on the second occurrence of ACC's failure to perform such obligation, any exclusive license rights granted to ACC through this LICENSE AGREEMENT automatically to nonexclusive rights, and thereafter have the exclusive right to grant licenses to the LICENSED PATENT(S). 12 12 GENERAL PROVISIONS 12.1 Assignment This LICENSE AGREEMENT may be assigned or transferred by ACC without the prior written consent of MCGILL. ACC shall notify MCGILL of any such assignment. 12.2 Attorneys' Fees In the event any suit or other proceeding is reasonably necessary and is commenced to construe, enforce, or terminate any provision of this LICENSE AGREEMENT, the nonprevailing party shall pay the prevailing party, in addition to all other amounts to which the prevailing may be entitled, a reasonable sum for attorneys' fees and costs incurred by the prevailing party in such suit or proceeding. 12.3 Entire Agreement This LICENSE AGREEMENT constitutes the entire agreement and understanding between MCGILL and ACC with respect to the subject matter hereof, and any modification of this LICENSE AGREEMENT shall be in writing and shall be signed by a duly authorized representative of both MCGILL and ACC. There are no understandings, representations, or warranties between MCGILL and ACC concerning the subject matter hereof except as expressly set forth in this LICENSE AGREEMENT. 12.4 Governing Law This LICENSE AGREEMENT shall be deemed to have been made in the Province of Quebec and shall be governed and construed in accordance with the laws of the Province of Quebec. 12.5 Headings The section and subsection titles and headings contained in this LICENSE AGREEMENT are for convenience of reference only. Such titles and headings do not form a part of this LICENSE AGREEMENT, shall not define or limit the scope of the sections or subsections, and shall not affect the construction or interpretation of any of the sections or subsections. 12.6 Notices All notices, reports, payments, requests, consents, demands and other communications between MCGILL and ACC, pertaining to subjects related to this LICENSE AGREEMENT, shall be in writing and shall be deemed duly given and effective (A) when actually received by mail or personal delivery, or (B) when sent by telecopier, telex or other similar means of electronic communication on the second day following the sending thereof at the address set forth below, or to such other address as may be later designated by written notice from either party to the other party: MCGILL's Notification Address: Director, Office of Technology Transfer, 3550 University St., Montreal, Quebec, Canada H3A 2A7; fax: (514) 398-8479. 13 ACC's Notification Address: Chief Financial Officer, AMARILLO CELL CULTURE COMPANY, INC., 800 W. 9th, Amarillo, TX 79101, U.S.A.; fax: (806) 376-9301. 12.7 Use of Name ACC shall not, without prior written consent from MCGILL in each specific case (except as required by law), use MCGILL's name, trademark(s), or any adaptations thereof. 12.8 Waiver of Rights In order to be effective, any waiver, by either party, of any right under this LICENSE AGREEMENT, must be in writing signed by an authorized representative of the party making the waiver. No such waiver or failure of MCGILL or ACC to enforce a right or strict performance under this LICENSE AGREEMENT shall be deemed to be a waiver or forbearance which would in any way prevent MCGILL or ACC from subsequently asserting or exercising any such rights, making a claim not specifically waived, or requiring strict performance of this LICENSE AGREEMENT. No such waiver or failure to enforce shall affect the validity of this LICENSE AGREEMENT or be a continuing waiver excusing compliance with any provision of this LICENSE AGREEMENT in the future. 12.9 Language The parties hereto hereby acknowledge that they have required this LICENSE AGREEMENT to be drawn up in the English language. Les parties reconnaissent avoir demande que le present contrat de licence soit redige en langue anglaise. 12.10 Signatures IN WITNESS WHEREOF, MCGILL and ACC have caused this LICENSE AGREEMENT to be executed in duplicate originals by their duly authorized representative. LICENSOR: LICENSEE: MCGILL UNIVERSITY AMARILLO CELL CULTURE COMPANY, INC. Representing Licensor: Representing Licensee: /s/ (Illegible) /s/ Joseph M. Cummins - ---------------------------------- ------------------------------------ Signature Signature September 26, 1995 Sep 25, 1995 - ---------------------------------- ------------------------------------ Date Date /s/ R.D. Brassinger /s/ Joseph M. Cummins - ---------------------------------- ------------------------------------ Name of Representative Name of Representative Associate Director, OTT President & CEO - ----------------------- --------------- Tille of Representative Title of Representative /s/ Margo Critchley /s/ Charles H. Hughes - ---------------------------------- ------------------------------------ Witness Witness 14 Exhibit A Title: Oral Interferon Potentiated Treatment of Hepatitis B or Hepatitis C Inventor: Elliot Alpert Assignee: McGill University U.S. Application Serial No.---------------------- Filing Date: ------------------------------------ ACC Application to be prepared and filed by ACC patent attorneys, in consultation with MCGILL's Office of Technology Transfer, before November 1, 1995 based on data obtained from clinical studies of the use of interferon in treatment of hepatitis B or C under the supervision of Dr. E. Alpert of the Department of Medicine of McGill Univeristy; the application will include claims to a method of potentiating the efficacy of parenterally administered interferon by oral/pharyngeal contact of low dose interferon. 15 EX-10 24 EXHIBIT 10.18 CONSULTING AGREEMENT ____________, 1996 Amarillo Biosciences, Inc. 800 West 9th Avenue Amarillo, Texas 79101 Attention: Dr. Joseph M. Cummins, President Dear Dr. Cummins: This will confirm the arrangements, terms and conditions pursuant to which Whale Securities Co., L.P., (the "Consultant"), has been retained to serve as a financial consultant and advisor to Amarillo Biosciences, Inc., a Texas corporation (the "Company"), on a non-exclusive basis for a period of two (2) years commencing on ________________, 1996 [the Closing Date]. The undersigned hereby agrees to the following terms and conditions: 1. Duties of Consultant. Consultant shall, at the request of the Company, upon reasonable notice, render the following services to the Company from time to time: (a) Consulting Services. Consultant will provide such financial consulting services and advice pertaining to the Company's business affairs as the Company may from time to time reasonably request. Without limiting the generality of the foregoing, Consultant will assist the Company in developing, studying and evaluating financing and merger and acquisition proposals based upon documentary information provided to the Consultant by the Company. (b) Financing. Consultant will assist and represent the Company in obtaining both short and long-term financing. The Consultant will be entitled to additional compensation under certain circumstances in accordance with the terms set forth in Section 3 hereof. (c) Wall Street Liaison. Consultant will, when appropriate, arrange meetings between representatives of the Company and individuals and financial institutions in the investment community, such as security analysts, portfolio managers and market makers. The services described in this Section 1 shall be rendered by Consultant without any direct supervision by the Company and at such time and place and in such manner (whether by conference, telephone, letter or otherwise) as Consultant may determine. 2. Compensation. As compensation for Consultant's services hereunder, the Company shall pay to Consultant an annual fee of Thirty Thousand Dollars ($30,000) payable in full, in advance, with the first payment due on __________________, 1996 [the Closing Date]. 3. Additional Compensation in Certain Circumstances. In addition to the financial consulting services described in Section 1 above, Consultant may bring the Company in contact with persons, whether individuals or entities, that may be suitable candidates for providing the Company with, or may lead the Company to other individuals or entities that may provide the Company with, debt or equity financing or that may be suitable candidates, or may lead the Company to such suitable candidates, to purchase substantially all of the stock or assets of the Company, merge with the Company, or enter into a joint venture or other transaction with the Company. If, at any time up until the second anniversary of the date hereof, the Company enters into an agreement with any such persons or their affiliates, or with any persons introduced to the Company by any such persons or their affiliates, pursuant to which the Company obtains debt or equity financing or pursuant to which substantially all of the Company's stock or assets is purchased or the Company is merged with or into another entity, or pursuant to which the Company enters into a joint venture or other transaction, the Company will pay to Consultant, in accordance with the formula set forth below, additional compensation based on the aggregate of all proceeds received by the Company (the "Consideration") in such transaction (the "Transaction"). The additional compensation to be paid will be paid upon the closing of the Transaction, by certified check, in the following amounts: 5% of the first $5,000,000 of the consideration paid in the Transaction; 4% of the consideration in excess of $5,000,000 and up to $6,000,000; 3% of the consideration in excess of $6,000,000 and up to $7,000,000; 2% of the consideration in excess of $7,000,000 and up to $8,000,000; and 1% of any consideration in excess of $8,000,000. 4. Available Time. Consultant shall make available such time as it, in its sole discretion, shall deem appropriate for the performance of its obligations under this agreement and may in certain circumstances be entitled to additional compensation in connection therewith. 5. Relationship. Nothing herein shall constitute Consultant as an employee or agent of the Company, except to such extent as might hereinafter be agreed upon for a particular purpose. Except as might hereinafter be expressly agreed, Consultant shall not have the authority to obligate or commit the Company in any manner whatsoever. 6. Confidentiality. Except in the course of the performance of its duties hereunder, Consultant agrees that it shall not disclose any trade secrets, know-how, or other proprietary information not in the public domain learned as a result of this Agreement unless and until such information becomes generally known. 7. Assignment and Termination. This Agreement shall not be assignable by any party except to successors to all or substantially all of the business of either party for any reason whatsoever without the prior written consent of the other party, which consent may be arbitrarily withheld by the party whose consent is required. 8. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. Very truly yours, WHALE SECURITIES CO., L.P. By: Whale Securities Corp., General Partner By: ---------------------------------- Name: William G. Walters Title: Chairman AGREED AND ACCEPTED: AMARILLO BIOSCIENCES, INC. By: ------------------------------ Name: Title: EX-10.19 25 RESEARCH AGREEMENT RESEARCH AGREEMENT THIS AGREEMENT made and entered into this 25th day of March 1996 by and between Ajinomoto Co., Inc. at 1-15-1 Kyobashi, Chuo-ku, Tokyo, 104 Japan (hereinafter called "AJICO") and Amarillo Cell Culture Co., Inc. at 800 West Ninth Avenue, Amarillo, Texas 791013206 (hereinafter called "ACC"). WHEREAS ACC is a leading company in the world exploring oral application of interferon alpha (hereinafter called "IFNa ") for the treatment and prevention of human and animal disease, but has never tried oral IFNa application into dairy cattle for the treatment of mastitis, and WHEREAS AJICO is a leading amino acids and peptides manufacturer in the world and showed a desire to explore a possible application of IFNa into mastitis prevention and treatment. NOW, THEREFORE, the parties hereto agree as follows: 1. AJICO will conduct a small research study to determine whether oral IFNa can be used for the treatment and prevention of mastitis in dairy cattle. All research study expenses will be under the direct supervision of AJICO and are the sole responsibility of AJICO (hereinafter called "PROJECT"). 2. ACC will support the PROJECT with best effort by providing consultation and advise, experimental protocol in written form and IFNa free of charge to AJICO upon request of AJICO. 3. AJICO shall have the final authority to determine the scope and content of any publication, provided that such authority shall be exercised with reasonable regard for the commercial interests of ACC. It is the intent of the parties that no publication will contain any confidential information disclosed by ACC without ACC'S prior written permission. ACC may request AJICO to delay publishing such proposed publication for a maximum of an additional sixty (60) days. 4. AJICO will discuss the results of PROJECT with ACC. If AJICO obtains a promising result, ACC will discuss future business development with AJICO in good faith on the basis of equal or proportional sharing of risk and profit. If AJICO obtains any invention or improvements relating to oral IFNa application resulting from PROJECT, ACC will discuss the ownership in good faith. 5. ACC will hold in confidence and shall not disclose to any third party without prior written consent of AJICO any confidential information obtained from AJICO. 6. This AGREEMENT will become effective on the first date above written and will continue in effect for a period of two (2) years, provided, however, that clause five (5) above will survive for a period of five (5) years. IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in duplicate in English by their duly authorized representatives as of the date first above written. AMARILLO CELL CULTURE COMPANY, INC. BY:/s/ Joseph M. Cummins DATE: 3/25/96 ----------------------------- --------------- Joseph M. Cummins, DVM, PhD President and CEO AJINOMOTO COMPANY, INC. BY:/s/ Yoshihiro Nakamura DATE: 3/25/96 ----------------------------- --------------- Yoshihiro Nakamura, PhD Deputy General Manager Planning & Development Department EX-10.20 26 EMPLOYEE STOCK OPTION PLAN AMARILLO BIOSCIENCES, INC. 1996 EMPLOYEE STOCK OPTION PLAN ARTICLE I -- GENERAL 1.01. Purposes. The purposes of this 1996 Employee Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the management of AMARILLO BIOSCIENCES, INC. ("ABI") and its Subsidiaries and Affiliates (collectively referred to as the "Company") with the shareholders by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide management with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and (4) provide an incentive to management for continuous employment with the Company. 1.02. Administration. (a) The Plan shall be administered by a Committee of directors appointed by the Board of Directors of ABI (the "Committee"), as constituted from time to time. The Committee shall consist of at least two members of the Board. Notwithstanding anything in this Section 1.02 to the contrary, so long as any equity security of the Company is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor statute, all authority to exercise discretion with respect to participation in the Plan by persons who are (i) "officers" within the meaning of the applicable Securities and Exchange Commission rules and regulations relating to Section 16 of the 1934 Act, or any successor statute, (ii) directors of the Company and/or (iii) beneficial owners of more than ten percent (10%) of any class of equity securities of the Company who are otherwise eligible to participate in the Plan, and the timing, pricing, amounts and other terms and conditions of awards granted under the Plan to such officers, directors and beneficial owners, shall be vested in the Committee, if all of the members of the Committee are disinterested persons within the meaning ascribed to such term in Rule 16b-3 promulgated under the 1934 Act, or within any successor definition or under any successor rule ("disinterested persons"). (b) The Committee shall have the authority, in its sole discretion and from time to time to: (i) designate the employees or classes of employees eligible to participate in the Plan; -1- (ii) grant awards provided in the Plan in such form and amount as the Committee shall determine; (iii) impose such limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; and (iv) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan. (c) Decisions and determinations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder. (d) With respect to persons subject to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors or the Committee, as applicable. (e) All usual and reasonable expenses of the Committee shall be paid by the Company, and no member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. The Board of Directors and the Committee may employ attorneys, consultants, accountants or other persons, and the Board of Directors, the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors or the Committee in good faith shall be final and binding upon all Employees who have received awards, and upon the Company and all other interested persons. No member of Board of Directors or the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan or awards made thereunder, and the Company shall indemnify and hold harmless each member of the Board of Directors or the Committee against all loss, cost, expenses or damages, occasioned by any act or omission to act in connection with any such action, determination or interpretation under or of -2- the Plan, consistent with the Company's certificate of incorporation and bylaws. 1.03. Eligibility for Participation. Participants in the Plan shall be selected by the Committee from among the employees of the Company. In making this selection and in determining the form and amount of awards, the Committee shall consider any factors deemed relevant, including the individual's functions, responsibilities, value of services to the Company and past and potential contributions to the Company's profitability and sound growth. 1.04. Types of Awards Under Plan. Awards under the Plan will be in the form of Incentive Stock Options, as described in Article II; provided, however, that Limited Rights, as described in Article III, may be awarded with respect to Options concurrently or previously awarded. 1.05. Aggregate Limitation on Awards. (a) Shares of stock which may be issued under the Plan shall be authorized and unissued or treasury shares of Common Stock of ABI ("Common Stock"). The maximum number of shares of Common Stock which may be issued under the Plan shall be one hundred fifty thousand (150,000) shares. The maximum number of shares of Common Stock with respect to which Incentive Stock Options may be granted in any one year to any employee shall not exceed 50,000. (b) In addition to shares of Common Stock actually issued pursuant to the exercise of Incentive Stock Options, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights (as described in Article III) shall have been exercised. (c) Any shares of Common Stock subject to an Incentive Stock Option which for any reason is terminated unexercised or expires shall again be available for issuance under the Plan, but shares subject to an Incentive Stock Option which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan. 1.06. Effective Date and Term of Plan. (a) The Plan shall become effective on the date approved by the holders of a majority of the shares of Common -3- Stock present in person or by proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of ABI. (b) No awards shall be made under the Plan after the last day of the Company's 2001 fiscal year provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. ARTICLE II -- INCENTIVE STOCK OPTIONS 2.01. Award of Incentive Stock Options. The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more "Incentive Stock Options," intended to qualify as such under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock Options") to purchase for cash the number of shares of Common Stock allotted by the Committee. The date an Incentive Stock Option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan. 2.02. Incentive Stock Option Agreements. The grant of an Incentive Stock Option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an Incentive Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Incentive Stock Option evidenced thereby, and in such form as the Committee may from time to time determine. 2.03. Incentive Stock Option Price. The Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted; provided, however, that with respect to any Optionee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of ABI or of its parent or Subsidiary corporation (with such ownership determined in view of the attribution provisions of Section 424(d) of the Code), the Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 110% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted. The Committee shall -4- determine the date on which an option is granted, provided that such date is consistent with the Code and any applicable rules or regulations thereunder; in the absence of such determination, the date on which the Committee adopts a resolution granting an option shall be considered the date on which such option is granted, provided the Employee to whom the option is granted is promptly notified of the grant and a written option agreement is duly executed as of the date of the resolution. 2.04. Term and Exercise. Each Incentive Stock Option for employees who are not 10% owners is exercisable during a period of ten years from the date of grant thereof (the "Option Term"), subject to the Vesting Schedule for Employees who are not 10% Owners, set forth below. With respect to any Optionee who at the time the Option is granted owns stock possessing more than 10% of the total combined voting power of all classes of stock of ABI or of its parent or Subsidiary corporation (with such ownership determined pursuant to the attribution rules set forth in Section 424(d) of the Code), each Incentive Stock Option is exercisable during a period of five years from the date of grant thereof, subject to the Vesting Schedule for Employees who are 10% Owners, set forth below. No Incentive Stock Option shall be exercisable after the expiration of its Option Term. The Committee may also, in its sole discretion, accelerate the exercisability of any option or installment thereof at any time. Vesting Schedule for Employees who are not 10% Owners. Options awarded shall be exercisable, subject to the other terms and conditions of the Plan, only upon the expiration of the designated number of years of active employment with the Company from date of award, as provided below: 20% of Options awarded - 1 year 40% of Options awarded - 2 years 60% of Options awarded - 3 years 80% of Options awarded - 4 years 100% of Options awarded - 5 years Vesting Schedule for Employees who are 10% Owners. 25% of Options awarded - 1 year 50% of Options awarded - 2 years 75% of Options awarded - 3 years 100% of Options awarded - 4 years Except as provided in Sections 2.06, 2.07 and 2.08 hereof, no Incentive Stock Option shall be exercised at any -5- time unless the holder thereof is then a regular full-time employee of the Company or one of its subsidiaries. 2.05. Maximum Amount of Incentive Stock Option Grant. In no event shall the aggregate Fair Market Value of all Common Stock (determined at the time the option is granted) with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year (under all plans of the Company and its subsidiaries) exceed $100,000. 2.06. Death of Optionee. (a) Upon the death of the Optionee, any Incentive Stock Option exercisable on the date of death may be exercised by the Optionee's estate or by a person who acquires the right to exercise such Incentive Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Incentive Stock Option and one year after the Optionee's death. (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any Incentive Stock Options exercisable on the date of death. 2.07. Retirement or Disability. Upon the termination of the Optionee's employment by reason of permanent disability (as defined herein) or retirement (as determined by the Committee), the Optionee may, within 36 months from the date of such termination of employment, exercise any Incentive Stock Options to the extent such Incentive Stock Options were exercisable at the date of such termination of employment. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months after the date of termination of employment due to retirement. For purposes hereof, "permanent disability" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor provision thereto. 2.08. Termination for Other Reasons. Except as provided in Sections 2.06 and 2.07 or except as otherwise determined by the Committee, all Incentive -6- Stock Options shall terminate upon the termination of the Optionee's employment; provided, however, that if the Optionee's employment was involuntarily terminated (with or without cause), Optionee may exercise, during a 90-day period commencing with date of termination, all Options theretofore vested, or which vest during said 90-day period, under the Vesting Schedules set forth in Paragraph 2.04, above. At the end of the 90-day period, all rights of such Optionee under any then outstanding option or right shall terminate and shall be forfeited immediately as to any unexercised portion thereof. 2.09. Manner of Payment. Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or in shares of the Common Stock, valued at the Fair Market Value per Share on the date of exercise. 2.10. Issuance of Shares. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. The Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. 2.11. Effect of Exercise. The exercise of any Stock Option shall cancel that number of related Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Option. 2.12. Rule 16b-3 Exemption. Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any successor, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the 1934 Act with respect to Plan transactions. -7- ARTICLE III -- LIMITED RIGHTS 3.01. Award of Limited Rights. Concurrently with or subsequent to the award of any Incentive Stock Option, the Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each Option, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Common Stock in lieu of exercising the Option ("Limited Right"). 3.02. Limited Rights Agreement. Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine. 3.03. Exercise Period. Limited Rights shall (and must) be exercised immediately preceding or simultaneous with the date of a Change in Control of ABI (the "Exercise Period"), and all Limited Rights held by the Optionee shall be exercised during such Exercise Period, without regard to the Vesting Schedules set forth in Paragraph 2.04; provided, however, that if a Change in Control shall have occurred without notice or opportunity for exercise of Limited Rights, then the Limited Rights shall be exercised as soon as practicable after a determination has been made that a "Change in Control" has occurred, or has been deemed to have occurred. As used in the Plan, a "Change in Control" shall be deemed to have occurred if (a) individuals who were directors of ABI, immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board of Directors of ABI (or of the Board of Directors of any successor to ABI or to all or substantially all of its assets), or (b) any entity, person or Group other than ABI or a Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof acquires shares of ABI in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51%) or more of the outstanding shares. -8- As used herein, "Control Transaction" shall be (i) any tender offer for or acquisition of capital stock of ABI, (ii) any merger, consolidation, or sale of all or substantially all of the assets of ABI which has been approved by the sharehold- ers, (iii) any contested election of directors of ABI, or (iv) any combination of the foregoing; which results in a change in voting power sufficient to elect a majority of the Board of Directors of ABI. As used herein, "Group" shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended. 3.04. Amount of Payment. The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100% of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Market Price of a share of such Common Stock. Market Price is defined to be the greater of (i) the highest price per share of the Company's Common Stock paid in connection with any Change in Control and (ii) the highest price per share of the Company's Common Stock paid pursuant to an unsolicited brokerage transaction during the 60-day period prior to the Change in Control. 3.05. Form of Payment. Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be made solely in cash. 3.06. Effect of Exercise. If Limited Rights are exercised, the Stock Options related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the -9- extent of the number of shares as to which the related Options were exercised or terminated. 3.07. Retirement or Disability. Upon termination of the Optionee's employment with the Company by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Limited Right to the extent such Limited Right is otherwise exercisable during such 36-month period. 3.08. Death of Optionee or Termination for Other Reasons. Except as provided in Section 3.07, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate upon the termination of the Optionee's employment with the Company, or upon the death of the Optionee. ARTICLE IV -- MISCELLANEOUS 4.01. General Restriction. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 4.02. Non-Assignability. No award under the Plan shall be assignable or transferable by the recipient thereof, except by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. -10- 4.03. Right to Terminate Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment of the Company or effect any right which the Company may have to terminate the employment of such participant. 4.04. Non-Uniform Determinations. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 4.05. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him. 4.06. Definitions. In this Plan the following definitions (along with other definitions set forth elsewhere in the Plan) shall apply: (a) "Affiliate" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with ABI. (b) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limita- tion the National Market System of the National Association of Securities Deal- ers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the clos- ing bid, if no sales were reported) as quoted on such system or exchange (or the -11- exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in The Wall Street Journal or such other source as the Board deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quot- ed by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall -------- Street Journal or such other source as -------------- the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. (c) "Option" means Incentive Stock Option. (d) "Option Price" means the purchase price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option. (e) "Subsidiary" means any corporation of which, at the time more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by ABI or any Subsidiary thereof. 4.07. Leaves of Absence. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence. -12- 4.08. Newly Eligible Employees. The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof after the commencement of an award or incentive period. 4.09. Adjustments. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount and terms of any Limited Rights theretofore awarded under the Plan, and any and all other matters deemed appropriate by the Committee. 4.10. Amendment of the Plan. (a) The Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements. (b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without shareholder approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 4.10), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his or her rights under an award previously granted to him or her. 4.11. Disposition of Option Shares; Withholding Taxes. Upon the disposition (within the meaning of Code Section 424(c)) of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the expiration of the holding period requirements of Code Section 422(a)(1), the Optionee shall be required to give notice to -13- the Company of such disposition and the Company shall have the right to require the Optionee to pay to the Company the amount of any taxes that are required by law to be withheld with respect to such disposition. -14- EX-10.21 27 OUTSIDE DIRECTOR & ADVISOR STOCK OPTION PLAN AMARILLO BIOSCIENCES, INC. OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN ARTICLE I -- GENERAL 1.01. Purposes. The purposes of this Outside Director and Advisor Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the Outside Directors and Scientific Advisors of AMARILLO BIOSCIENCES, INC. ("ABI") and its Subsidiaries and Affiliates (collectively referred to as the "Company") with the shareholders by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide ABI's Outside Directors and Scientific Advisors with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; and (3) provide an incentive to Outside Directors and Scientific Advisors for continuous association with the Company. The Plan is not an incentive stock option plan within the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"). 1.02. Administration of the Plan. (a) The Plan shall be administered by a Committee of persons appointed by the Board of Directors of ABI (the "Committee"), as constituted from time to time. The Committee shall consist of at least two members of the Board. (b) The Committee shall have the authority, in its sole discretion and from time to time, to interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan. (c) Decisions and determinations of the Committee on all matters relating to the Plan shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder. (d) The foregoing provisions of this Section 1.02 notwithstanding, all Options granted under this Plan shall be automatic and non-discretionary, shall be made as set forth in Article II ("Stock Options"), and neither the Committee nor the Board of Directors of the Company nor any other person shall have any discretion to select which Outside Directors and/or Scientific Advisors shall be granted Options, or to -1- determine the number of shares to be covered by Options granted to such persons. (e) With respect to persons subject to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors or the Committee, as applicable. (f) All usual and reasonable expenses of the Committee shall be paid by the Company, and no member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. The Board of Directors and the Committee may employ attorneys, consultants, accountants or other persons, and the Board of Directors, the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors or the Committee in good faith shall be final and binding upon all person who have received awards, and upon the Company and all other interested persons. No member of Board of Directors or the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan or awards made thereunder, and the Company shall indemnify and hold harmless each member of the Board of Directors or the Committee against all loss, cost, expenses or damages, occasioned by any act or omission to act in connection with any such action, determination or interpretation under or of the Plan, consistent with the Company's certificate of incorporation and bylaws. 1.03. Awards Under Plan. Each award under the Plan will include both: (i) Stock Options, as described in Article II; and (ii) Limited Rights, as described in Article III. 1.04. Aggregate Limitation on Awards. (a) Shares of stock which may be issued under the Plan shall be authorized and unissued or treasury shares of Common Stock of ABI ("Common Stock"). The maximum number of -2- shares of Common Stock which may be issued under the Plan shall be one hundred thousand (100,000) shares. (b) In addition to shares of Common Stock actually issued pursuant to the exercise of Stock Options, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights (as described in Article III) shall have been exercised. (c) Any shares of Common Stock subject to a Stock Option which for any reason is terminated unexercised or expires shall again be available for issuance under the Plan, but shares subject to a Stock Option which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan. 1.05. Effective Date and Term of Plan. (a) The Plan shall become effective on the date approved by the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of ABI. (b) No awards shall be made under the Plan after the last day of the Company's 2001 fiscal year provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. ARTICLE II -- STOCK OPTIONS 2.01. Award of Stock Options. All grants of Stock Options to Outside Directors and/or Scientific Advisors under the Plan shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions: (a) No person shall have any discretion to select which Outside Directors and/or Scientific Advisors shall be granted Stock Options or to determine the number of shares to be covered by Options granted to such persons. (b) Each person serving as an Outside Director on the date the Plan becomes effective pursuant to Section 1.05(a) above, shall be awarded an Option to purchase ten thousand (10,000) shares. The effective date of such awards shall be the first business day following the acceleration of effectiveness of ABI's 1996 registration statement, under the -3- Securities Act of 1933, registering 2,000,000 shares of Common Stock for sale to the public. Each Outside Director not so serving on the date the Plan becomes effective shall be automatically granted an Option to purchase ten thousand (10,000) shares on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that if such Outside Director assumes such position prior to the effective date of ABI's registration statement described above, the effective date of the award shall be the first business day following the acceleration of effectiveness of such registration statement. The foregoing notwithstanding, any Outside Director who has previously received an Option award as a Scientific Advisor under Section 2.01(c), below, shall be awarded, in his capacity as an Outside Director, an Option to purchase only five thousand (5,000) shares, instead of ten thousand (10,000) shares. (c) Each person serving as an Scientific Advisor on the date the Plan becomes effective pursuant to Section 1.05(a) above, who is not also serving as an Outside Director, shall be awarded an Option to purchase five thousand (5,000) shares. The effective date of such awards shall be the first business day following the acceleration of effectiveness of ABI's 1996 registration statement, under the Securities act of 1933, registering 2,000,000 shares of Common Stock for sale to the public. Each Scientific Advisor not so serving on the date the Plan becomes effective shall be automatically granted an Option to purchase five thousand (5,000) shares on the date on which such person first becomes a Scientific Advisor; provided, however, that if such Scientific Advisor assumes such position prior to the effective date of ABI's registration statement described above, the effective date of the award shall be the first business day following the acceleration of effectiveness of such registration statement. The foregoing notwithstanding, any Scientific Advisor who has previously received an Option award as an Outside Director shall not be awarded any additional Options as a Scientific Advisor. (d) In the event any Option granted under the Plan would cause the number of shares subject to outstanding Options plus the number of shares previously purchased under Options to exceed the total number of shares available for issuance under the Plan, then the remaining Options shall be granted to persons qualifying for same, on a pro rata basis, and no further grants shall be made until such time, if any, as additional shares become available for grant under the Plan through action of the shareholders to increase the number of -4- shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (e) Options may be granted only to Outside Directors and/or Scientific Advisors. All Options shall be automatically granted in accordance with the terms of this Section 2.01. (f) Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"), or any successor provisions thereto, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 2.02. Stock Option Agreements. The grant of a Stock Option shall be evidenced by a written Stock Option Agreement, executed by the Company and the holder of a Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Stock Option evidenced thereby, and in such form as the Committee may from time to time determine. 2.03. Stock Option Price. The Option Price per share of Common Stock deliverable upon the exercise of a Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Stock Option is granted. 2.04. Term and Exercise. Each Stock Option may be exercised during a period of ten years from the date of grant thereof (the "Option Term"), subject to the vesting schedule set forth below. No Stock Option shall be exercisable after the expiration of its Option Term. Vesting Schedule. Options awarded shall be exercisable, subject to the other terms and conditions of the Plan, only upon the expiration of the designated number of years of active association with the Company as an Outside Director or Scientific Advisor, from date of award, as provided below: 20% of Options awarded - 1 year 40% of Options awarded - 2 years 60% of Options awarded - 3 years 80% of Options awarded - 4 years 100% of Options awarded - 5 years -5- 2.05. Manner of Payment. Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or in shares of the Common Stock, valued at the Fair Market Value per Share on the date of exercise. 2.06. Issuance of Shares. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. The Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. 2.07. Death of Optionee. (a) Upon the death of the Optionee, any rights to the extent exercisable on the date of death may be exercised by the Optionee's estate, or by a person who acquires the right to exercise such Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining effective term of the Stock Option and one year after the Optionee's death. (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's association may have terminated prior to death, but only to the extent of any rights exercisable on the date of death. 2.08. Disability. Upon termination of the Optionee's association by reason of permanent disability (as defined herein), the Optionee may, within 36 months from the date of termination, exercise any Stock Options to the extent such Options are exercisable during such 36-month period. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months after the date of termination of employment due to retirement. For purposes hereof, "permanent disabili- -6- ty" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor provision thereto. 2.09. Termination for Other Reasons. Except as provided in Sections 2.07 and 2.08, or except as otherwise determined by the Committee, all Stock Options shall terminate upon the termination of the Optionee's association with the Company as an Outside Director or Scientific Advisor; provided, however, that if the Optionee's association was involuntarily terminated (with or without cause), Optionee may exercise, during a 90-day period commencing with date of termination, all Options theretofore vested, or which vest during said 90-day period, under the Vesting Schedule set forth in Paragraph 2.04, above. At the end of the 90-day period, all rights of such Optionee under any then outstanding option or right shall terminate and shall be forfeited immediately as to any unexercised portion thereof. 2.10. Effect of Exercise. The exercise of any Stock Option shall cancel that number of related Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Option. 2.11. Rule 16b-3 Exemption. Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"), or any successor provisions thereto, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. ARTICLE III -- LIMITED RIGHTS 3.01. Award of Limited Rights. Concurrently with the award of each Stock Option, there shall automatically be awarded to the Optionee, with respect to each Option, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Common Stock in lieu of exercising the Option ("Limited Right"). -7- 3.02. Limited Rights Agreement. Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine. 3.03. Exercise Period. Limited Rights shall (and must) be exercised immediately preceding or simultaneous with the date of a Change in Control of ABI (the "Exercise Period"), and all Limited Rights held by the Optionee shall be exercised during such Exercise Period, without regard to the Vesting Schedule set forth in Paragraph 2.04; provided, however, that if a Change in Control shall have occurred without notice or opportunity for exercise of Limited Rights, then the Limited Rights shall be exercised as soon as practicable after a determination has been made that a "Change in Control" has occurred, or has been deemed to have occurred. As used in the Plan, a "Change in Control" shall be deemed to have occurred if (a) individuals who were directors of ABI immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board of Directors of ABI (or of the Board of Directors of any successor to ABI or to all or substantially all of its assets), or (b) any entity, person or Group other than ABI or a Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof acquires shares of ABI in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51%) or more of the outstanding shares. As used herein, "Control Transaction" shall be (i) any tender offer for or acquisition of capital stock of ABI, (ii) any merger, consolidation, or sale of all or substantially all of the assets of ABI which has been approved by the sharehold- ers, (iii) any contested election of directors of ABI, or -8- (iv) any combination of the foregoing; which results in a change in voting power sufficient to elect a majority of the Board of Directors of ABI. As used herein, "Group" shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended. 3.04. Amount of Payment. The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100% of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Market Price of a share of such Common Stock. Market Price is defined to be the greater of (i) the highest price per share of the Company's Common Stock paid in connection with any Change in Control and (ii) the highest price per share of the Company's Common Stock paid pursuant to an unsolicited brokerage transaction during the 60-day period prior to the Change in Control. 3.05. Form of Payment. Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be made solely in cash. 3.06. Effect of Exercise. If Limited Rights are exercised, the Stock Options related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the extent of the number of shares as to which the related Options were exercised or terminated. 3.07. Disability. Upon termination of the Optionee's association with the Company as either an Outside Director or Scientific Advisor by reason of permanent disability (as determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Limited Right to the extent such Limited Right is otherwise exercisable during such 36- month period. -9- 3.08. Death of Optionee or Termination for Other Reasons. Except as provided in Section 3.07, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate upon the termination of the Optionee's association with the Company as either an Outside Director or Scientific Advisor or upon the death of the Optionee. ARTICLE IV -- MISCELLANEOUS 4.01. General Restriction. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 4.02. Non-Assignability. No award under the Plan shall be assignable or transferable by the recipient thereof, except by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. 4.03. Right to Terminate Association. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in association with the Company or affect any right which the Company or the shareholders of the Company may have to terminate the association of such participant. -10- 4.04. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him. 4.05. Definitions. In this Plan the following definitions (along with other definitions elsewhere set forth in the Plan) shall apply: (a) "Affiliate" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with ABI. (b) "Board" means the Board of Directors of ABI. (c) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limita- tion the National Market System of the National Association of Securities Deal- ers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the clos- ing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in The Wall Street --------------- Journal or such other source as the Board ------- deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quot- ed by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall -------- -11- Street Journal or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. (d) "Option" or "Stock Option" means all or any Options granted under the Plan. (e) "Option Price" means the purchase price per share of Common Stock deliverable upon the exercise of a Stock Option. (f) "Outside Director" means a director of ABI, who is not an employee of the Company. (g) "Scientific Advisor" means a person named by the Board of Directors of ABI to serve on the Company's Board of Scientific Advisors. (h) "Shares" or "shares," unless otherwise speci- fied, shall mean shares of Common Stock. (i) "Subsidiary" means any corporation of which, at the time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by ABI or any Subsidiary thereof. 4.06. Adjustments. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount and terms of any Limited Rights theretofore awarded under the Plan, and any and all other matters deemed appropriate by the Committee. 4.07. Amendment of the Plan. (a) The Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations -12- thereof applicable to this Plan or to comply with stock exchange rules or requirements. (b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan, (ii) extend the period during which any Option or Limited Right may be exercised, (iii) extend the term of the Plan, (iv) modify in any way the terms of the Plan which affect the automatic award of Options or Limited Rights, or (v) award any Options or Limited Rights. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant affect his rights under an award previously granted to him. (c) Notwithstanding subparagraphs (a) and (b), this Plan may not be amended more than once every six (6) months other than to comport with changes in the Code, the Employee Retirement Security Act of 1974, or the rules thereunder. -13- EX-10.22 28 AMARILLO BIOSCIENCES, INC. 800 West 9th Avenue Amarillo, Texas 79101 Name Address City, State Dear Mr. : In consideration of your continued service as an officer and/or director of Amarillo Biosciences, Inc. (the "Company"), the Company shall to the extent provided herein indemnify you and hold you harmless from and against any and all "Losses" (as defined below) which you may incur by reason of your election or service as a director, officer, employee, agent, fiduciary or representative of the Company or any "Related Entity" (as defined below) to the fullest extent permitted by law. 1. (a) "Losses" mean all liabilities, "Costs and Expenses" (as defined below), amounts of judgments, fines, penalties or excise taxes (or other amounts assessed, surcharged or levied under the Employee Retirement Income Security Act of 1974, as amended) and amounts paid in settlement of or incurred in defense of any settlement in connection with any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether brought by or in the right of the Company or otherwise, and appeals in which you may become involved, as a party or otherwise, by reason of acts or omissions in your capacity as and while serving as a director, officer, employee, agent, fiduciary or representative of the Company or any Related Entity. (b) A "Related Entity" means any corporation, partnership, joint venture, trust or other entity or enterprise in which the Company is in any way interested, or in or as to which you are serving at the Company's request or on its behalf, as a director, officer, employee, agent, fiduciary or representative including, but not limited to, any employee benefit plan or any corporation of which the Company or any Related Entity is, directly or indirectly, a stockholder or creditor. (c) "Costs and Expenses" means all reasonable costs and expenses incurred by you in investigating, defending or appealing any threatened, pending or completed claim, action, suit or proceeding including, without limitation, counsel fees and disbursements. 2. Costs and Expenses shall be paid promptly by the Company as they are incurred or shall be advanced on your behalf as may be appropriate against delivery of invoices therefor (whether or not it may ultimately be determined that you are entitled to be indemnified 3358_1 1 by the Company on account thereof); provided, however, that if it shall ultimately be determined by final decision of a court of competent jurisdiction that you are not entitled to be indemnified on account of any Costs or Expenses for which you have theretofore received payment or reimbursement, you shall promptly repay such amount to the Company. 3. The Company shall indemnify you and hold you harmless from and against any and all Losses which you may incur if you are a party to or threatened to be made a party to or otherwise involved in any proceeding or action (other than a proceeding or action by or in the right of the Company to procure a judgment in its favor), unless it is determined that you did not act in good faith and in a manner reasonably believed by you to be in, or not opposed to, the best interests of the Company and, in the case of a criminal proceeding or action, in addition, that you had reasonable cause to believe that your conduct was unlawful. 4. The Company shall indemnify you and hold you harmless from and against any and all Losses which you may incur if you are a party to or threatened to be made a party to any proceeding or action by or in the right of the Company to procure a judgment in its favor, unless it is determined that you did not act in good faith and in a manner reasonably believed by you to be in, or not opposed to, the best interests of the Company, except that no indemnification for Losses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which you shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such action or proceeding was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the matter, you are fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Anything hereinabove to the contrary notwithstanding, "Losses" shall not include, and you shall not be entitled to indemnification under this agreement on account of (i) amounts payable by you to the Company or any Related Entity in satisfaction of any judgment or settlement in the Company's or such Related Entity's favor, or any amount payable on account of profits realized by you in the purchase or sale of securities of the Company or any Related Entity within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state law; (ii) Losses in connection with which it is otherwise determined that you are not entitled to indemnification as a matter of law or public policy; or (iii) Losses to the extent you are indemnified by the Company otherwise than pursuant to this Agreement, including any Losses for which payment is made to you under an insurance policy. 6. Termination of any action, suit or proceeding by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent will not, of itself, create any presumption that you did not act in good faith and in a manner which you reasonably believed to be in or not opposed to the best interest of the Company or a Related Entity and, with respect to any criminal action or proceeding, had no reasonable cause to believe that your conduct was unlawful. The determination that you are not entitled to be indemnified for Losses hereunder by reason of the provisions of Paragraphs 3 or 4 or clause (ii) of Paragraph 5 may 3358_1 2 be made either by the Company's Board of Directors (by majority vote of disinterested directors or directors who are not parties to or the subject of the same or any similar claim, action, suit or proceeding), by independent legal counsel (who may be the outside counsel regularly employed by the Company) or by the stockholders of the Company, as the Company's Board of Directors shall determine. 7. The right to indemnification or advances of Costs and Expenses as provided in this Agreement shall be enforceable by you in any court of competent jurisdiction. The burden of proving that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because you have met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that you have not met such applicable standard of conduct shall be a defense to the action or create a presumption that you have not met the applicable standard of conduct. Costs and expenses, including counsel fees, reasonably incurred by you in connection with successfully establishing your right to indemnification, in whole or in part, in any such action shall also be indemnified by the Company. 8. You agree to give prompt notice to the Company of any claim with respect to which you seek indemnification and, unless a conflict of interest shall exist between you and the Company with respect to such claim, you will permit the Company to assume the defense of such claim with counsel of its choice. Whether or not such defense is assumed by the Company, the Company will not be subject to any liability for any settlement made without its consent. The Company will not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to you a release from all liability with respect to such claim or litigation. If the Company is not entitled to, or does not elect to, assume the defense of a claim, the Company will not be obligated to pay the fees and expenses of more than one counsel for you and any other directors or officers of the Company who are indemnified pursuant to similar indemnity agreements with respect to such claim, unless a conflict of interest shall exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the Company will be obligated to pay the fees and expenses of an additional counsel for each indemnified party or group of indemnified parties with whom a conflict of interest exists. 9. The Company's obligation to indemnify you under this Agreement is in addition to any other rights to which you may otherwise be entitled by operation of law, vote of the Company's stockholders or directors or otherwise and will be available to you whether or not the claim asserted against you is based upon matters which occurred before the date of this Agreement. 10. The obligation of the Company to indemnify you with respect to Losses which you may incur by reason of your service as a director, officer, employee, agent, 3358_1 3 fiduciary or representative of the Company or a Related Entity, as provided under this Agreement, shall survive the termination of your service in such capacities and shall inure to the benefit of your heirs, executors and administrators. 11. If you are entitled under this Agreement or otherwise to indemnification by the Company for some or a portion of the Losses actually and reasonably incurred by you but not, however, for the total amount thereof, the Company shall nevertheless indemnify you for the portion of the Losses to which you are entitled. 12. It is the intention of the parties to this Agreement to provide for indemnification in all cases and under all circumstances where to do so would not violate applicable law (and notwithstanding any limitations permitted, but not required by statute) and the terms and provisions of this Agreement shall be interpreted and construed consistent with that intention. Nonetheless, if any provision of this Agreement or any indemnification made under this Agreement shall for any reason be determined by any court of competent jurisdiction to be invalid, unlawful or unenforceable under current or future laws, such provision shall be fully severable and the remaining provisions of this agreement shall not otherwise be affected thereby, but will remain in full force and effect and, to the fullest extent possible, shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or nonenforceable. 13. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both the Company and you. 14. This Agreement shall be governed by the laws of the state of Texas without giving effect to the principles of conflict of laws. Your signature below will evidence your agreement and acceptance with respect to the foregoing. Very truly yours, AMARILLO BIOSCIENCES, INC. By:___________________________ [Name] AGREED TO AND ACCEPTED: _____________________________ [Name] 3358_1 4 EX-10 29 EXHIBIT 10.24 CONSULTING AGREEMENT ____________, 1996 Amarillo Biosciences, Inc. 800 West 9th Avenue Amarillo, Texas 79101 Attention: Dr. Joseph M. Cummins, President Dear Dr. Cummins: This will confirm the arrangements, terms and conditions pursuant to which Whale Securities Co., L.P., (the "Consultant"), has been retained to serve as a financial consultant and advisor to Amarillo Biosciences, Inc., a Texas corporation (the "Company"), on a non-exclusive basis for a period of two (2) years commencing on ________________, 1996 [the Closing Date]. The undersigned hereby agrees to the following terms and conditions: 1. Duties of Consultant. Consultant shall, at the request of the Company, upon reasonable notice, render the following services to the Company from time to time: (a) Consulting Services. Consultant will provide such financial consulting services and advice pertaining to the Company's business affairs as the Company may from time to time reasonably request. Without limiting the generality of the foregoing, Consultant will assist the Company in developing, studying and evaluating financing and merger and acquisition proposals based upon documentary information provided to the Consultant by the Company. (b) Financing. Consultant will assist and represent the Company in obtaining both short and long-term financing. The Consultant will be entitled to additional compensation under certain circumstances in accordance with the terms set forth in Section 3 hereof. (c) Wall Street Liaison. Consultant will, when appropriate, arrange meetings between representatives of the Company and individuals and financial institutions in the investment community, such as security analysts, portfolio managers and market makers. The services described in this Section 1 shall be rendered by Consultant without any direct supervision by the Company and at such time and place and in such manner (whether by conference, telephone, letter or otherwise) as Consultant may determine. 2. Compensation. As compensation for Consultant's services hereunder, the Company shall pay to Consultant an annual fee of Thirty Thousand Dollars ($30,000) payable in full, in advance, with the first payment due on __________________, 1996 [the Closing Date]. 3. Additional Compensation in Certain Circumstances. In addition to the financial consulting services described in Section 1 above, Consultant may bring the Company in contact with persons, whether individuals or entities, that may be suitable candidates for providing the Company with, or may lead the Company to other individuals or entities that may provide the Company with, debt or equity financing or that may be suitable candidates, or may lead the Company to such suitable candidates, to purchase substantially all of the stock or assets of the Company, merge with the Company, or enter into a joint venture or other transaction with the Company. If, at any time up until the second anniversary of the date hereof, the Company enters into an agreement with any such persons or their affiliates, or with any persons introduced to the Company by any such persons or their affiliates, pursuant to which the Company obtains debt or equity financing or pursuant to which substantially all of the Company's stock or assets is purchased or the Company is merged with or into another entity, or pursuant to which the Company enters into a joint venture or other transaction, the Company will pay to Consultant, in accordance with the formula set forth below, additional compensation based on the aggregate of all proceeds received by the Company (the "Consideration") in such transaction (the "Transaction"). The additional compensation to be paid will be paid upon the closing of the Transaction, by certified check, in the following amounts: 5% of the first $5,000,000 of the consideration paid in the Transaction; 4% of the consideration in excess of $5,000,000 and up to $6,000,000; 3% of the consideration in excess of $6,000,000 and up to $7,000,000; 2% of the consideration in excess of $7,000,000 and up to $8,000,000; and 1% of any consideration in excess of $8,000,000. 4. Available Time. Consultant shall make available such time as it, in its sole discretion, shall deem appropriate for the performance of its obligations under this agreement and may in certain circumstances be entitled to additional compensation in connection therewith. 5. Relationship. Nothing herein shall constitute Consultant as an employee or agent of the Company, except to such extent as might hereinafter be agreed upon for a particular purpose. Except as might hereinafter be expressly agreed, Consultant shall not have the authority to obligate or commit the Company in any manner whatsoever. 6. Confidentiality. Except in the course of the performance of its duties hereunder, Consultant agrees that it shall not disclose any trade secrets, know-how, or other proprietary information not in the public domain learned as a result of this Agreement unless and until such information becomes generally known. 7. Assignment and Termination. This Agreement shall not be assignable by any party except to successors to all or substantially all of the business of either party for any reason whatsoever without the prior written consent of the other party, which consent may be arbitrarily withheld by the party whose consent is required. 8. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. Very truly yours, WHALE SECURITIES CO., L.P. By: Whale Securities Corp., General Partner By: ---------------------------------- Name: William G. Walters Title: Chairman AGREED AND ACCEPTED: AMARILLO BIOSCIENCES, INC. By: ------------------------------ Name: Title: EX-23.2 30 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts" and "Selected Financial Data" and to the use of our report dated February 1, 1996, except for Note 13, as to which the date is May 14, 1996, in the Registration Statement (Form SB-2) and related Prospectus of Amarillo Biosciences, Inc. for the registration of 2,000,000 shares of its common stock. ERNST & YOUNG LLP Dallas, Texas May 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----