-----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, Pa/gXzkwHJWaU7bY1ohNMhuew+Iz5oBOc1z4arCxiJowONvK12FiEBEz0sY3d4YB 7Ye2OOoJKwTGvGK8QzFX2g== 0000950134-01-500268.txt : 20020722 0000950134-01-500268.hdr.sgml : 20020722 20010416150300 ACCESSION NUMBER: 0000950134-01-500268 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010416 DATE AS OF CHANGE: 20020722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMARILLO BIOSCIENCES INC CENTRAL INDEX KEY: 0001014763 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 751974352 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20791 FILM NUMBER: 01603036 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 10KSB 1 d86181e10ksb.txt FORM 10KSB FOR FISCAL YEAR END DECEMBER 31, 2000 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 0-20791 AMARILLO BIOSCIENCES, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) TEXAS 75-1974352 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 800 WEST 9TH AVENUE, AMARILLO, TEXAS 79101 (Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806) 376-1741 Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par Value $.01 (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Revenues for its most recent fiscal year were $53,756 As of December 31, 2000, there were outstanding 7,807,357 shares of the registrant's common stock, par value $.01, which is the only class of common or voting stock of the registrant. As of that date, the aggregate market value of the shares of common stock held by nonaffiliates of the registrant (based on the closing price for the common stock on the OTC BB) was approximately $4,217,306. 2 PART I The following contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth in "Management's 2001 Plan of Operations" as well as those discussed elsewhere in this Form 10-KSB. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this Form 10-KSB. ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Amarillo Biosciences, Inc. (the "Company" or "ABI"), a development-stage company incorporated in 1984, 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 orally administered natural human interferon alpha (IFNa), particularly for the treatment of Sjogren's syndrome, fibromyalgia, hepatitis B, hepatitis C and Behcet's disease. The Company believes that significant worldwide opportunities exist for the development of low dose orally administered natural IFNa as a cost effective, 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 human IFNa will be an effective treatment for diseases or conditions for which current therapies are inadequate. The Company owns or licenses 19 United States patents relating to low dose oral natural IFNa. Since 1992, the Company has filed with the U.S. Food and Drug Administration ("FDA"), and there now are in effect, 6 Investigational New Drug ("IND") Applications covering indicated uses for low dose oral IFNa, including treatment of Sjogren's syndrome and fibromyalgia. The Company is seeking regulatory approvals in certain foreign countries to test low dose oral IFNa in the treatment of hepatitis B and C. 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. The Company believes that cost savings will result. The Company will attempt to gain market share for approved products by forming alliances with strong marketing partners. The Company has 6 full-time employees and one part-time employee. The Company makes extensive use of consultants in business and research and development. 2 3 HUMAN HEALTH APPLICATIONS Sjogren's Syndrome. Sjogren's syndrome is a chronic autoimmune disorder characterized by 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 scleroderma. Patients with primary Sjogren's syndrome may have clinical signs such as rash, arthritis, pneumonitis and nephritis. Typical symptoms include the sensation of burning in the eyes, dryness of the mouth, skin, nose and vagina, difficulty swallowing, painful throat and fatigue. Oral candidiasis (a fungus infection of the mouth) may also arise as a result of reduced saliva flow. Although Sjogren's syndrome is not life threatening, it can cause extreme discomfort and seriously impair quality of life. The Sjogren's Syndrome Foundation, Inc. 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. Women constitute 90% of Sjogren's patients. 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 oral problems that may develop as a result of the disease. Topical and systemic means of increasing salivary flow may provide transient relief of symptoms. The Company believes that oral IFNa therapy helps to relieve the dryness associated with Sjogren's syndrome, improves secretory function, and may effectively supplement, or be used in lieu of, existing treatments. A Phase II trial using low dose orally administered IFNa was completed in late 1997. At the end of 12 weeks, ninety patients who took placebo or interferon were evaluable. Patients given 150 IU three times per day had a significant (p<0.014) increase in stimulated saliva production. Subjective measures of relief of dryness also favored the same interferon group. The Phase III pivotal trial program for Sjogren's syndrome was initiated in November 1998. Protocols compared treatment with low dose orally-administered IFNa (150 IU lozenges) and placebo. The endpoints were significant improvement in salivary function and relief of oral dryness. The first of 2 randomized, double-blinded, placebo-controlled efficacy studies completed enrollment of 241 subjects in August, 1999. Subjects finished treatment in February 2000. After 24 weeks of treatment, neither primary endpoint was significantly improved in the IFNa group, compared to the placebo group. However, unstimulated whole saliva flow (UWS), an important measure of basal salivary gland function, was significantly increased in IFNa-treated patients, compared to placebo. In addition, increases in UWS correlated significantly with improvement in the symptoms of Sjogren's syndrome in IFNa-treated, but not placebo patients. The second efficacy trial of 256 subjects began active enrollment in September 1999, finalized enrollment in March 2000 and completed treatment of all patients in September 2000. Neither primary endpoint was significantly improved in the IFNa group, compared to the placebo group, after 24 weeks of treatment. However, unstimulated whole saliva flow (UWS), an important measure of basal salivary gland function, was borderline significantly increased in IFNa-treated patients, compared to placebo. In addition, increases in UWS correlated significantly with improvement in the symptoms of Sjogren's syndrome in IFNa-treated, but not placebo patients. 3 4 Following 24 weeks of treatment, subjects who successfully completed these controlled trials were eligible to enter a 24-week "open-label" trial, in which all subjects were given active treatment with 150 IU IFNa lozenges. A preliminary analysis has been conducted to date using data from all patients who completed the study (n=179). In this group, mean unstimulated whole saliva (UWS) was increased at week 24 compared to baseline, but this difference failed to reach statistical significance. Mean stimulated whole saliva (SWS) was relatively unchanged during treatment. However, several of the subjective endpoints were significantly increased (improved) at week 24, compared to baseline, including oral dryness, oral comfort, eye dryness and throat dryness. In addition, data from the open-label and double-blind studies have been combined and a preliminary analysis of patients who completed both studies has been conducted (n=175). Patients who received IFNa for 48 weeks had a significantly greater (p<0.001) mean UWS at the end of treatment compared to baseline. Patients who received placebo for 24 weeks and IFNa for 24 weeks exhibited a non-significant UWS increase. These data seem to indicate that improvement from IFNa is gradual and continues throughout treatment. Both groups had non-significant increases in SWS. Concerning subjective endpoints, both groups had significant improvement from baseline to week 48 in all 8 of the symptoms that were assessed, with the biggest increases noted for oral dryness and oral comfort (p<0.0001 for both groups). Hepatitis B and C. Viral hepatitis is a worldwide health problem of enormous proportions and consequences. It is the most common cause of jaundice, chronic liver disease, cirrhosis, and hepatocellular carcinoma. It has been estimated by the World Health Organization that there are 500 million individuals infected worldwide with one of the six distinct hepatitis viruses. The Company has prepared clinical trial protocols to test the efficacy of low dose orally-administered IFNa as a sole treatment in chronic active hepatitis B, and in combination with other anti-viral agents in treatment of hepatitis C. The Company is engaged in active discussions to initiate clinical trials in countries where hepatitis virus infection is endemic. Fibromyalgia. During 1999, the Company conducted a Phase II randomized, placebo-controlled, double-blinded trial in fibromyalgia patients. This clinical study examined the effects of low dose orally-administered IFNa on relief of morning stiffness, a significant aspect of the symptom complex in this disorder. IFNa lozenge treatment was combined with a low dose of amitriptyline, an antidepressant commonly used in this condition. The Phase II results of the fibromyalgia clinical trial became available in March, 2000. The three-month study, involving 89 patients at four clinical sites around the United States, was designed to measure the effectiveness of low doses of orally administered interferon-alpha (IFNa) in relieving morning stiffness of joints, a significant problem for fibromyalgia sufferers. Patients participating in the study were divided into three groups, and each individual was given three lozenges per day. The three lozenges given to members of the first group contained 50 international units (IU) of IFNa each, while the second group got one 50 IU IFNa lozenge and two placebos. Members of the final group received three placebos. All three groups reported a reduction in morning stiffness, but across the entire study panel the improvement was most pronounced in those taking one 50 IU lozenge of IFNa per day. However, the result did not reach statistical significance relative to the controls, nor did increasing the dosage to three IFNa lozenges per day improve on the results. Prior to commencing further clinical trials in fibromyalgia, the Company will consult with a group of expert clinicians and 4 5 opinion leaders in fibromyalgia syndrome research to review the results of our studies to date and to assist us in designing any future trials. HIV. A pilot trial was completed of treatment of persistent, treatment-resistant oral viral warts in patients infected with HIV. Oral warts have been identified as an oral complication of HIV infection with a growing incidence. In this open-label study, significant reductions were seen in wart surface area and numbers of warts following treatment with low dose orally-administered IFNa. The Company filed with the FDA Office of Orphan Drugs and was granted (Summer 2000) orphan drug status for low dose IFNa treatment in this condition. Future clinical trials will be conducted to confirm and extend these initial encouraging results. Behcet's Disease. Behcet's disease is a severe chronic relapsing inflammatory disorder marked by oral and genital ulcers, eye inflammation (uveitis) and skin lesions, as well as varying multisystem involvement including the joints, blood vessels, central nervous system, and gastrointestinal tract. The oral lesions are an invariable sign, occurring in all patients at some time in the disease. Behcet's disease is found world-wide, and is a significant cause of partial or total disability. The US patient population has been estimated as 15,000. The Company filed with the FDA Office of Orphan Drugs and was granted (Spring 2000) orphan drug status for low dose orally-administered IFNa treatment in this condition. A clinical protocol was prepared for a controlled study and the Company participated in a teleconference with the FDA on the subject of low dose IFNa in Behcet's disease in November 2000. Future clinical trials in Behcet's disease will depend on funding. STRATEGIC ALLIANCE WITH HBL Hayashibara Biochemical Laboratories, Inc. ("HBL") was established in 1970 to engage in 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 can be maintained for up to 18 months at room temperature and up to three years if the product is refrigerated. The Company believes that the use of such lozenges gives it advantages over competitive technologies in terms of cost, taste and ease of handling. On March 13, 1992, the Company entered into a Joint Development and Manufacturing/Supply Agreement with HBL (the "Development Agreement"). Such Development Agreement was subsequently amended on January 17, 1996, and May 10, 1996. Among other things, the Development Agreement provides the Company with a source of natural human interferon alpha for use in the Company's interferon alpha-containing products. Additional information on the Development Agreement is set forth in footnote 4 to the Consolidated Financial Statements attached to this 10-KSB. 5 6 In September 1997, HBL and ABI entered license agreements granting exclusive rights to ABI to develop interferon gamma for oral use in humans and for all routes of administration in animals, and tumor necrosis factor alpha for oral and topical uses in humans and for all routes of administration in animals; the rights were granted worldwide, except Japan. In June 2000, HBL and ABI amended their license agreement on interferon gamma to include the inhalation route of administration. OTHER AGREEMENTS The Company and Mitsubishi Corporation entered into an agreement in November, 1992, whereby Mitsubishi would provide market development, licensing, and distribution services for IFNa in designated parts of the world. This agreement terminated November 26, 2000. On June 16, 1999, the Company entered into a License Agreement with North China Pharmaceutical Group Corporation ("NCPC"), which contemplated the conduct of clinical trials, and eventual product sales in the Peoples Republic of China.. To date, the Company has received no payment from NCPC, nor have clinical trials been initiated. Although the agreement has not been officially terminated, NCPC has informed the Company that it is not possible to import IFNa into China. ABI therefore assumes that the contract will not be honored by NCPC and no revenues nor clinical funding will be attributable to this agreement. PATENTS AND PROPRIETARY RIGHTS One patent was issued in 2000. This patent is "Treatment of Fibromyalgia With Low Dose Interferon" (U.S. Patent No. 6,036,949) issued March 14, 2000, valid until March 5, 2018. 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 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 6 7 number of its competitors and potential competitors will increase as more IFN[alpha] 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 Once a new compound has been identified in the laboratory, medicines are developed as follows: Preclinical testing. A pharmaceutical company conducts laboratory and animal studies to show biological activity of the compound against the targeted disease, and the compound is evaluated for safety. Investigational New Drug Application (IND). After completing preclinical testing, a company files an IND with the US Food and Drug Administration (FDA) to begin to test the drug in people. The IND becomes effective if the FDA does not disapprove it within 30 days. The IND shows results of previous experiments; how, where and by whom the new studies will be conducted; the chemical structure of the compound; how it is thought to work in the body; any toxic effects found in the animal studies; and how the compound is manufactured. All clinical trials must be reviewed and approved by the Institutional Review Board (IRB) where the trials will be conducted. Progress reports on clinical trials must be submitted at least annually to FDA and the IRB. Clinical Trials, Phase I. These tests involve about 20 to 80 normal, healthy volunteers. The tests study a drug's safety profile, including the safe dosage range. The studies also determine how a drug is absorbed, distributed, metabolized, and excreted as well as the duration of its action. Clinical Trials, Phase II. In this phase, controlled trials of approximately 100 to 300 volunteer patients (people with the disease) assess a drug's effectiveness. Clinical Trials, Phase III. This phase usually involves 1,000 to 3,000 patients in clinics and hospitals. Physicians monitor patients closely to confirm efficacy and identify adverse events. These numbers may be modified based on the disease prevalence. ABI's Phase III clinical trial as negotiated with the FDA will require a total of 500 patients. New Drug Application (NDA)/Biologics License Application (BLA). Following the completion of all three phases of clinical trials, a company analyzes all of the data and files with FDA an NDA, in the case of a drug product, or a BLA in the case of a biologic product, if the data successfully demonstrate both safety and effectiveness. The NDA/BLA contains all of the scientific information that the Company has gathered. NDA's typically run 100,000 pages or more. By law, FDA is allowed twelve months to review a standard NDA/BLA. Approval. Once FDA approves an NDA, the new medicine becomes available for physicians to prescribe. A company must continue to submit periodic reports to FDA, including any cases of adverse reactions and appropriate quality-control records. For some medicines, FDA requires additional trials (Phase IV) to evaluate long-term effects. 7 8 ABI obtained an IND for oral IFNa in the treatment of Sjogren's syndrome in 1994. ABI successfully completed Phase I development in 1996, Phase II development in 1997, and launched the first of its Phase III trials in November 1998. All Phase III trials in the treatment of Sjogren's syndrome were completed in 2000. An IND for oral IFNa in the treatment of fibromyalgia was obtained in 1993. Phase I/II studies were completed in 1995. The confirmatory Phase II trial was initiated in 1998 and was completed in February, 2000. RESEARCH AND DEVELOPMENT During the years ended December 31, 2000 and 1999, the Company incurred expenses of $2,276,504 and $4,732,365, respectively, resulting from Company-sponsored research and development activities. Research and development is expected to remain a significant component of the Company's business. The Company has arranged for others to perform substantially all of its clinical research and intends to continue to do so while utilizing its staff for monitoring such research. See also ITEM 6, "MANAGEMENT'S 2001 PLAN OF OPERATIONS - - Research and Development". ITEM 2. DESCRIPTION OF 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 use. The facility is insured against hazards in the amount of its market value. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company is presently traded on the OTC Bulletin Board under the symbol AMAR. The range of high and low sales prices as quoted on the OTC Bulletin Board for each quarter of 2000 and 1999 was as follows: 8 9
2000 1999 ------------------------------------------ ------------------------------------------ Quarter High Low High Low - ------------------------------ ------------------ ----------------- ------------------ ----------------- First $4.4375 $1.5625 $3.5000 $0.8125 Second 3.7500 1.5000 3.1250 1.4062 Third 2.6250 1.4375 1.8750 0.6250 Fourth 1.5625 0.4375 1.8750 0.5000
As of December 31, 2000, the Company had 312 shareholders of record. ITEM 6. MANAGEMENT'S 2001 PLAN OF OPERATIONS The Company's Management has developed a Plan of Operations for 2001. As a development stage company, the Company continues to engage in research and development activities focused on developing biologics for the treatment of human and animal diseases. The Company has not commenced any significant product commercialization and, until such time as it does, will not generate significant product revenues. The Company's accumulated deficit has continued to grow, from approximately $17,497,000 at December 31, 1999 to $20,892,000 at December 31, 2000. Operating losses are expected to continue for the foreseeable future and until such time as the Company is able to attain sales levels sufficient to support its operations. In 2001 the Company will continue its research and development activities, as well as the activities necessary to develop commercial partnerships and licenses. The Company's expenditure of financial resources in 2001 will fall principally into seven broad categories, as follows: Revenue From Sales of Dietary Supplement; Research and Development; Personnel; Consulting and Professional (except legal and accounting); Legal and Accounting; Public Relations, Investor Relations, and Shareholder Relations; and Liquidity Needs. The Company's expectations and goals with respect to these categories are addressed separately below, by category: REVENUE FROM SALES OF DIETARY SUPPLEMENT The Company has received orders for anhydrous crystalline maltose (ACM) from Natrol as dictated by the Supply Agreement executed in December 2000 (see F-16). The Company has received copies of the advertising campaign Natrol will be starting in April 2001 and Natrol has identified retailers who will start selling ACM in the second quarter of 2001. The Company expects sales of ACM to generate at least $211,000 for ABI in the first half of 2001 from the minimum orders. Other supply agreements, in negotiation, are expected to provide additional revenue to the Company. RESEARCH AND DEVELOPMENT Until it achieves commercial product sales, the Company's business is research and development, and this is the area where the Company's principal efforts will be expended in 2001. The Company has budgeted approximately $813,000 for expenditure in 2001 on research and development. 9 10 The budgeted amount for Research and Development in 2000 was almost exclusively dedicated to the completion of the pivotal Phase III Sjogren's syndrome clinical trial. The Phase III pivotal trial program for Sjogren's syndrome was initiated in November 1998. Protocols compared treatment with low dose orally-administered IFNa (150 IU lozenges) and placebo. The endpoints were improvement in stimulated salivary flow and relief of oral dryness subjective endpoint. The first of 2 randomized, double-blinded, placebo-controlled efficacy studies completed enrollment of 241 subjects in August 1999. Subjects finished treatment in February 2000. After 24 weeks of treatment, neither primary endpoint was significantly improved in the IFNa group, compared to the placebo group. However, unstimulated whole saliva flow (UWS), an important measure of basal salivary gland function, was significantly increased in IFNa-treated patients, compared to placebo. In addition, increases in UWS correlated significantly with improvement in the symptoms of Sjogren's syndrome in IFNa-treated, but not placebo patients. The second efficacy trial of 256 subjects began active enrollment in September 1999, finalized enrollment in March 2000 and completed treatment of all patients in September 2000. Neither primary endpoint was significantly improved in the IFNa group, compared to the placebo group, after 24 weeks of treatment. However, unstimulated whole saliva flow (UWS), an important measure of basal salivary gland function, was borderline significantly increased in IFNa-treated patients, compared to placebo. In addition, increases in UWS correlated significantly with improvement in the symptoms of Sjogren's syndrome in IFNa-treated, but not placebo patients. Following 24 weeks of treatment, subjects who successfully completed these controlled trials were eligible to enter a 24-week "open-label" trial, in which all subjects were given active treatment with 150 IU IFNa lozenges. A preliminary analysis has been conducted to date using data from all patients who completed the study (n=179). In this group, mean unstimulated whole saliva (UWS) was increased at week 24 compared to baseline, but this difference failed to reach statistical significance. Mean stimulated whole saliva (SWS) was relatively unchanged during treatment. However, several of the subjective endpoints were significantly increased (improved) at week 24, compared to baseline, including oral dryness, oral comfort, eye dryness and throat dryness. In addition, data from the open-label and double-blind studies have been combined and a preliminary analysis of patients who completed both studies has been conducted (n=175). Patients who received IFNa for 48 weeks had a significantly greater (p<0.001) mean UWS at the end of treatment compared to baseline. Patients who received placebo for 24 weeks and IFNa for 24 weeks exhibited a non-significant UWS increase. These data seem to indicate that improvement from IFNa is gradual and continues throughout treatment. Both groups had non-significant increases in SWS. Concerning subjective endpoints, both groups had significant improvement from baseline to week 48 in all 8 of the symptoms that were assessed, with the biggest increases noted for oral dryness and oral comfort (p<0.0001 for both groups). Other Research and Development expenditures include final costs associated with the fibromyalgia Phase II clinical trial and costs associated with the initiation of a Behcet's disease clinical trial during the first half of 2001. 10 11 PERSONNEL In addition to its intellectual property, the Company's principal assets are its personnel. The Company has been successful in controlling its personnel costs, both by maintaining its principal location in Amarillo, Texas, and by ensuring maximum efficiency and utilization of existing personnel. The Company has budgeted approximately $480,000 for personnel expenses in 2001, including salaries, payroll taxes, directors' and officers' general liability insurance, group health, and liability insurance. Also, in lieu of cash compensation, the Company may issue stock options or other equity instruments to selected employees in fiscal 2001. At the present time, the President and CEO of the Company, Joseph M. Cummins, is also serving as the Company's Chief Financial Officer (CFO). CONSULTING AND PROFESSIONAL (EXCEPT LEGAL AND ACCOUNTING) The Company has budgeted approximately $24,000 for expenditure on professional consultants in 2001. Consulting fees are expected to be paid to a number of independent consultants in connection with the operation of the Company, and to certain directors who perform specific consulting tasks at the Company's request. The Company will continue to use the services of consultants to complement the Company's small full-time staff, where such is a more efficient utiliza tion of the Company's resources. LEGAL AND ACCOUNTING Although the Company is not involved in litigation, it has budgeted legal expenses of approximately $120,000 in 2001. Approximately 20% of the Company's legal expenditures will be for preparation and filing of patents and for maintenance of existing patents in a number of countries. Other legal expenses will be related to compliance with laws and regulations affecting public companies, licensing and contracting, and general corporate matters. The Company does not presently have an in-house legal staff, nor does it intend to put such a staff in place in 2001. The Company has budgeted $40,000 for accounting expense in 2001, and expects to continue with Ernst & Young, LLP as its independent auditors. PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS The Company has budgeted approximately $7,600 for public relations, investor relations and shareholder relations in 2001. The plan for hiring an investor relations firm is to pay in stock options, not cash. The Company has also budgeted sufficient amounts to maintain its comprehensive web site (www.amarbio.com). LIQUIDITY NEEDS The principal budget items discussed above, along with other miscellaneous costs and expenses, will cause the Company to expend approximately $1.7 million in 2001. At December 31, 2000, the Company had available cash of approximately $342,000. The Company also has a working capital deficit of approximately ($615,000). The Company's continued losses and lack of liquidity indicate that the Company may not be able to continue as a going concern for a reasonable period of 11 12 time. The Company's ability to continue as a going concern is dependent upon several factors including, but not limited to, the continued non-demand for immediate payment of outstanding indebtedness by the Company's vendors and suppliers, the Company's ability to generate sufficient cash flows to meet its obligations on a timely basis, obtain additional financing, and continue to obtain supplies and services from its vendors. The Company will need to raise additional funds in order to satisfy its vendors and other creditors and to completely execute its 2001 Plan. The Company is presently negotiating with human health and animal health commercial development partners in various regions of the world including the United States, Canada, Europe, and the Middle East. The Company believes that one or more of these agreements will be executed during 2001. These agreements could generally include provisions for the commercial partner to pay ABI a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations to ABI upon the accomplishment of certain defined tasks, and/or could provide for payments relating to the future sales of commercial product. These agreements could be an important source of funds for ABI. Management believes the fact that it has concluded an advanced Phase III clinical trial significantly enhances its ability to successfully raise additional funds from its commercial partnering activities and from private investors. However, there can be no assurance that the Company will be successful in obtaining additional funding from either human health and animal health commercial development partners or private investors. If the Company is not successful in raising additional funds, it will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations. Furthermore, the Company's creditors could demand the Company's obligations to them be satisfied immediately. Should this event occur, the Company could be forced to file for protection under Chapter 11 of the United States Bankruptcy Code if it were not able to obtain alternative sources of financing. FORWARD-LOOKING STATEMENTS Certain statements made in this Plan of Operations and elsewhere in this report are "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, achievements, costs or expenses and may contain words such as "believe", "anticipate", "expect", "estimate", "project", "budget", or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties are detailed from time to time in reports filed by the Company with the SEC, including Forms 8-K, 10-QSB and 10-KSB, and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instrumentalities with functions similar to those of the FDA; costs of research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation, and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials. The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants, and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of the Sjogren's syndrome Phase III trial, or any other trials performed by the Company, will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs 12 13 associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing of one or more commercial partner agreements, and its ability to continue as a going concern. The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future prospects. Moreover, the Company is engaged in a very competitive and rapidly changing industry. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events. ITEM 7. FINANCIAL STATEMENTS. The financial statements of the Company are set forth beginning on page F-1 immediately following the signature page of this report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. As of December 31, 2000, the directors and executive officers of the Company were as follows:
NAME AGE POSITION - --------------------------------------------------- --------- ---------------------------------------------- Joseph Cummins, DVM, PhD (1)(3).................... 58 Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Director Edward Amento, MD (3)(5)........................... 54 Director Stephen Chen, PhD (2)(4)........................... 51 Director James Cook (1)(3)(5)............................... 66 Director Thomas D'Alonzo (1)(2)............................. 57 Director Katsuaki Hayashibara (3)(4)(5)..................... 56 Director Dennis Moore, DVM (1)(4)(5)........................ 54 Director James Page, MD (1)(2)(5)........................... 73 Director Kathleen L. Kelleher (6)........................... 52 Chief Operating Officer, Vice President Business Development
13 14
NAME AGE POSITION - --------------------------------------------------- --------- ---------------------------------------------- The following are not executive officers, but are expected by the Company to make a significant contribution to the business: Philip C. Fox, DDS (6)............................. 51 Consultant for Research and Development Martin J. Cummins.................................. 32 Clinical Project Director
(1) Member of the Executive Committee. (2) Member of the Compensation Committee. (3) Member of the Finance Committee. (4) Member of the Audit Committee. (5) Member of the Stock Option Plans Administration Committee. (6) Ms. Kelleher's employment with the Company was terminated effective January 19, 2001, and Dr. Fox's contract of employment with the Company expired December 31, 2000, and was not renewed. Both Ms. Kelleher and Dr. Fox have agreed to remain available to the Company on a consulting basis. 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 as Chief Financial Officer since October 1998. Dr. Cummins has been conducting research on oral cytokines, most particularly IFN[alpha], in animals and humans for 29 years. Dr. Cummins has more than 40 publications and a dozen patents which reflect his work in the field oral IFN. He received a PhD degree in microbiology from the University of Missouri in 1978 and a doctor of veterinary medicine degree from Ohio State University in 1966. Edward Amento has been a Director of the Company since 1999. Dr. Amento has been Director and Chairman of the Molecular Medicine Research Institute since 1995. Dr. Amento is also clinical professor of medicine and dermatology at Stanford University School of Medicine. He was formerly the President and co-founder of Connective Therapeutics (now Connectics Corp.) of Palo Alto, California. Dr. Amento held senior positions at Genentech from 1987 to 1993. 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 health care 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 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. Thomas D'Alonzo has been a director of the Company since 1997. Until September, 1999 he was President and Chief Operating Officer of PPD and its Clinical Research Organization subsidiary, PPD Development, Inc., was President of GENVEC, Inc., from 1993 to 1996, and was President of Glaxo, Inc. from 1983 to 1993. Katsuaki Hayashibara has been a director of the Company since 1994. Mr. Hayashibara was named Director of the Overseas Business Development Division of Hayashibara Company, Ltd. in January 1997. Prior to 1997, Mr. Hayashibara served as Director of Research and Development for HBL. 14 15 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. Since 1995, Dr. Moore has been involved in managing his personal investments. 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. Kathleen Kelleher has been an officer of the Company since January 1999. Ms. Kelleher holds a Bachelor's Degree and a Master's Degree in Biology. In addition, she holds a MBA from the University of Chicago. Ms. Kelleher has spent the last twenty years working in the pharmaceutical and biopharmaceutical industry. She has held senior management positions in marketing, business development, licensing, product planning, strategic marketing, strategic planning and operations. Most recently, Ms. Kelleher was employed as senior director of licensing at G.D. Searle, the pharmaceutical division of Monsanto. Philip Fox joined The Company as Director, Research and Development in January 1999. Prior to that, he was at the National Institutes of Health, National Institute of Dental and Craniofacial Research since 1976. During his NIH tenure, he served as Clinical Director of the Intramural Research Program, and Chief of the Clinical Investigations Section, Gene Therapy and Therapeutics Branch. Dr. Fox is an oral/maxillofacial surgeon and a diplomate of the American Board of Oral Medicine. Martin Cummins has held several positions within the Company since joining the Company full-time in June 1992. Mr. Cummins currently oversees all research studies involving human participants as Clinical Project Director. Martin Cummins is the son of Joseph Cummins. 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. Until October of 1999, the Company paid directors who were 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. Commencing October 29, 1999, each director receives 1,500 options for physical attendance, and 375 options for telephone participation, at a maximum of one (1) meeting per quarter. The options are granted at December 31 of the year during which they are earned, and are exercisable at the fair market value of the stock on the date of grant. The directors no longer receive payment of fees for attendance at meetings; however, they are reimbursed for any out-of-pocket expenses in connection with their attendance at meetings. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires directors and officers of the Company and persons who own more than 10 percent of the 15 16 Company's common stock to file with the Securities and Exchange Commission (the "Commission") initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10 percent shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file. During 2000, Dr. Dennis Moore, a director of the Company, was late filing three (3) Form 4's (Statements of Changes in Beneficial Ownership) within the time period required by Section 16(a) of the Exchange Act. Said Form 4's were duly filed on December 15, 2000, and to the Company's knowledge, there are no remaining delinquencies. Other than mentioned above, to the Company's knowledge based solely on a review of the copies of such reports furnished to the Company, all filings applicable to its directors, officers and more than 10% beneficial owners were timely filed. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth for the three years ended December 31, 2000 compensation paid by the Company to its Chairman of the Board, President and Chief Executive Officer, and to its Chief Operating Officer. None of the Company's other executive officers had annual salary and bonus in excess of $100,000 for services rendered during any of the three years ended December 31, 2000. SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------------------------------------------ NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER COMPENSATION - ------------------------------------------ -------- ----------------- -------------- --------------------- Dr. Joseph Cummins, Chairman of the Board, President and Chief Executive Officer.............. 2000 $ 25,935 $ - $ - 1999 150,000 $ - $ - 1998 150,000 $ - $ - Kathleen Kelleher, Chief Operating Officer and Vice- President of Business Development.......................... 2000 123,043 $ - $ - 1999 150,000 $ - $ -
OPTION GRANTS IN 2000 The following table sets forth certain information relating to options granted in 2000 to the executive officers named above, to purchase shares of common stock of the Company. 16 17
NUMBER OF SHARES OF COMMON STOCK % OF TOTAL UNDERLYING OPTIONS GRANTED EXERCISE OR OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION NAME GRANTED (#) IN 2000 ($/SH) DATE - -------------------------------------- ------------------ -------------------- -------------- ---------------- Kathleen Kelleher..................... 8,000 100% $2.75 (1) 1-19-04
(1) The fair market value of the common stock on the date of the grant. AGGREGATED OPTION EXERCISES AT DECEMBER 31, 2000 AND YEAR-END OPTION VALUES The following table sets forth information for the executive officers named above, regarding the exercise of options during 2000 and unexercised options held at the end of 2000.
NUMBER OF SHARES OF VALUE OF UNEXERCISED COMMON STOCK UNDERLYING IN-THE-MONEY SHARES UNEXERCISED OPTIONS AT OPTIONS AT ACQUIRED ON VALUE DECEMBER 31, 2000 (#) DECEMBER 31, 2000 ($) (1) NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ------------------------------ ------------- ------------- --------------------------- ---------------------------- Joseph Cummins - - 282,750 / 1,750 $47,000 / None Kathleen Kelleher - - 77,333 / 66,667 $6,768 / None
(1) Calculated based on the closing price of the common stock ($1.063) as reported by OTC BB on December 31, 2000. DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
Cash Compensation Security Grants ----------------------------------------- --------------------- NUMBER OF SECURITIES MEETING CONSULTING UNDERLYING NAME FEES (1) FEES (2) OPTIONS (3) - ----------------------------------------------------- ---------------- ----------------- --------------------- Edward Amento, MD $ - $ - 2,625 Stephen Chen, PhD - - 3,750 James Cook - - 3,750 Thomas D'Alonzo - 1,000 2,625 Katsuaki Hayashibara - - 3,750 Dennis Moore, DVM - - 3,750 James Page, MD - - 3,750
(1) Directors do not receive cash compensation for attendance at directors' meetings, but each director receives 1,500 options for physical attendance, and 375 options for telephone participation, at a maximum of one (1) meeting per quarter. The options are granted at December 31 of the year during which they are earned, and are exercisable at the fair market value of the stock on the date of grant. (2) Each director receives $1,200 per day, prorated for partial days, for employment on special projects or assignments. (3) Includes options granted for participation in meetings; see Note (1), above. 17 18 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of December 31, 2000, there were 7,807,357 shares of the Company's common stock outstanding. The following table sets forth as of December 31, 2000, the beneficial ownership of each person who owns more than 5% of such outstanding common stock:
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF TOTAL - ----------------------------------------------------------- -------------------------- ----------------------- Hayashibara Biochemical Laboratories, Inc. 2-3 Shimoishii 1-chome Okayama 700, Japan 3,290,781 42.1% Dr. Joseph Cummins 800 West 9th Avenue Amarillo, Texas 79101 549,214 (1) 7.0%
(1) Includes an aggregate of 181,704 shares of common stock held by Joseph Cummins as trustee under certain trusts for the benefit of his children and 10,000 shares owned by Dr. Cummins' wife. The following table sets forth the beneficial ownership of the Company's stock as of December 31, 2000 by each executive officer and director, and by all executive officers and directors as a group:
DIRECTORS NUMBER OF SHARES PERCENT OF TOTAL - --------------------------------------------- -------------------------- ----------------------- Joseph Cummins 549,214 (1) 7.0% Dennis Moore 84,616 1.1% James Cook 66,600 (2) * Katsuaki Hayashibara 48,240 * Kathleen Kelleher 21,390 * Stephen Chen 13,500 * Thomas D'Alonzo 3,000 * Edward Amento - - James Page - - Total Group (all directors and 786,560 8.1% executive officers - 11 persons)
* Less than 1% (1) Includes an aggregate of 181,704 shares of common stock held by Joseph Cummins as trustee under certain trusts for the benefit of his children and 10,000 shares owned by Dr. Cummins' wife. (2) All of such shares are owned jointly with Mr. Cook's wife. 18 19 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has relied significantly on HBL, the largest shareholder of the Company, for a substantial portion of its capital requirements. Pursuant to the Development Agreement described at Item 1 of Part 1, above, HBL advanced $9,000,000 for funding of research. In addition, HBL has purchased substantial amounts of the Company's common stock from time to time, to the point where it now owns 42.1% of the issued and outstanding shares of common stock of the Company. HBL loaned $1 million to the Company on November 30, 1999, and an additional $1 million on February 29, 2000, both loans bearing interest at 4.5% per annum. The aggregate balance on both notes at December 31, 2000, including principal and accrued interest, was $2,086,351. In addition to the above, 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. HBL supplies formulations of its interferon alpha and other products to the Company. During 2000, the Company has used the law firm of Sprouse, Smith & Rowley, P.C. Mr. Edward Morris, Secretary of the Company, is a partner in the firm. In 2000, the Company was invoiced $110,320 by said firm. On March 25, 1999, ABI signed a contract with PPD Pharmaco, Inc., now known as PPD Development, Inc. to provide clinical monitoring and data entry services for ABI's Phase III clinical trials in Sjogren's syndrome. During the year ended December 31, 2000, the Company paid $816,552 for clinical research organization services to PPD Development, Inc. At the time that the contract was signed, Mr. Tom D'Alonzo was President and Chief Operating Officer of PPD and its Clinical Research Organization subsidiary, PPD Development, Inc., and was also a member of the ABI Board of Directors. Mr. D'Alonzo retired from PPD Development, Inc. in October, 1999. Mr. D'Alonzo is still a member of the ABI Board of Directors. All future transactions and loans between the Company and its officers, directors and 5% shareholders will be on terms no less favorable to the Company than could be obtained from independent third parties. There can be no assurance, however, that future transactions or arrangements between the Company and its affiliates will be advantageous, that conflicts of interest will not arise with respect thereto or that if conflicts do arise, that they will be resolved in favor of the Company. 19 20 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. EXHIBIT INDEX
NUMBER DESCRIPTION - ---------------- ----------------------------------------------------------------------------------------------------- 3.1+ Restated Articles of Incorporation of the Company, dated June 22, 1999. 3.3* Bylaws of the Company. 4.1* Specimen Common Stock Certificate. 4.2* Form of Underwriter's Warrant. 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. 10.7* Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL. 10.9* Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M. Cummins, 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. 10.18* Form of Consulting Agreement between the Company and the Underwriter. 10.20+ 1996 Employee Stock Option Plan, Amended and Restated as of May 11, 1999. 10.21+ Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 11, 1999. 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. 10.26** License Agreement dated July 22, 1997, between Hoffmann-La Roche Inc., and the Company. 10.27** Distribution Agreement dated January 12, 1998, between Global Damon Pharmaceutical and the Company.
20 21
NUMBER DESCRIPTION - ---------------- ----------------------------------------------------------------------------------------------------- 10.28** Distribution Agreement dated September 17, 1997, between HBL and the Company (TNF-A). 10.29** Distribution Agreement dated September 17, 1997, between HBL and the Company (IFN-G). 10.30*** Amendment No. 1 dated September 28, 1998 to License Agreement of March 22, 1988, between The Texas A&M University System and the Company. 10.36 License Agreement dated February 1, 2000 between Molecular Medicine Research Institute, and the Company (IFN-G administered orally). 10.37(a) License and Supply Agreement dated April 3, 2000 with Key Oncologics (Pty) Ltd., and the Company. 10.38 Amendment No. 1 dated April 4, 2000, to Interferon-G Distribution Agreement dated September 17, 1997 between HBL and the Company (IFN-G). 10.39(a) License and Supply Agreement dated April 25, 2000 between Biopharm for Scientific Research and Drug Industry Development and the Company. 10.40(a) Sales Agreement dated May 5, 2000, between Wilke Resources, Inc. and the Company. 10.41 Engagement Agreement dated September 26, 2000, between Hunter Wise Financial Group, LLC, and the Company. 10.42(a) Supply Agreement (Anhydrous Crystalline Maltose) dated October 13, 2000, between Hayashibara Biochemical Laboratories, Inc., and the Company. 10.43(a) Supply Agreement dated December 11, 2000, between Natrol, Inc., and the Company. 21. Subsidiaries of the Company. The following sets forth the name and jurisdiction of incorporation of each subsidiary of the Company. All of such subsidiaries are wholly- owned by the Company. NAME JURISDICTION OF INCORPORATION ---------------------------------------------- ----------------------------------------- VANGUARD BIOSCIENCES, INC. TEXAS VELDONA USA, INC. TEXAS VELDONA AFRICA, INC. TEXAS VELDONA POLAND, INC. TEXAS ABI TAIWAN, INC. TEXAS AMARILLO CELL OF CANADA, INC. TEXAS 23.1 Consent of Ernst & Young LLP.
*The Exhibit is incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form SB-2 filed with and declared effective by the Commission (File No. 333-4413) on August 8, 1996. **The Exhibit is incorporated by reference to the Company's 1997 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1998. ***The Exhibit is incorporated by reference to the Company's 1998 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1999. +The Exhibit is incorporated by reference to the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1999, filed with the Commission on August 12, 1999, and subsequently amended on September 13, 1999. (a)Portions of this exhibit have been omitted and filed separately with the commission. 21 22 REPORTS ON FORM 8-K A report on Form 8-K was filed on February 11, 2000, relating to an Agreement to Convert Debt between Amarillo Biosciences, Inc. and Hayashibara Biochemical Laboratories, Inc., dated September 30, 1999, reporting that the exchange called for by said Agreement to take place on February 29, 2000, in which Hayashibara Biochemical Laboratories, Inc. would contribute $1 million to the Company and receive an equivalent amount of the Company's common stock, would not take place, but instead, by mutual consent of the parties, Hayashibara Biochemical Laboratories, Inc. agreed to loan $1 million to the Company at an interest rate of 4.5% per annum payable on or before February 29, 2005, or one (1) year after FDA approval of a drug containing Hayashibara's interferon alpha for oral administration to humans, whichever should occur first. 22 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMARILLO BIOSCIENCES, INC. By: /s/ JOSEPH M. CUMMINS ----------------------------------- Joseph M. Cummins, Chairman of the Board, President, Chief Financial Officer and Chief Executive Officer Date: April 12, 2001 --------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ JOSEPH M. CUMMINS Chairman of the Board, 12 April 2001 - ----------------------------------------------------------- President, Chief Financial --------------------------- Joseph M. Cummins Officer, Director and Chief Executive Officer /s/ EDWARD P. AMENTO Director 12 April 2001 - ----------------------------------------------------------- --------------------------- Edward P. Amento /s/ STEPHEN T. CHEN Director 12 April 2001 - ----------------------------------------------------------- --------------------------- Stephen T. Chen /s/ JAMES COOK Director 12 April 2001 - ----------------------------------------------------------- --------------------------- James Cook /s/ THOMAS W. D'ALONZO Director 12 April 2001 - ----------------------------------------------------------- --------------------------- Thomas W. D'Alonzo /s/ KATSUAKI HAYASHIBARA Director 11 April 2001 - ----------------------------------------------------------- --------------------------- Katsuaki Hayashibara /s/ DENNIS MOORE Director 12 April 2001 - ----------------------------------------------------------- --------------------------- Dennis Moore /s/ JAMES A. PAGE Director 11 April 2001 - ----------------------------------------------------------- --------------------------- James A. Page
24 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Financial Statements Year ended December 31, 2000 CONTENTS Report of Independent Auditors ..........................................................................................F-1 Audited Consolidated Financial Statements Consolidated Balance Sheets .............................................................................................F-2 Consolidated Statements of Operations ...................................................................................F-3 Consolidated Statements of Stockholders' Equity (Deficit) ...............................................................F-4 Consolidated Statements of Cash Flows ...................................................................................F-7 Notes to Consolidated Financial Statements ..............................................................................F-9
25 Report of Ernst & Young, LLP, Independent Auditors The Board of Directors Amarillo Biosciences, Inc. We have audited the accompanying consolidated balance sheets of Amarillo Biosciences, Inc. and subsidiaries (companies in the development stage) as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2000 and for the period from June 25, 1984 (inception) through December 31, 2000. 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. The financial statements for the period June 25, 1984 (inception) through December 31, 1991, were audited by other auditors whose report dated July 12, 1992, which has been furnished to us, expressed an unqualified opinion on those statements. The financial statements for the period June 25, 1984 (inception) through December 31, 1991, include total revenues and net loss of $643,566 and $3,901,236, respectively. Our opinion on the statements of operations, stockholders' equity (deficit), and cash flows for the period June 25, 1984 (inception) through December 31, 2000, insofar as it relates to amounts for prior periods through December 31, 1991, is based solely on the report of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amarillo Biosciences, Inc. and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2000, and the period from June 25, 1984 (inception) through December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and the need to raise additional financing in order to satisfy its vendors and other creditors and execute its 2001 Plan raise substantial doubt about its ability to continue as a going concern. (Management's plans as to these matters are also described in Note 1.) The 2000 financial statements do not include any adjustments that might result from the outcome of this uncertainty. ERNST & YOUNG LLP Dallas, Texas March 21, 2001 F-1 26 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Balance Sheets
DECEMBER 31, ------------------------------------------------- 2000 1999 ------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 341,983 $ 1,302,343 Inventory 55,839 48,639 Other current assets 45,500 32,137 ------------------------------------------------- Total current assets 443,322 1,383,119 Property and equipment, net 93,236 105,799 Patents, net of accumulated amortization of $101,221 and $89,807 in 2000 and 1999, respectively 107,323 73,495 ------------------------------------------------- Total assets $ 643,881 $ 1,562,413 ================================================= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 957,489 $ 521,199 Accrued interest expense 86,351 3,526 Accrued legal expense - 3,025 Accrued vacation - 19,000 Other accrued expense 14,724 63,173 ------------------------------------------------- Total current liabilities 1,058,564 609,923 Notes payable to stockholder 2,000,000 1,000,000 ------------------------------------------------- Total liabilities 3,058,564 1,609,923 Commitments and contingencies Stockholders' deficit Preferred stock, $.01 par value: Authorized shares - 10,000,000 Issued shares - none - - Common stock, $.01 par value: Authorized shares - 20,000,000 Issued shares - 7,807,357 in 2000 and 7,472,157 in 1999 78,074 74,722 Additional paid-in capital 18,399,449 17,374,570 Deficit accumulated during the development stage (20,892,206) (17,496,802) ------------------------------------------------- Total stockholders' deficit (2,414,683) (47,510) ------------------------------------------------- Total liabilities and stockholders' deficit $ 643,881 $ 1,562,413 =================================================
See accompanying notes. F-2 27 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Operations
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) YEAR ENDED DECEMBER 31, THROUGH ---------------------------------------------- DECEMBER 31, 2000 1999 2000 ---------------------------------------------------------------------- Revenues: Contract revenues $ - $ - $ 9,000,000 Interferon sales - - 420,974 Interest income 47,017 111,368 1,573,022 Sublicense fees - - 113,334 Royalty income - - 31,544 Gain (loss) on ISI stock 4,909 (5,735) 113,146 Other 1,830 2,400 608,661 ---------------------------------------------------------------------- 53,756 108,033 11,860,681 Expenses: Research and development expenses 2,276,504 4,732,365 18,361,313 Selling, general, and administrative expenses 1,089,832 1,456,072 13,418,624 Interest expense 82,824 38,182 937,950 ---------------------------------------------------------------------- 3,449,160 6,226,619 32,717,887 ---------------------------------------------------------------------- Loss before income taxes (3,395,404) (6,118,586) (20,857,206) Income tax expense - - 35,000 ---------------------------------------------------------------------- Net loss $ (3,395,404) $ (6,118,586) $ (20,892,206) ====================================================================== Basic and diluted net loss per share $ (0.44) $ (0.96) =============================================== Weighted average shares outstanding 7,715,086 6,362,047 ===============================================
See accompanying notes. F-3 28 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Stockholders' Equity (Deficit) Cumulative from June 25, 1984 (Inception) through December 31, 2000
COMMON STOCK ADDITIONAL ISSUANCE ------------------------------------- PAID IN PRICE SHARES AMOUNT CAPITAL -------------------------------------------------------------------------- 1984 Initial issuance for cash $0.29 84,000 $ 840 $ 23,660 Initial issuance in exchange for legal fees 0.29 30,000 300 8,450 Initial issuance in exchange for services and research and development costs 0.01 1,086,000 10,860 (9,955) 1985 Issuance for cash 0.83 102,000 1,020 83,980 Issuance in exchange for professional fees, salaries and research services 0.83 10,800 108 8,892 1986 Issuance in exchange for professional fees, salaries and services 0.83 22,800 228 18,772 Treasury stock purchase; 11,040 shares at cost - - - Issuance for cash 0.83-1.25 182,352 1,824 154,626 Issuance in exchange for professional fees, salaries and research services 0.83 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 stockholder 2.50 54,540 545 135,805 1991 Repayment of note receivable from stockholder - - - Net loss and total comprehensive loss cumulative from June 25, 1984 (inception) through December 31, 1991 - - - DEFICIT ACCUMULATED NOTE DURING THE UNREALIZED RECEIVABLE DEVELOPMENT GAIN (LOSS) FROM TREASURY STAGE ON INVESTMENT STOCKHOLDER STOCK ------------------------------------------------------------------------------ 1984 Initial issuance for cash $ - $ - $ - $ - Initial issuance in exchange for legal fees - - - - Initial issuance in exchange for services and research and development costs - - - - 1985 Issuance for cash - - - - Issuance in exchange for professional fees, salaries and research services - - - - 1986 Issuance in exchange for professional fees, salaries and services - - - - Treasury stock purchase; 11,040 shares at cost - - - (22,500) Issuance for cash - - - - Issuance in exchange for professional fees, salaries and research services - - - - 1987 Issuance for cash - - - - Treasury stock purchase; 2,400 shares at cost - - - (3,500) 1988 Issuance for cash - - - - 1989 Issuance for cash - - - - Issuance for cash - - - - 1990 Issuance for cash - - - - Issuance for cash - - - - Issuance in exchange for note receivable from stockholder - - (136,350) - 1991 Repayment of note receivable from stockholder - - 136,350 - Net loss and total comprehensive loss cumulative from June 25, 1984 (inception) through December 31, 1991 (3,901,236) - - - TOTAL STOCKHOLDERS' EQUITY (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) 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) 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 stockholder - 1991 Repayment of note receivable from stockholder 136,350 Net loss and total comprehensive loss cumulative from June 25, 1984 (inception) through December 31, 1991 (3,901,236)
F-4 29 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Stockholders' Equity (Deficit)(continued) Cumulative from June 25, 1984 (Inception) through December 31,2000
COMMON STOCK ADDITIONAL ISSUANCE -------------------------------------- PAID IN PRICE SHARES AMOUNT CAPITAL --------------------------------------------------------------------------------- 1992 Net loss and total comprehensive loss for year ended December 31, 1992 - $ - $ - -------------------------------------------------------------- Balance at December 31, 1992 3,019,032 30,190 3,515,788 1993 Net loss and total comprehensive loss for year ended December 31, 1993 - - - -------------------------------------------------------------- Balance at December 31, 1993 3,019,032 30,190 3,515,788 1994 Net loss and total comprehensive loss for year ended December 31, 1994 - - - Adjustment to unrealized loss on investments - - - Total comprehensive loss -------------------------------------------------------------- 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 loss on investments - - - Total comprehensive loss -------------------------------------------------------------- Balance at December 31, 1995 3,048,672 30,487 3,589,591 1996 Issuance for cash 5.00 2,300,000 23,000 9,354,502 Issuance for stock grant 5.00 79,000 790 394,210 Warrants issued for cash - - 200 Cancellation of treasury stock (13,440) (135) (25,865) Net loss for year ended December 31, 1996 - - - Adjustment to unrealized loss on investments - - - Total comprehensive loss -------------------------------------------------------------- Balance at December 31, 1996 5,414,232 54,142 13,312,638 1997 Net loss for year ended December 31, 1997 - - - Adjustment to unrealized gain (loss) on investment - - - Total comprehensive loss Options issued for professional services - - 79,500 -------------------------------------------------------------- Balance at December 31, 1997 5,414,232 54,142 13,392,138 DEFICIT ACCUMULATED NOTE DURING THE UNREALIZED RECEIVABLE DEVELOPMENT GAIN (LOSS) FROM STAGE ON INVESTMENT STOCKHOLDER -------------------------------------------------------------------- 1992 Net loss and total comprehensive loss for year ended December 31, 1992 $ (505,558) $ - $ - -------------------------------------------------------------------- Balance at December 31, 1992 (4,406,794) - - 1993 Net loss and total comprehensive loss for year ended December 31, 1993 (108,363) - - -------------------------------------------------------------------- Balance at December 31, 1993 (4,515,157) - - 1994 Net loss and total comprehensive loss for year ended December 31, 1994 (129,239) - - Adjustment to unrealized loss on investments - (57,316) - Total comprehensive loss -------------------------------------------------------------------- Balance at December 31, 1994 (4,644,396) (57,316) - 1995 Issuance for stock grant - - - Net loss for year ended December 31, 1995 (311,579) - - Adjustment to unrealized loss on investments - 57,316 - Total comprehensive loss -------------------------------------------------------------------- Balance at December 31, 1995 (4,955,975) - - 1996 Issuance for cash - - - Issuance for stock grant - - - Warrants issued for cash - - - Cancellation of treasury stock - - - Net loss for year ended December 31, 1996 (1,618,188) - - Adjustment to unrealized loss on investments - (3,500) - Total comprehensive loss -------------------------------------------------------------------- Balance at December 31, 1996 (6,574,163) (3,500) - 1997 Net loss for year ended December 31, 1997 (2,471,252) - - Adjustment to unrealized gain (loss) on investment - 37,198 - Total comprehensive loss Options issued for professional services - - - -------------------------------------------------------------------- Balance at December 31, 1997 (9,045,415) 33,698 - TOTAL TREASURY STOCKHOLDERS' STOCK EQUITY (DEFICIT) ---------------------------------------- 1992 Net loss and total comprehensive loss for year ended December 31, 1992 $ - $ (505,558) ---------------------------------------- Balance at December 31, 1992 (26,000) (886,816) 1993 Net loss and total comprehensive loss for year ended December 31, 1993 - (108,363) ---------------------------------------- Balance at December 31, 1993 (26,000) (995,179) 1994 Net loss and total comprehensive loss for year ended December 31, 1994 - (129,239) Adjustment to unrealized loss on investments - (57,316) -------------------- Total comprehensive loss (186,555) ---------------------------------------- Balance at December 31, 1994 (26,000) (1,181,734) 1995 Issuance for stock grant - 74,100 Net loss for year ended December 31, 1995 - (311,579) Adjustment to unrealized loss on investments - 57,316 -------------------- Total comprehensive loss (254,263) ---------------------------------------- Balance at December 31, 1995 (26,000) (1,361,897) 1996 Issuance for cash - 9,377,502 Issuance for stock grant - 395,000 Warrants issued for cash - 200 Cancellation of treasury stock 26,000 - Net loss for year ended December 31, 1996 - (1,618,188) Adjustment to unrealized loss on investments - (3,500) -------------------- Total comprehensive loss (1,621,688) ---------------------------------------- Balance at December 31, 1996 - 6,789,117 1997 Net loss for year ended December 31, 1997 - (2,471,252) Adjustment to unrealized gain (loss) on investment - 37,198 -------------------- Total comprehensive loss (2,434,054) -------------------- Options issued for professional services - 79,500 ---------------------------------------- Balance at December 31, 1997 - 4,434,563
F-5 30 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Stockholders' Equity (Deficit)(continued) Cumulative from June 25, 1984 (Inception) through December 31,2000
COMMON STOCK ADDITIONAL ISSUANCE -------------------------------- PAID IN PRICE SHARES AMOUNT CAPITAL -------------------------------------------------------------------------- 1998 Net loss for year ended December 31, 1998 - $ - $ - Adjustment to unrealized gain (loss) on investment - - - Total comprehensive loss ------------------------------------------------------- Balance at December 31, 1998 5,414,232 54,142 13,392,138 1999 Net loss and total comprehensive loss for year ended December 31, 1999 - - - Issuance in exchange for note payable to stockholder $ 2.9992 946,094 9,461 2,828,065 Issuance in exchange for note payable to stockholder 0.9044 1,111,831 11,119 994,367 Options issued for professional services - - 160,000 ------------------------------------------------------- Balance at December 31, 1999 7,472,157 74,722 17,374,570 2000 Net loss and total comprehensive loss for year ended December 31, 2000 - - - Issuance of common stock and warrants for cash 2.50 316,000 3,160 786,840 in private placement Exercise of employee stock options 0.875 19,200 192 16,608 Employee options granted in lieu of salary - - 221,431 ------------------------------------------------------- Balance at December 31, 2000 7,807,357 $ 78,074 $ 18,399,449 ======================================================= DEFICIT ACCUMULATED NOTE DURING THE UNREALIZED RECEIVABLE DEVELOPMENT GAIN (LOSS) FROM TREASURY STAGE ON INVESTMENT STOCKHOLDER STOCK ------------------------------------------------------------------------------ 1998 Net loss for year ended December 31, 1998 $ (2,332,801) $ - $ - $ - Adjustment to unrealized gain (loss) on investment - (33,698) - - Total comprehensive loss ------------------------------------------------------------------------------ Balance at December 31, 1998 (11,378,216) - - - 1999 Net loss and total comprehensive loss for year ended December 31, 1999 (6,118,586) - - - Issuance in exchange for note payable to stockholder - - - - Issuance in exchange for note payable to stockholder - - - - Options issued for professional services - - - - ------------------------------------------------------------------------------ Balance at December 31, 1999 (17,496,802) - - - 2000 Net loss and total comprehensive loss for year ended December 31, 2000 (3,395,404) - - - Issuance of common stock and warrants for cash in private placement - - - - Exercise of employee stock options - - - - Employee options granted in lieu of salary - - - - ------------------------------------------------------------------------------ Balance at December 31, 2000 $ (20,892,206) $ - $ - $ - ============================================================================== TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ------------------- 1998 Net loss for year ended December 31, 1998 $ (2,332,801) Adjustment to unrealized gain (loss) on investment (33,698) ------------------- Total comprehensive loss (2,366,499) ------------------- Balance at December 31, 1998 2,068,064 1999 Net loss and total comprehensive loss for year ended December 31, 1999 (6,118,586) Issuance in exchange for note payable to stockholder 2,837,526 Issuance in exchange for note payable to stockholder 1,005,486 Options issued for professional services 160,000 ------------------- Balance at December 31, 1999 (47,510) 2000 Net loss and total comprehensive loss for year ended December 31, 2000 (3,395,404) Issuance of common stock and warrants for cash 790,000 in private placement Exercise of employee stock options 16,800 Employee options granted in lieu of salary 221,431 ------------------- Balance at December 31, 2000 $ (2,414,683) ===================
See accompanying notes. F-6 31 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Cash Flows
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) YEAR ENDED DECEMBER 31, THROUGH -------------------------------------------------- DECEMBER 31, 2000 1999 2000 ------------------------------------------------------------------------ OPERATING ACTIVITIES Net loss $ (3,395,404) $ (6,118,586) $ (20,892,206) Adjustments to reconcile net loss to net cash used in operating activities: Loss on impairment of ISI stock - 5,735 80,325 Depreciation 12,563 17,092 220,121 Amortization 11,414 8,630 112,261 Discount on investment in ISI - - 24,675 Recognition of deferred sub-license fees - - (32,844) Organization costs - - (11,040) Gain (loss) on sale of assets - - (7,373) Common stock issued for stock grant - - 469,100 Common stock issued for services - - 53,505 Options issued for services - 160,000 239,500 Options issued for wages 221,431 - 221,431 Changes in operating assets and liabilities: Inventory (7,200) (48,639) (55,839) Other current assets (13,363) 11,278 (45,500) Accounts payable 436,290 432,279 957,489 Accrued expenses 12,351 (140,354) 101,075 ------------------------------------------------------------------------ Net cash used in operating activities (2,721,918) (5,672,565) (18,565,320) INVESTING ACTIVITIES Capital expenditures - (6,130) (329,055) Proceeds from sale of equipment - - 23,071 Patents (45,242) (38,302) (208,544) Investment in ISI common stock - - (105,000) ------------------------------------------------------------------------ Net cash used in investing activities (45,242) (44,432) (619,528) ------------------------------------------------------------------------
F-7 32 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Cash Flows (continued)
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) YEAR ENDED DECEMBER 31, THROUGH ------------------------------------------------ DECEMBER 31, 2000 1999 2000 ------------------------------------------------------------------------ FINANCING ACTIVITIES Receipt of sub-license fees $ - $ - $ 32,844 Proceeds from notes payable 1,000,000 1,000,000 2,000,000 Issuance of common stock and warrants 806,800 1,243,012 17,493,987 ------------------------------------------------------------------------ Net cash provided by financing activities 1,806,800 2,243,012 19,526,831 ------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (960,360) (3,473,985) 341,983 Cash and cash equivalents at beginning of period 1,302,343 4,776,328 - ------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 341,983 $ 1,302,343 $ 341,983 ======================================================================== SUPPLEMENTAL INFORMATION Cash paid for income taxes $ - $ - $ 37,084 ======================================================================== Cash paid for interest $ - $ - $ 6,466 ========================================================================
See accompanying notes. F-8 33 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements December 31, 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Amarillo Biosciences, Inc. (the "Company" or "ABI"), a development-stage company incorporated in 1984, is engaged in developing biologics for the treatment of human and animal diseases. The Company 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. Among other activities the Company recently concluded a Phase III clinical trial, initiated during November, 1998, using low dose oral IFN[alpha] for the treatment of Sjogren's syndrome. The analyses of these Phase III data continues and are expected to be completed in the second quarter of 2001. The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. The Company plans on working with commercial development partners in the United States and in other parts of the world to provide the necessary sales, marketing, and distribution infrastructure to successfully commercialize the IFN[alpha] product for both human and animal applications. All of the Company's products will require significant additional development, laboratory and clinical testing and investment prior to the Company 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 stockholders. The Company's development-stage-through-1991 activities were financed primarily through the issuance of common stock. From 1991 to August 1996, such activities were financed under an agreement (described in Note 4) with a major stockholder. In August 1996, the Company completed its initial public offering, receiving net proceeds of approximately $9,378,000. The Company's 2001 Plan of Operations calls for the Company to expend approximately $1.7 million in 2001.At December 31, 2000, the Company had available cash of $341,983 and negative working capital of approximately ($615,000). The Company's continued losses and lack of liquidity indicate that the Company may not be able to continue as a going concern for a reasonable period of time. The Company's ability to continue as a going concern is dependent upon several factors including, but not limited to, the continued non-demand for immediate payment of outstanding indebtedness by the Company's vendors and suppliers, the Company's ability to generate sufficient cash flows to meet its obligations on a timely basis, obtain additional financing, and continue to obtain supplies and services from its vendors. The Company will need to raise additional funds in order to satisfy its vendors and creditors and execute its 2001 Plan. The F-9 34 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Company is presently negotiating with human health and animal health commercial development partners in various regions of the world including the United States, Canada, Europe, and the Middle East. The Company believes that one or more of these agreements will be executed during 2001. These agreements could generally include provisions for the commercial partner to pay ABI a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations to ABI upon the accomplishment of certain defined tasks, and/or could provide for payments relating to the future sales of commercial product. These agreements could be an important source of funds for ABI. Management believes the fact that it has concluded an advanced Phase III clinical trial significantly enhances its ability to successfully raise additional funds from its commercial partnering activities and from private investors. However, there can be no assurance that the Company will be successful in obtaining additional funding from either human health and animal health commercial development partners or private investors. If the Company is not successful in raising additional funds, it will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations. Furthermore, the Company's creditors could demand the Company's obligations to them be satisfied immediately. Should this event occur, the Company could be forced to file for protection under Chapter 11 of the United States Bankruptcy Code if it were not able to obtain alternative sources of financing. Additionally, the recorded value of the Company's patents and property and equipment may not be recoverable in the event future operations are not sustainable. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Amarillo Cell of Canada, Inc., Veldona Africa, Inc., Veldona Poland, Inc., Veldona USA, Inc., Vanguard Biosciences, Inc. and ABI Taiwan, Inc. (all Texas corporations). All significant intercompany balances and transactions have been eliminated in consolidation. The effect of translation of foreign currencies is not material. CONCENTRATION OF CREDIT RISK At December 31, 2000, the Company's cash equivalents were invested principally in money market accounts, a substantial portion of which are uninsured. 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-10 35 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORY The Company's inventory consists of IFN[alpha] lozenges available for sale. The Company's policy is to state inventory at the lower of cost determined on a lot basis or market. 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. PATENTS; PATENT EXPENDITURES ABI holds patent license agreements and also holds patents which are owned by the Company. All patent license agreements remain in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over 15-17 years using the straight-line method. Patent fees and legal fees associated with the issuance of new owned patents are capitalized and amortized over 15-17 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., Vanguard Biosciences, Inc. and ABI Taiwan, Inc. 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 (SFAS 109). As permitted by the new rules, prior years' financial statements have not been restated. The effect of adopting SFAS 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) was recorded as earned based on research and administrative costs incurred. Amounts received in advance of services to be performed were recorded as deferred revenue until expenses were incurred. The remaining balance of all contract revenue received from HBL was recorded as earned in 1996. F-11 36 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 7, 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. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation utilizing Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). In October 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 123, Accounting for Stock Based Compensation (SFAS 123). Under the provisions of SFAS 123, the Company has elected to continue to apply the provisions of APB 25 to its stock- based compensation arrangements and provide supplementary financial statement disclosures as required under SFAS 123. BASIC AND DILUTED NET LOSS PER SHARE Net loss per share is based on the number of weighted average shares outstanding. The effect of warrants and options outstanding (see Notes 7 and 8) is anti-dilutive. F-12 37 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes new rules for the display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's results of operations or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. 2. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and consist of the following:
DECEMBER 31, ------------------------------------- 2000 1999 ------------------------------------- Land $ 8,000 $ 8,000 Building 94,532 94,532 Furniture and equipment 134,287 134,287 Automobile 13,688 13,688 ------------------------------------- 250,507 250,507 Less accumulated depreciation 157,271 144,708 ------------------------------------- $ 93,236 $ 105,799 =====================================
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 $1,000,000 note plus accrued interest of $300,000 due September 25, 1996 was renewed in a new note to HBL for $1,300,000 due September 25, 2001, which accrued interest at the rate of 4 1/2%. The $1,000,000 note plus accrued interest of $300,000 due September 16, 1997 was renewed in a new note to HBL for $1,300,000 due September 16, 2002, which accrued interest at the rate of 4 1/2%. Each of the notes provided that the principal and accrued interest be paid only from 10% of the Company's gross revenues from sales of interferon. F-13 38 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 3. NOTES PAYABLE (CONTINUED) In April 1999, HBL agreed to convert $2,837,526 debt and accrued interest owed to it by the Company to voting common stock of the Company. The total number of shares issued to HBL in consideration for the cancellation of the indebtedness was 946,094 shares valued at the then market value of $2.99 per share. The Company also had a loan agreement with HBL, which called for HBL to loan the Company $3,000,000 to be advanced in three installments as follows: $1,000,000 by August 31, 1999; $1,000,000 by November 30, 1999; and $1,000,000 by February 29, 2000. The annual interest rate on unpaid principal from the date of each respective advance was 4 1/2%, with accrued interest being payable at the maturity of the note. The note was payable on or before July 22, 2004, or on or before the expiration of one (1) year after approval of the Company's product by the FDA, whichever occurs first. On September 30, 1999, the Company entered into an Agreement to Convert Debt with HBL regarding the above described note payable to HBL in the then principal amount of $1,000,000, the first loan installment having by then been advanced. On October 15, 1999, pursuant to the Agreement to Convert Debt, HBL canceled the then note balance in exchange for 1,111,831 shares of common stock of the Company valued at the then market value of $0.9044 per share. The two additional $1,000,000 advances were to be likewise converted to equity purchases on or before November 30, 1999 and February 29, 2000, respectively. However, by subsequent agreement of the parties, the equity purchases planned for November 30, 1999 and February 29, 2000 were reinstated as loans. The Company received a loan of $1,000,000 on November 30, 1999, evidenced by note dated December 3, 1999 in the original principal amount of $1,000,000 bearing interest at the rate of 4 1/2% per annum and due and payable on or before December 3, 2004, or on or before the expiration of one year after approval of the Company's product by the FDA, whichever occurs first. The final installment was advanced on February 29, 2000, under terms which are identical, except that the principal and accrued interest under that note will be payable on or before February 29, 2005, or on or before the expiration of one year after approval of the Company's product by the FDA, whichever occurs first. As a result of its related party nature, the Company has concluded it is not practicable to estimate the fair value of its note payable to stockholder. F-14 39 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 4. MANUFACTURING AND SUPPLY AGREEMENTS The Company was a party to the following manufacturing and supply agreements at December 31, 2000: On March 13, 1992, the Company entered into a Joint Development and Manufacturing/Supply Agreement with HBL (the Development Agreement), a major stockholder (see Note 7) under which HBL will formulate, manufacture, and supply HBL interferon for the Company or any sub- licensee. In exchange, HBL is entitled to receive a transfer fee, specified royalties and a portion of any payment received by the Company for sub-license of rights under this agreement. The agreement further provides that the Company sub-license to HBL the right to market HBL interferon for oral use in humans and in non-human, warm-blooded species in Japan, in exchange for the Company receiving a royalty fee based on net sales. On June 1, 1994, the Company 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 non-human, warm-blooded species in North America. In exchange, HBL is entitled to receive a transfer fee based on units of interferon supplied. On April 4, 2000, the Company amended its existing distribution agreement with HBL to expand the agreement to include inhalation administration of human interferon-gamma. Under the Development Agreement, HBL provided $9,000,000 in research funding to the Company. The agreement also provides that a royalty fee be paid to HBL. The initial term of the agreement was for seven years, has been extended through March 13, 2002, and will be renewed automatically for successive three-year terms. However, HBL can terminate the agreement at any time after March 13, 2002, upon ninety (90) days' advance written notice of the Company's net sales of interferon-containing products for oral use in warm-blooded species not having exceeded $100,000 during the preceding calendar year. On October 20, 1989, the Company entered into a manufacturing and supply agreement with Interferon Sciences, Inc. (ISI), then a 1% stockholder 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 non-human 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 agreement will be in force for seven years after ISI's receipt of the first purchase order from the Company and thereafter as long as net sales of such products by the Company meet certain levels. As of December 31, 2000, the Company had not submitted a purchase order to ISI. F-15 40 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 4. MANUFACTURING AND SUPPLY AGREEMENTS (CONTINUED) On October 13, 2000, the Company entered into a supply agreement with HBL under which the Company gained an exclusive right to purchase and distribute anhydrous crystalline maltose for the treatment of dry mouth (xerostomia). This exclusive supply agreement is worldwide, except Japan. On December 11, 2000, the Company entered into a supply agreement with Natrol, Inc., whereby the Company will supply anhydrous crystalline maltose exclusively to Natrol to treat xerostomia in the USA and Canada. 5. LICENSE AND SUBLICENSE AGREEMENTS On April 4, 2000, the Company amended its existing distribution agreement with HBL to expand the agreement to include inhalation administration of human interferon-gamma. 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 sub-license 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 sub-license 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, 2000, the Company had commitments to provide additional funding of approximately $251,627 under these agreements. 7. COMMON STOCK In May 1993, the stockholders 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 1,000,000 shares to 10,000,000 shares. The stockholders also approved a ten-for-one stock split for the currently issued and outstanding shares of the Company. Pursuant to shareholder approval obtained at the Company's 1999 annual meeting of shareholders, the Company amended its Articles of Incorporation effective June 22, 1999, to increase the number of voting common shares authorized for issuance from 10,000,000 F-16 41 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 7. COMMON STOCK (CONTINUED) to 20,000,000, and to establish a new class of preferred stock consisting of 10,000,000 authorized shares, issuable in series. To date, no preferred stock has been issued. Since 1984, the Company has issued common stock in exchange for various professional, research, and consulting services. The stock issued for non-cash consideration was assigned a value based on the fair value of the services received. In July 1992, the Board of Directors approved restricted stock grants to three employees which allowed 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 allowed 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. In August 1996, 79,000 shares of common stock (net of required federal withholdings of 47,000 shares) were issued to the other three employees. The issuance and withholding were in full satisfaction of the three employees original 126,000 shares in stock grants. Total charges to compensation expense recognized by the Company cumulative from June 25, 1984 (inception) through December 31, 1998 was $735,000. In August 1996, the Company completed its initial public offering and issued 2,300,000 shares of common stock resulting in net proceeds of approximately $9,377,702. As described in Note 3, in April 1999, HBL agreed to convert $2,837,526 of debt and accrued interest owed to it by the Company to 946,094 shares of common stock of the Company. HBL subsequently entered into a $3,000,000 loan agreement with the Company, of which $1,005,486.50 in debt and accrued interest was converted to 1,111,831 shares of the Company's voting common stock effective October 15, 1999. In addition to 200,000 warrants granted to the Company's underwriter (exercisable through August 6, 2001 at $8.10 per share), the Company has 525,108 shares of common stock reserved for issuance upon exercise of warrants granted to outside consultants, 373,608 of which are not vested, and will vest only upon the occurrence of significant funding events in which the respective warrant holders are instrumental. F-17 42 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 7. COMMON STOCK (CONTINUED) During 1997, the Company granted 30,000 options to outside professionals for services which vested immediately at an exercise price of $4.25 (fair market value of the common stock at the date of the grant). The Company recognized $79,500 (representing the fair value of the options) in expense relating to these grants. During 1999, the Company granted 407,252 options to employees in lieu of cash compensation to be paid in fiscal 2000. The Company recorded compensation expense of $221,431 and a credit to additional paid in capital for 334,312 options, net of forfeitures, which vested in 2000. During 2000, the Company raised $790,000 from investors pursuant to a private placement of 316,000 shares of its common stock and 126,400 warrants to purchase that number of shares of the Company's common stock from time to time through April 11, 2005 at $3.125 per share for 63,200 shares and $3.75 per share for 63,200 shares. Accordingly, the Company has reserved an additional 126,400 shares of its common stock to satisfy the possible future exercise of such warrants. 8. STOCK OPTION PLAN The Company has elected to follow APB 25 and related interpretations in accounting for its stock- based compensation. Under APB 25, because the exercise price of the Company's stock options has been equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense has been recognized. During 1996, the Company introduced two stock option plans: the 1996 Employee Stock Option Plan (Employee Plan) and the Outside Director and Advisor Stock Option Plan (Director Plan). The Employee Plan has authorized the grant of options to employees for up to 590,000 shares of the Company's common stock. All options granted have five to ten year terms and become exercisable over a four to five year period. The option price is equal to 100% to 110% of the fair value of the common stock on the date of grant depending on the percentage of common stock owned by the optionee on the grant date. The Director Plan allows options to purchase a maximum of 410,000 shares of the Company's common stock to be granted to outside directors and scientific advisors to the Company at an exercise price equivalent to 100% of the fair market value of the common stock on the date of grant. These are ten-year options and become exercisable over a period of five years. In addition to options issued pursuant to the Company's Employee and Director stock option plans, the Company recently granted 625,932 non-qualified options to Directors, employees, and one consultant. Two Hundred Thousand (200,000) options were granted to Directors on December 16, 1999. Such options vested immediately, and have an exercise price of $1.625 per F-18 43 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 8. STOCK OPTION PLAN (CONTINUED) share which was the fair market value of the Company's stock as of the date of grant. Twenty Thousand (20,000) options were granted on the same date and upon the same terms to a non- affiliated consultant of the Company. Four Hundred Five Thousand Nine Hundred Thirty-Two (405,932) options were granted to employees of the Company, including 300,000 granted to Joseph Cummins, President and CEO. Such options are exercisable at a price of $.875 per share, being the fair market value of the Company's stock on December 29, 1999, the date of grant. All of such options granted to employees were granted in consideration of the employees' agreement to relinquish salary during 2000, on the basis of two options granted for every $1.00 of salary voluntarily relinquished, with the amount of such relinquished salary being reflected in the Option Agreement signed with each employee, such options to vest monthly over twelve (12) months beginning in January 2000, and to expire December 29, 2004. The 300,000 options granted to Joseph Cummins were subsequently reduced to 250,000 options by agreement of the parties. Supplemental information regarding net loss and net loss per share is required by SFAS 123 and has been determined as if the Company had accounted for its stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2000 and 1999, respectively: risk-free interest rate of 5.99% and 5.69%; dividend yield of 0% and 0%; volatility factors of the expected market price of the Company's common stock of 1.408 and 1.306; and a weighted-average expected life of the option of 5.4 and 3.1 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The expense amounts for 2000 and 1999 are not necessarily indicative of the effects on reported net income (loss) for future years. The Company's pro forma information as of December 31, is as follows: F-19 44 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 8. STOCK OPTION PLAN (CONTINUED)
2000 1999 ----------------------------------------- Pro forma net loss $ (3,840,572) $ (6,549,923) Pro forma basic and diluted net loss per share $ (0.49) $ (1.03)
Based on the Black-Scholes method, the fair value of the options granted during the year ended December 31, is as follows:
2000 1999 -------------------- --------------------- Number of options issued at fair market value of stock 32,000 854,307 Weighted-average fair value of options $1.35 $0.90 Weighted-average exercise price of options $1.48 $1.18
A summary of the Company's stock option activity, and related information for the year ended December 31, is as follows:
2000 1999 ---------------------------- --------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE ---------------------------- --------------------------- Outstanding, beginning of year 1,176,807 $1.88 322,500 $3.74 Granted 32,000 1.48 854,307 1.18 Canceled (106,795) 1.35 - - Exercised (19,200) 0.88 - - ------------- -------------- Outstanding, end of year 1,082,812 $1.94 1,176,807 $1.88 ============= ============== Exercisable at end of year 861,175 $1.91 384,661 $2.67 ============= ==============
Exercise prices for options outstanding as of December 31, 2000 ranged from $0.875 to $5.50. Of these options, 221,500 have exercise prices ranging from $3.875 to $5.50 and the remainder range from $0.875 to $3.375. The weighted-average remaining contractual life of those options is 5.63 years. F-20 45 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 9. EMPLOYEE BENEFIT PLAN The Company has a Simplified Employee Pension Plan (the Plan), which is a contributory plan that covers all employees of the Company. Contributions to the Plan are at the discretion of the Company. The plan expense for the years ended December 31, 2000 and 1999, and cumulative from June 25, 1984 (inception) through December 31, 2000 was $0, $0 and $200,857, respectively. 10. 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. The Company's deferred tax asset of approximately $6,900,000 and $5,825,000 at December 31, 2000 and 1999, respectively, was subject to a valuation allowance of $6,900,000 and $5,825,000 at December 31, 2000 and 1999, respectively, because of uncertainty regarding the Company's ability to realize future tax benefits associated with the deferred tax assets. Deferred tax assets were comprised primarily of net operating loss carryovers and the cash method of accounting used by the Company for federal income tax reporting. At December 31, 2000, the Company has net operating loss carryforwards of approximately $17,900,000 for federal income tax purposes expiring in 2006 through 2020. The ability of the Company to utilize these carryforwards may be limited should changes in stockholder ownership occur. At December 31, 2000, the Company had approximately $14,000 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. 11. CONTINGENCIES The Company is not a party to any litigation and is not aware of any pending litigation or unasserted claims or assessments as of December 31, 2000. F-21 46 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (continued) December 31, 2000 12. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company has and expects to have transactions with related parties, including stockholders. In addition to the transactions disclosed elsewhere in these financial statements, during 2000 the Company has used the law firm of Sprouse, Smith & Rowley, P.C. Mr. Edward Morris, Secretary of the Company, is a partner with Sprouse, Smith & Rowley. The Company was invoiced $110,320 during 2000 for legal services rendered by Sprouse, Smith & Rowley. On March 25, 1999, ABI signed a contract with PPD Pharmaco, Inc., now known as PPD Development, Inc. to provide clinical monitoring and data entry services for ABI's Phase III clinical trials in Sjogren's syndrome. During the year ended December 31, 2000, the Company paid $816,552, for clinical research organization services to PPD Development, Inc. At the time that the contract was signed, Mr. Tom D'Alonzo was President and Chief Operating Officer of PPD and its Clinical Research Organization subsidiary, PPD Development, Inc. Mr. D'Alonzo is also a member of the Board of Directors of ABI. Mr. D'Alonzo retired from PPD Development, Inc. in October 1999, but remains a member of the Board of Directors of ABI. F-22 47 EXHIBIT INDEX
NUMBER DESCRIPTION - ---------------- ----------------------------------------------------------------------------------------------------- 3.1+ Restated Articles of Incorporation of the Company, dated June 22, 1999. 3.3* Bylaws of the Company. 4.1* Specimen Common Stock Certificate. 4.2* Form of Underwriter's Warrant. 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. 10.7* Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL. 10.9* Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M. Cummins, 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. 10.18* Form of Consulting Agreement between the Company and the Underwriter. 10.20+ 1996 Employee Stock Option Plan, Amended and Restated as of May 11, 1999. 10.21+ Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 11, 1999. 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. 10.26** License Agreement dated July 22, 1997, between Hoffmann-La Roche Inc., and the Company. 10.27** Distribution Agreement dated January 12, 1998, between Global Damon Pharmaceutical and the Company.
20 48
NUMBER DESCRIPTION - ---------------- ----------------------------------------------------------------------------------------------------- 10.28** Distribution Agreement dated September 17, 1997, between HBL and the Company (TNF-A). 10.29** Distribution Agreement dated September 17, 1997, between HBL and the Company (IFN-G). 10.30*** Amendment No. 1 dated September 28, 1998 to License Agreement of March 22, 1988, between The Texas A&M University System and the Company. 10.36 License Agreement dated February 1, 2000 between Molecular Medicine Research Institute, and the Company (IFN-G administered orally). 10.37(a) License and Supply Agreement dated April 3, 2000 with Key Oncologics (Pty) Ltd., and the Company. 10.38 Amendment No. 1 dated April 4, 2000, to Interferon-G Distribution Agreement dated September 17, 1997 between HBL and the Company (IFN-G). 10.39(a) License and Supply Agreement dated April 25, 2000 between Biopharm for Scientific Research and Drug Industry Development and the Company. 10.40(a) Sales Agreement dated May 5, 2000, between Wilke Resources, Inc. and the Company. 10.41 Engagement Agreement dated September 26, 2000, between Hunter Wise Financial Group, LLC, and the Company. 10.42(a) Supply Agreement (Anhydrous Crystalline Maltose) dated October 13, 2000, between Hayashibara Biochemical Laboratories, Inc., and the Company. 10.43(a) Supply Agreement dated December 11, 2000, between Natrol, Inc., and the Company. 21. Subsidiaries of the Company. The following sets forth the name and jurisdiction of incorporation of each subsidiary of the Company. All of such subsidiaries are wholly- owned by the Company. NAME JURISDICTION OF INCORPORATION ---------------------------------------------- ----------------------------------------- VANGUARD BIOSCIENCES, INC. TEXAS VELDONA USA, INC. TEXAS VELDONA AFRICA, INC. TEXAS VELDONA POLAND, INC. TEXAS ABI TAIWAN, INC. TEXAS AMARILLO CELL OF CANADA, INC. TEXAS 23.1 Consent of Ernst & Young LLP.
*The Exhibit is incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form SB-2 filed with and declared effective by the Commission (File No. 333-4413) on August 8, 1996. **The Exhibit is incorporated by reference to the Company's 1997 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1998. ***The Exhibit is incorporated by reference to the Company's 1998 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1999. +The Exhibit is incorporated by reference to the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1999, filed with the Commission on August 12, 1999, and subsequently amended on September 13, 1999. (a)Portions of this exhibit have been omitted and filed separately with the commission. 21 EX-10.36 2 d86181ex10-36.txt LICENSE AGREEMENT DATED 2/1/00 1 EXHIBIT 10.36 LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement") is made and effective this 1st day of February, 2000, by and between MOLECULAR MEDICINE RESEARCH INSTITUTE (hereinafter "MMRI") , 325 East Middlefield Road, Mountain View, California 94043 (hereinafter "MMRI") and AMARILLO BIOSCIENCES, INCORPORATED, a Texas corporation, with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "ABI") (MMRI and ABI are hereinafter collectively referred to as the "Parties"). WHEREAS, EDWARD P. AMENTO and JOSEPH M. CUMMINS are co-inventors of that certain provisional United States Patent Application No. 60-156,480, dated September 28, 1999, relating to a method for using interferon-g ("IFN-g") orally, and which, along with all modifications, revisions, continuations, continuations-in-part, divisions, re-issues, extensions, or foreign counterparts thereof, is hereinafter referred to as the "Patent" or "Patents"; WHEREAS, ABI has already conducted or contracted for the conduct of preliminary tests demonstrating the efficacy of orally administered IFN-g in several species; WHEREAS, ABI and its contract suppliers have substantial expertise in the production and use of IFN-g and have proprietary rights and know-how in the field of production, purification and formulation of IFN-g; WHEREAS, EDWARD P. AMENTO has heretofore assigned all of his assignable rights in the Patent to MMRI, and JOSEPH M. CUMMINS has heretofore assigned all of his assignable rights in the Patent to ABI; 1 2 WHEREAS, MMRI and ABI have ongoing research programs and product development efforts directed to the use of IFN-g in both human and animal medicine and desire to expand use of IFN-g to new human and animal applications; WHEREAS, ABI desires to acquire a license under the Patent and a license of MMRI Technical Information for the use and sale of IFN-g-containing formulations for oral use to treat or prevent diseases in humans and animals; WHEREAS, MMRI is willing to disclose to ABI MMRI Technical Information including preliminary animal and human data; WHEREAS, MMRI is desirous of conducting research on applications of IFN-g to human and animal health; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and for other good and adequate consideration, the receipt and sufficiency of which are evidenced by the execution hereof, ABI and MMRI agree as follows: ARTICLE I DEFINITIONS 1.1. "ABI" and "MMRI" shall mean and include not only the indicated company, but also such company's Affiliates and 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. 2 3 1.3. "Agreement" or "License Agreement" means this Agreement and all Exhibits hereto. 1.4. "Assignee" means any permitted assignee of rights under this Agreement. 1.5. "Invention" means all inventions described in the Patent. 1.6. "Licensed Product" means dose formulations or compositions containing any animal or human IFN-g designated, detailed or labeled for oral use including, but not limited to, administration for mucosal contact of the mouth and throat to treat or prevent the development of infections in humans or animals exposed to infectious agents, or suffering from autoimmune diseases, cancer, or connective tissue diseases. 1.7. "Net Sales Value" shall mean the gross selling price paid to ABI or its Affiliates by any purchaser of Licensed Product from ABI or its Affiliates, for Licensed Product, less all packaging, instructional, or other similar charges, and less customary trade discounts and refunds or credits allowed for return of defective Product. If Licensed Production is 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 products to unrelated third parties in similar quantities. 1.8. "Sublicensee" means an entity to which ABI hereafter licenses the Patent or rights under the Patent, and which entity assumes the primary responsibility for development of a Licensed Product. 1.9. "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 Product or other interferon-containing compositions, and any non-public information 3 4 relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' conduct under this Agreement. "MMRI Technical Information" refers to Technical Informa tion originating with MMRI or which MMRI has obtained through its contractual relationships with third parties. "ABI Technical Information" refers to Technical Information originating with ABI or which ABI has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both MMRI Technical Information and ABI Technical Information. ARTICLE II THE LICENSE GRANT MMRI grants to ABI, subject to the terms of this Agreement, a royalty-bearing, exclusive license under the Patent and under MMRI Technical Information to make, have made, or use Licensed Product labeled for testing or trials, and upon proper regulatory approval, for use and sale to treat humans or animals in the United States. ARTICLE III CONSIDERATION 3.1. ABI shall pay to MMRI a royalty of ten percent (10%) of all amounts received by ABI or an ABI Affiliate from a Sublicensee or Sublicensee Affiliate, which amounts are based on sales of Licensed Product. 3.2. The parties acknowledge that a Sublicensee may require from ABI the license of one or more patents other than the Patent; accordingly, if one or more patents other than the Patent are licensed to a Sublicensee with respect to the development of Licensed Product, the royalty set forth above as payable by ABI to MMRI shall be reduced as follows: for the first such additional 4 5 Patent, the royalty provided in Section 3.1 shall become eight percent (8%); for the second, six percent (6%); and for the third or any additional such Patent, four percent (4%). Under no circumstances shall this Section 3.2 cause the royalty provided under Section 3.1 to be reduced below four percent (4%). 3.3. If ABI does not license the Patent or rights under the Patent to a Sublicensee, but conducts commercial sales of Product either directly, or through an Affiliate or one or more distributors, then in lieu of the consideration set forth in Section 3.1 above, ABI shall pay to MMRI a royalty of five percent (5%) of the Net Sales Value of Licensed Product sold by ABI or its Affiliates, as the case may be. ARTICLE IV REMITTANCES, RECORDS AND REPORTS 4.1. ABI shall keep accurate records in sufficient detail to enable the royalties and any other amounts payable hereunder to be determined. MMRI shall have the right to nominate an independent public accountant or firm of MMRI choice ("auditors") to audit such records. Once in each calendar year, the auditors shall have access to the records of ABI relating to payments under this Agreement during reasonable business hours for the purpose of verifying the accuracy of the reports and payments made during the current year and/or any preceding calendar year. The matters to be audited shall include sales volumes, deliveries, prices, receipts, and all other matters constituting verification of the royalty payable to MMRI hereunder. 4.2. Payment of royalties shall be made to MMRI within forty (40) days following the end of each calendar quarter for all amounts received by ABI or an ABI Affiliate either from direct sales or from a Sublicensee or Sublicensee Affiliate or from a distributor during said quarter, 5 6 and royalties to MMRI shall accrue when such amounts are received by ABI or an ABI Affiliate. All payments to MMRI shall be accompanied by statements certified by an officer of ABI which give sufficient information from which to calculate the amount of payment due hereunder, including the total quantity and price of Licensed Products sold by ABI, ABI Affiliates, Sublicensees, or distributors for which royalty has accrued during the preceding quarter, and the aggregate amounts payable to MMRI. A statement shall also be submitted in the event that no amounts are payable to MMRI. 4.3. Payments hereunder shall be made in U.S. Dollars in the United States and royalties shall accrue in U.S. Dollars. ARTICLE V TERM AND TERMINATION 5.1. This Agreement and all rights licensed hereunder by MMRI to ABI shall terminate upon the expiration of the Patent, or if there should be one or more foreign counterparts, upon the expiration of the last expiring Patent. 5.2. In the event ABI shall at any time fail to make payments, render reports, or otherwise fail to abide by the terms of this Agreement, MMRI may notify ABI in writing of such default and MMRI's intent to terminate this Agreement unless such default is cured by ABI within sixty (60) days from receipt by ABI of such notice. If such default is not cured within the sixty (60) day period, MMRI may provide ABI with written notice of termination, and this Agreement and the license and rights granted by it shall thereupon terminate. 6 7 5.3. Termination of this Agreement for any reason shall not relieve the Parties of any obligation accruing prior to such termination. In addition, ARTICLE IX ("Confidentiality") shall survive termination of this Agreement. 5.4. Any accrued royalties or other payments shall be paid to MMRI within thirty (30) days of the termination of this Agreement. ARTICLE VI OBLIGATION TO DEVELOP ABI shall endeavor to enter into an agreement with a development partner (Sublicensee) providing for the development of Licensed Product, and will make reasonable commercial efforts to cause such agreement to provide for $300,000 in research funding to be committed to MMRI ($100,000 per year, over a three-year period) for research related to the development of a Licensed Product. The other provisions of this Agreement notwithstanding, including without limitation the term and termination provisions contained in Article V above, if ABI has not executed an agreement with a development partner (Sublicensee) within three (3) years of the date of this Agreement, providing for the reasonable and timely development of a Licensed Product, under which the development partner has undertaken to conduct appropriate and required preclinical studies and initiation of clinical trials to obtain regulatory approval, and to take other steps toward the commercialization of a Licensed Product, then this Agreement shall thereupon terminate, and neither party shall have any continuing obligation to the other; or alternatively, at the sole election of MMRI, MMRI may, by written notice delivered to ABI, undertake the task of finding a development partner (Sublicensee), and shall have three (3) years from the inception of such undertaking to secure agreement with a development partner. In the event such an agreement is 7 8 secured, the terms of this Agreement shall apply to such arrangement, but with ABI considered to be the licensor, with MMRI considered to be the licensee, and with all terms and conditions of this Agreement applying to such new arrangement. At all times during the term of this License Agreement, both parties shall act cooperatively in seeking a development partner or a Sublicensee, and both parties shall have full access to all data and other intellectual property in the possession of the other relating to Licensed Product, subject to the confidentiality provisions of Article IX, below. Nothing herein shall be construed to require ABI to license any patent other than the Patent to MMRI, or to require ABI to license any other intellectual property rights to MMRI, or to prevent ABI from developing and marketing, simultaneous with MMRI, one or more Licensed Products, as long as such do not infringe the Patent. If MMRI should find a development partner or Sublicensee pursuant to the procedures hereinbefore set forth, ABI shall be granted the first right to attempt to negotiate an IFN-g supply agreement with such development partner or Sublicensee. ARTICLE VII PATENT APPLICATIONS, OWNERSHIP, AND ENFORCEMENT The enforcement of any and all patents licensed hereunder, including without limitation the prosecution of any lawsuits to enforce the Patent shall be at the sole discretion of ABI; provided, however, that if MMRI should request such enforcement, and advance all funds necessary to enforce such patents (including without limitation legal fees and expenses) and indemnify ABI against any loss, cost or expense arising from such enforcement action, then ABI shall use its best efforts to enforce such patents. 8 9 ARTICLE VIII DISCLAIMERS AND INDEMNIFICATION 8.1. ABI makes no representation or warranty that the sale of Licensed Product will not infringe any third party patent, nor does ABI assume any obligations with respect to infringements of patents of others arising as a result of ABI's activities under this Agreement. 8.2. ABI 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 the MMRI Patent. 8.3. Neither ABI nor MMRI makes any representation or warranty concerning the potential profitability of sales of Licensed Product. 8.4. ABI agrees that it shall indemnify and save MMRI harmless from any and all claims, demands, actions and causes of action against MMRI, 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 Product by or through ABI 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 MMRI, or from acts or omissions of persons for which MMRI is or 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. 9 10 ARTICLE IX CONFIDENTIALITY 9.1. ABI and MMRI own or are licensed under confidential or secret information relating to the Invention, and it is the intention of ABI and MMRI to maintain this confidentiality. 9.2. Each Party agrees to maintain confidential and secret all Technical Information which may be disclosed or provided to it by the other Party or that the Parties may together subsequently acquire. 9.3. 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 Technical Information, when the recipient Party can demonstrate that such item of information: 9.3.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 9.3.2. 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 9.3.3. 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 lawfully and not under circumstances forbidding its disclosure. 9.4. Neither Party will permit the other Party's 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 such information and/or documents with the same precautions it uses to safeguard its own confidential or secret information. 10 11 9.5. Each Party will notify the other promptly if it has knowledge that an unauthorized third party possesses Technical Information of the other Party related to the Invention. 9.6. ABI shall have the right to use MMRI's Technical Information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its contract consultants and scientific investigators (from whom ABI shall secure Confidential Disclosure Agreements) and to United States regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell Licensed Product. ARTICLE X MISCELLANEOUS 10.1. Force Majeure. The failure of ABI, MMRI, or any of their Affiliates to take any action required by this Agreement if such failure is 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 exist or hereafter arise, shall not subject said Party to any liability to the other. 10.2. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party pursuant to this Agreement shall be sufficiently made or given on the date of sending if sent to such Party by fax or by certified or registered mail or by 11 12 courier service, postage or delivery charge prepaid, addressed to it at its address set forth below, or to such other address as it may have designated by written notice given to the other Party: In case of ABI: Dr. Joseph M. Cummins 800 W. 9th Amarillo, Texas 79101 Fax: 806/376-9301 In case of MMRI: Dr. Edward P. Amento Molecular Medicine Research Institute 325 East Middlefield Road Mountain View, CA 94043 Fax: 650-237-7455 10.3. Amendments to Agreement. This 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 Agreement shall be effective only if made in writing, and executed by both Parties. 10.4. Assignment. In the event of a merger, consolidation or other reorganization under which, by operation of law, another surviving company succeeds to the rights and obligations of ABI, then such surviving company shall be and become fully substituted herein, as if originally a party hereto. In addition, ABI may assign its rights under this Agreement to a corporate Affiliate of ABI. Otherwise, this Agreement shall not be assignable by either ABI or MMRI without the prior written consent of the other. This Agreement shall inure to the benefit only of the parties hereto, their permitted Assignees, and their legal successors. 10.5. 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 12 13 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. 10.6. Venue and Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Texas, U.S.A., and any action brought by either party 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. 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.
ABI: MMRI: - --- ---- AMARILLO BIOSCIENCES MOLECULAR MEDICINE RESEARCH INCORPORATED INSTITUTE By: //signature on file// By: //signature on file// ----------------------------------------------------- ---------------------------------------------------- Dr. Joseph M. Cummins, President and Dr. Edward P. Amento, Director and Chairman of the Board Chairman of the Board
13 EX-10.37 3 d86181ex10-37.txt LICENSE AND SUPPLY AGREEMENT DATED 4/3/00 1 EXHIBIT 10.37 LICENSE AND SUPPLY AGREEMENT THIS LICENSE AND SUPPLY AGREEMENT ("Agreement") is made and effective this 3rd day of April,2000, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "ABI") and KEY ONCOLOGICS (PTY) LTD., a company organized under the laws of South Africa with its principal place of business at 171 Katherine Street, Building 1, Sandton, South Africa (hereinafter "Key ") (ABI and Key are hereinafter collectively referred to as the "Parties"). MITSUBISHI CORPORATION is ABI's shipping agent with respect to product shipped to Key under this Agreement. WHEREAS, ABI and its contract suppliers have substantial expertise in the production and use of oral interferon alpha (hereinafter, "IFN-a") and have proprietary rights and know-how in the field of production, purification and formulation of IFN-a; WHEREAS, ABI is willing to disclose to Key Technical Information including human clinical data and WHEREAS, ABI has an exclusive worldwide license (except Japan) to market and distribute the oral formulation of HBL IFN-a (as defined in ARTICLE I, below), and desires to provide HBL IFN-a to Key on the terms and conditions herein set forth, and Key desires to obtain the right to perform clinical trials on, distribute and market HBL IFN-a contained in Licensed Product on the terms and conditions herein set forth; **** Indicates that a portion of the text has been omitted and filed separately with the Commission. -1- 2 NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and for other good and adequate consideration the receipt and sufficiency of which are evidenced by the execution hereof, ABI and Key agree as follows: ARTICLE I DEFINITIONS 1.1. "ABI" and "Key" shall mean and include not only the indicated company, but also such company's 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" means this License and Supply Agreement. 1.4. "Assignee" means any permitted assignee or sub-licensee of rights under this Agreement 1.5. "Dose" means 150 International Units of IFN-a. 1.6. "HBL IFN-a" means the cell culture derived human lymphoblastoid IFN-a used in the Licensed Product by ABI and produced by HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. ("HBL"). 1.7. "Licensed Indications" means all human diseases. 1.8. "Licensed Product" means a formulation or composition containing HBL IFN-a and designated, detailed, or labeled for oral use in the treatment of any Licensed Indication. -2- 3 1.9. "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 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' conduct under this Agreement. "ABI Technical Information" refers to Technical Information originating with ABI or which ABI has obtained through its contractual relationships with third parties. "Key Technical Information" refers to Technical Information originating with Key or which Key has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both ABI Technical Information and Key Technical Information. 1.10. "Territory" means South Africa, Namibia, Botswana and Zimbabwe. ARTICLE II GRANT OF LICENSE 2.1. ABI grants to Key and Key accepts, subject to the terms of this Agreement, the right to use HBL IFN-a for clinical testing and trials, and upon proper regulatory approval, the exclusive right to market and distribute Licensed Product to treat the Licensed Indications in the Territory. ABI will provide Key technical information and clinical trial samples for the above-mentioned purposes. ABI retains all other rights to HBL IFN-a, including without limitation, the right to test, develop, license, sub-license, market, distribute or otherwise use HBL IFN-a for treatment of all indications other than the Licensed Indications, and for treatment of the Licensed Indications in all countries not included in the Territory. -3- 4 2.2. The license grant to Key under this Agreement shall commence on the effective date of this Agreement and shall terminate immediately upon the termination or expiration of this Agreement unless extended by the parties at least one hundred and eighty (180) days prior to the expiration date. 2.3. Key shall have the right to use and sell Licensed Product only in the Territory. Key shall not seek customers, establish any branch or maintain any distribution depot for Licensed Product in any country outside the Territory. Key shall not sell Licensed Product to any customer in any country outside the Territory or to any customer in the Territory if, to the knowledge of Key, such customer intends to resell the Licensed Product in any country outside the Territory. Key shall cause ABI's name to appear on each outer package of the Licensed Product distributed in the Territory, providing that it complies with local laws and health regulations.. 2.4. Licensed Product sold by Key shall bear VELDONA(R) trademark or logo, acknowledging ABI as developer and manufacturer, providing that it complies with local laws and Ministry of Health regulations. Alternatively, Key may recommend to ABI for its approval one or more other registrable trademarks for the Licensed Product in the Territory. If needed, ABI shall apply for any new trademark registration, and ABI shall own all rights to such trademarks. ABI hereby grants to Key during the term of this Agreement the exclusive license to use the VELDONA(R) trademark in the Territory in connection with the use or sale of Licensed Product. -4- 5 ARTICLE III SUPPLY OF PRODUCT 3.1. Subject to the terms and conditions of this Agreement, ABI shall supply Licensed Product to Key for clinical testing and, upon government approval, sale in the Territory. Licensed Product shall be supplied in response to issuance by Key of written purchase orders delivered to ABI specifying the quantity to be supplied, along with any special instructions/requests regarding supply and/or delivery. ABI shall have no responsibility for obtaining any required regulatory approvals, nor for distribution, promotion, pricing, or marketing of lozenges in the Territory, all of which shall be completed by Key with the assistance of ABI. 3.2. ABI agrees to allow Key right of reference to ABI's US FDA Biologics License Application (BLA) for the Licensed Product and to do such other acts as are reasonably necessary, and within ABI's control, to facilitate approval of Licensed Product in the Territory for use in the Licensed Indications, and ABI also hereby agrees to consult with Key at Key's request concerning regulatory affairs, to review documents to be submitted to governmental agencies for approval, and to take such other actions as may be necessary from time to time to facilitate approval of Licensed Product for sale and use in the Territory. ABI further agrees to provide sufficient Licensed Product at ABI's cost, duly packaged and randomized, for clinical trials as may be appropriate and necessary to support application for approval and/or commercialization of Licensed Product. ABI shall reasonably provide to Key any other support or assistance requested by Key and within ABI's capabilities with respect to regulatory and clinical activities, on a fully reimbursed basis. -5- 6 Appropriate ABI clinical/registration personnel can be made available for assistance in the Territory at a cost of $150/hour plus travel and accommodation. ARTICLE IV CONSIDERATION 4.1. For all Licensed Product supplied by ABI to Key (other than quantities provided pursuant to Paragraph 3.2 above), ABI shall receive from Key the payment per Dose specified at Exhibit "A". Payment for each shipment of Licensed Product shall be made by Key by irrevocable letter of credit on a U.S. bank. Such letter of credit shall undertake to honor a time draft by ABI payable 30 days after the arrival of the Product at the port of destination, as evidenced by ABI's certificate of delivery, which shall accompany the time draft. The price per Dose shall be further adjusted from time to time as may be necessary to reflect any Change in the Producers Price Index, Drugs and Pharmaceuticals, Subdivision Code 063, after the date of this Agreement. In addition, both the price per Dose and the amount to be invoiced and paid for Licensed Product shall be further adjusted to reflect any changes for (i) the variable cost of any raw material or combination of raw materials that changes by more than twenty percent (20%) from ABI's cost at the date of this Agreement, and (ii) the variable cost arising from changes in product specifications, manufacturing, testing, or release of the product. Key shall have the right to inspect those books and records of ABI which evidence or record any increase in the variable costs referred to in this clause 4.1 which entitle ABI to increase the price per Dose of the Product. Key shall receive Licensed Product at Johannesburg International Airport unless otherwise advised in writing by Key, and the shipping -6- 7 arrangements shall be made by ABI's nominated shipping agent (Mitsubishi Corporation). Key's payment obligation shall be the CIF price at the named port of destination in the Territory against an invoice containing shipping charge, freight, and insurance, in addition to the Licensed Product price specified above. Title to Licensed Product purchased by Key shall transfer to Key, and Key shall pay all freight charges and bear the risk of loss and damage, from the time Licensed Product is placed at the disposal of Key at the port of destination. 4.2. Key shall, simultaneously with the filing of the BLA in the USA, apply for, at its own cost and expense and without any contribution from ABI, all necessary licenses, registrations or approvals required to be issued in the Territory, or any agency or instrumentality thereof, as a precondition to the import and sale of Licensed Product. Key will apply for any pricing or reimbursement approvals, will exercise diligence to maintain all such approvals, and will diligently market the approved Licensed Product through the term of this Agreement. Key will launch Licensed Product in the Territory within three (3) months of receipt of all necessary governmental approvals, and shall thereafter use its best efforts to advertise, promote and sell such Licensed Product after such approval. If at any time during the term of this Agreement Key should fail to comply in a timely way with any of the requirements set forth in this Section 4.2, or if at any time during the term of this Agreement Key should no longer be actively pursuing the application for any such approval or license in the Territory, or if, having obtained such approval or license, Key should no longer be actively developing or marketing any Licensed Product under this Agreement in the Territory, under the preconditions permitted by applicable laws and regulations, both parties shall enter into consultation to decide the assignment of such applications, approvals and/or licenses from Key. -7- 8 4.3. Key shall provide ABI by December 31st of each year during the term of this Agreement, a report of ongoing efforts for the development of Licensed Products, including a report of efforts by Key with respect to any clinical testing, regulatory approval efforts, marketing/sales strategy, and any other areas into which Key's reasonable business efforts in accordance with this paragraph may reasonably be categorized. Such report shall be provided in English and shall be accompanied by labeling, instructions, promotional and other support materials developed for Key's sales force, patients, physicians, or other outside parties. Such a report shall be prepared more often if ABI so requests in writing, provided that ABI pays to Key the expenses incurred by Key in generating such additional reports. It is understood that ABI will receive a copy in English of all Key Technical Information. ABI will provide to Key, with the express permission of the companies involved, copies of promotional material for the Product used by its licensees in the US, Canada and Europe. 4.4. During the term of this Agreement, ABI shall provide to Key all clinical data relating to the clinical testing and development of the Licensed Product for Licensed Indications other than Sjogren's syndrome against payment of a fee to be negotiated between the Parties, on an indication by indication basis. ABI shall be free to use all clinical results obtained in the Territory and subject to notification to Key, to use these results outside the Territory. 4.6. Unless specifically authorized in writing by ABI, Key shall not sell, or offer for sale, or act as sales agent for the solicitation of orders for any oral products (other than Licensed Products) that contain any IFN-a derived from any species and designated, detailed, or labeled for -8- 9 oral use for the Licensed Indications. ABI shall not authorize any third parties, directly or indirectly, to market or sell any IFN-a in the Territory for oral use in the treatment of the Licensed Indications. 4.7. Key shall provide medical, pharmaco-vigilance and other appropriate customer support services in connection with sale of Licensed Products, and will report to ABI on a timely basis all material adverse reactions, product complaints and other relevant customer feedback. Key agrees to advise ABI fully with respect to all health, safety, environmental, and other standards, specifications, and other requirements imposed by law, regulation, or order in the Territory and applicable to Licensed Product. Key shall also advise ABI of all instructions, warnings, and labels applicable to Licensed Product that are necessary or desirable under laws, regulations, or practices in the Territory. ABI shall meet such safety standards or specifications. ABI shall not increase the price charged to Key for the Licensed Product in this context unless changes to the specification are required. ABI shall inform Key of any similar changes in the US or Canada which could materially affect the preparation, registration or sale of the product. ARTICLE V ORDERS AND SHIPMENTS 5.1. 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, Key will furnish ABI with its projected requirements for Licensed Product during the next succeeding calendar year. Key may amend its projected requirements from time-to-time, provided, however, that ABI shall be obligated only to make its best effort to comply with any requests in excess of annual projections received by it at least ninety (90) days prior to the commencement of the calendar year in question. -9- 10 Under no circumstances shall ABI be required to deliver to Key hereunder, an amount of Licensed Product which exceeds the amount ABI is able, in good faith, to acquire from HBL, or from HBL's contract manufacturers. The exact composition of Licensed Product shall be disclosed in writing by ABI to Key. Subject to the foregoing, ABI shall use its best efforts to deliver Licensed Product in accordance with Key's projected requirements and product specifications. 5.2. ABI shall ship product within thirty (30) days of request by Key, against an irrevocable letter of credit on a U.S. bank (or other financial surety acceptable to ABI or to the agent nominated by ABI) in an amount sufficient to cover the CIF price payable to ABI or the agent nominated by ABI under Paragraph 4.1 above. The letter of credit shall be issued by a financial institution acceptable to ABI or to the agent nominated by ABI, shall be in U.S. dollars and shall not expire until the final payment for the respective shipment has been made to ABI or to the agent nominated by ABI. 5.3. Orders of Licensed Product for commercial sales shall be made for minimum quantities of 250,000 Doses. Key shall meet or exceed the following annual minimum purchases from ABI. If Key does not achieve these levels, it will have the opportunity to make up the difference by either purchasing product or by cash payment within 60 days of the end of the period. Otherwise, ABI will have the right to make the Agreement non-exclusive, and appoint another licensee or market the Product under the ABI name. 1st twelve months after launch $ 180,000 net of shipping and packaging 2nd twelve months after launch $ 220,000 net of shipping and packaging 3rd twelve months after launch and beyond $ 270,000 net of shipping and packaging
-10- 11 ARTICLE VI TERM AND TERMINATION 6.1. This Agreement and all rights granted hereunder by each Party shall terminate ten years from the effective date of this agreement, unless extended on a yearly basis by request of Key at least one hundred and eighty (180) days prior to the expiration date; provided, however, that if (a) Key does not commence application for government approval, as may be required or advisable, within five (5) months after Key receives all supporting documentation required for application for government approval; and (b) after approval of the Licensed Product, place orders for minimum annual shipments as provided in Paragraph 5.3, above; then ABI shall have the right to terminate this Agreement upon ninety (90) days prior written notice to Key. Key shall be given a period of thirty (30) days after such notification to remedy the breach or default in question. Key will proceed diligently to obtain market approval for the Territory according to the timetable set forth in paragraph 4.2 of this Agreement. 6.2. In the event that ABI fails to perform in the manner set forth in this Agreement, Key shall have the right to terminate the Agreement upon ninety (90) days notice to ABI. ABI shall be given thirty (30) days after such notification to remedy the breach or default in question. 6.3. Termination of this Agreement for any reason shall not relieve the Parties of any obligation accruing prior to such termination. In addition, ARTICLE VIII ("Confidentiality") shall survive termination of this Agreement. 6.4. On termination of this Agreement for any reason set forth herein, Key shall cease to sell Licensed Product and shall surrender to ABI all ABI Technical Information that it may -11- 12 have received during the term of this Agreement, and at the request of ABI, Key may conditionally assign any approval, permit, or license it holds relating to Licensed Products to ABI. Any accrued payment obligations shall be paid within thirty (30) days of the termination of this Agreement. ARTICLE VII WARRANTY AND INDEMNIFICATION 7.1. ABI represents and warrants that as of the date of this Agreement, it is the exclusive owner of the right to sell and distribute Licensed Product for use in treating the Licensed Indications in the Territory and either owns or has the right to use and license the trademark(s) associated with the Licensed Product. ABI further warrants that, up to the time Key takes possession in South Africa, all product supplied by it (i) shall meet all product specifications previously agreed in writing between ABI and Key; (ii) shall not be adulterated or misbranded; and (iii) shall be manufactured in accordance with good manufacturing practices in the country of manufacture. ABI shall indemnify and hold Key harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against Key arising from any claim made or suit brought as a result of a breach by ABI of its warranties under this Paragraph 7.1. 7.2. Key warrants that its operations and activities in the Territory shall be in compliance with applicable laws, statutes and regulations; and Key shall indemnify and hold ABI harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against ABI or its Affiliates arising from the use, testing, recall, labelling, promotion, sale, distribution, or use of Licensed Product as a result of any breach of such warranty by Key. -12- 13 ARTICLE VIII CONFIDENTIALITY 8.1. ABI owns or is licensed under confidential or secret information relating to the Licensed Products, and Key intends to conduct trials in the Territory which will generate confidential or secret information relating to the Licensed Products, and it is the intention of both ABI and Key to maintain this confidentiality. 8.2. Each Party agrees to maintain confidential and secret all Technical Information which 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 Technical 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, as established by written evidence; 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 lawfully and not under circumstances forbidding its disclosure. 8.4. Neither Party will permit the other Party's Technical Information or any part thereof to be disclosed to third parties or to employees except on a "need-to-know" basis and each -13- 14 will maintain such 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 an unauthorized third party possesses Technical Information of the other Party. 8.6. Key shall have the right to use ABI's Technical Information, and to access ABI's US FDA Biologics License Application (BLA) for the Licensed Product, to the extent reasonably necessary to accomplish the objectives of this Agreement. 8.7. Upon written notification to Key, ABI may use Key's Technical Information for the purposes of designing protocols and studies, and for submission to regulatory authorities in any country outside the Territory in connection with an application for drug approval of the Product. ARTICLE IX MISCELLANEOUS 9.1. Force Majeure. The failure of Key, ABI, or any of their Affiliates to take any action required by this Agreement if such failure is 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 due to no fault of such party, 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 exist or hereafter arise, shall not subject said Party to any liability to the other. -14- 15 9.2. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party 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 courier service, postage or delivery charge prepaid, addressed to it at its address set forth below, or to such other address as it may have designated by written notice given to the other Party. Fax numbers are given for convenience only, as an additional method of delivery, and no notice or other communication transmitted by fax shall be considered to be sufficiently made or given until such notice or communication is also sent by one of the other means described above. In case of Key: - -------------- Magriet de Wet Managing Director Key Oncologics (Pty) Ltd. P.O. Box 968, Wendywood South Africa Fax 011-27-11-444-9441 In case of ABI: - -------------- Dr. Joseph M. Cummins Chairman & CEO Amarillo Biosciences, Inc. 800 W. 9th Amarillo, TX 79101 Fax: (806) 376-9301 And: - --- Edward L. Morris, Legal Counsel Sprouse, Smith & Rowley, PC P.O. Box 15208 Amarillo, TX 79105 Fax (806) 373-3454
-15- 16 9.3. Amendments to Agreement. This 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 Agreement shall be effective only if made in writing, and executed by both Parties. 9.4. Enforceability. 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. 9.5. Relationship of Parties. All purchases and resales of Licensed Product by Key shall be for Key's own account as a principal and not as an agent of ABI. Key shall act in all respects as an independent contractor and not as a representative or agent of ABI. This Agreement shall not be construed to create a relationship of partners, joint venturers, brokers, employees, agents, master or servant between the Parties. Neither Party shall have any right or authority to assume or create any responsibility, express or implied, in the name of the other Party or to bind the other Party in any manner whatsoever. 9.6. Assignment. Neither Party hereto shall assign any of its rights under this Agreement to any person or entity not an Affiliate of the assigning Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 9.7. Successors and Assigns. This agreement is binding on the successors and/or Assignees of both ABI and Key. 9.8. Venue and Jurisdiction. Venue of any action brought under this Agreement shall be as follows: Actions initiated or filed by or behalf of ABI shall be brought in the High Court -16- 17 of South Africa (Witwatersrand Local Division) ; and actions initiated or filed by or on behalf of Key shall be brought in the Federal District Court for the Northern District of Texas, Amarillo Division. 9.9. Governing Language. The English language of this Agreement shall govern and control any translations of the Agreement into any other language. Documents furnished by Key to ABI under the terms of this Agreement shall be furnished in English, or alternatively, shall be accompanied by an English translation. 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. ABI: KEY: - --- --- AMARILLO BIOSCIENCES, INC. KEY ONCOLOGICS (PTY) LTD. By: //signature on file// By: //signature on file// ----------------------- ----------------------- Joseph M. Cummins, Magriet de Wet Chairman & CEO Managing Director -17- 18 EXHIBIT "A" This Exhibit "A" is attached to that certain License Agreement by and between AMARILLO BIOSCIENCES, INC. and KEY ONCOLOGICS (PTY) LTD. dated 3 April, 2000, and constitutes a part of said Agreement, as if fully set forth therein. ABI will supply to Key bulk finished lozenges from its subcontractor's plant for an agreed period of time up to a maximum quantity per year to be decided. The per Dose (150 IU) price of the finished lozenges in bulk will be : All quantities $**** until cumulative sales from ABI to Key exceed $500,000 after which time the price will decrease by $**** per dose, and after $1,000,000 sales, the price will decrease by a further $**** per dose. Final packaging will be carried out by Key or by ABI at Key's request and cost. Parties will agree on final packaging design, which will acknowledge ABI. **** Indicates that a portion of the text has been omitted and filed separately with the Commission. -18- EX-10.38 4 d86181ex10-38.txt AMEND. NO.1 TO INTERFERON-G DISTRIBUTION AGREEMENT 1 EXHIBIT 10.38 AMENDMENT NO. 1 TO IFN-G DISTRIBUTION AGREEMENT This AMENDMENT NO. 1 ("Amendment") is entered into as of this the 4th day of April, 2000, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation with its principal place of business at 800 West 9th, Amarillo, Texas 79101 ("ABI"), and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. with its principal place of business at 2-3, Shimoishii 1-chome, Okayama 700, Japan ("HBL") (ABI and HBL being hereinafter collectively referred to as the "Parties"). WHEREAS, the Parties have heretofore entered into that certain Distribution Agreement: IFN-G: Human, Oral; Other Species, All Routes, dated September 17, 1997 (the "Distribution Agreement"); and further WHEREAS, the Parties desire to herewith amend the Distribution Agreement as herein set forth; THEREFORE, in consideration of these presents and for other good and adequate consideration the receipt and sufficiency of which are evidenced by the execution hereof, the Parties hereby agree as follows: Section 1 of the Distribution Agreement is hereby amended to read in its entirety as follows: "SECTION 1. RIGHT TO DISTRIBUTE. HBL hereby grants to ABI the exclusive right to distribute product containing HBL IFN-g for inhalation and/or oral use in human species and use by all routes of administration in non-human species worldwide, except Japan." In addition, the first sentence of Section 4, "Term", is hereby amended to read in its entirety as follows: "Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of thirteen (13) years from the date of this Agreement." No amendments or changes other than the foregoing are made to the Distribution Agreement. The Distribution Agreement, as hereby amended, continues in full force and effect according to its terms. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be executed in duplicate by their duly authorized representatives as of the date first above written. ABI: HBL: AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. By: //signature on file// By: //signature on file// ----------------------- ----------------------- Dr. Joseph M. Cummins Mr. Ken Hayashibara President President 1 EX-10.39 5 d86181ex10-39.txt LICENSE AND SUPPLY AGREEMENT DATED 4/25/00 1 EXHIBIT 10.39 LICENSE AND SUPPLY AGREEMENT THIS LICENSE & SUPPLY AGREEMENT ("Agreement") is made and effective this 25th day of April, 2000, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "ABI") and BIOPHARM FOR SCIENTIFIC RESEARCH AND DRUG INDUSTRY DEVELOPMENT and its affiliates, a company organized under the laws of Egypt with its principal place of business at 57 Korniche El Nile, 11th Floor, Maadi, Cairo, Egypt (hereinafter "BIOPHARM") (ABI and BIOPHARM are hereinafter collectively referred to as the "Parties"). MITSUBISHI CORPORATION is ABI's shipping agent with respect to product shipped to BIOPHARM under this Agreement. WHEREAS, ABI and its contract suppliers have substantial expertise in the production and use of oral interferon alpha (hereinafter, "IFN-a") and have proprietary rights and know-how in the field of production, purification and formulation of IFN-a; WHEREAS, ABI is willing to disclose to BIOPHARM Technical Information consisting of human data for hepatitis B and hepatitis C and all other data, including safety, bioavailability, and clinical trial data necessary for BIOPHARM to obtain regulatory approval for a hepatitis B or hepatitis C product in the Territory; and WHEREAS, ABI has an exclusive worldwide license (except Japan) to market and distribute the oral formulation of HBL IFN-a (as defined in ARTICLE I, below), and desires to provide HBL IFN-a to BIOPHARM on the terms and conditions herein set forth, and BIOPHARM desires to obtain the right to perform clinical trials on, distribute and market HBL IFN-a contained in Licensed Product on the terms and conditions herein set forth; **** Indicates that a portion of the text has been omitted and filed separately with the Commission 1 2 NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and for other good and adequate consideration the receipt and sufficiency of which are evidenced by the execution hereof, ABI and BIOPHARM agree as follows: ARTICLE I DEFINITIONS 1.1. "ABI" and "BIOPHARM" shall mean and include not only the indicated company, but also such company's 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" means this License and Supply Agreement. 1.4. "Assignee" means any permitted assignee or sub-licensee of rights under this Agreement 1.5. "Dose" means 150 International Units of IFN-a. 1.6. "HBL IFN-a" means the cell culture derived human lymphoblastoid IFN-a used for the Licensed Product by ABI and produced by HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. ("HBL"). 1.7. "Licensed Indications" means all human indications treated or treatable by the oral administration of IFN-a. 1.8. "Licensed Product" means a formulation or composition containing HBL IFN-a and designated, detailed, or labeled for oral use in the treatment of the Licensed Indications. 1.9. "Technical Information" means all information, reports, results, inventions, know-how, materials, and any other technical and scientific data, specifications and formulae directly 2 3 related to the 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' conduct under this Agreement. "ABI Technical Information" refers to Technical Information originating with ABI or which ABI has obtained through its contractual relationships with third parties. "BIOPHARM Technical Information" refers to Technical Information originating with BIOPHARM or which BIOPHARM has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both ABI Technical Information and BIOPHARM Technical Information. 1.10. "Territory" means Arab Republic of Egypt, and such other countries as may be added pursuant to the provisions of Section 9.2. 1.11. "MOH" means Ministry of Health in the Territory. ARTICLE II GRANT OF LICENSE 2.1. ABI grants to BIOPHARM and BIOPHARM accepts, subject to the terms of this Agreement, the exclusive right to use HBL IFN-a for clinical testing and trials, and upon proper regulatory approval, the exclusive right to market and distribute Licensed Product to treat the Licensed Indications in the Territory. ABI will provide BIOPHARM technical information for the above-mentioned purposes at no cost to BIOPHARM. ABI retains all other rights to HBL IFN-a, including without limitation, the right to test, develop, license, sub-license, market, distribute or otherwise use HBL IFN-a for treatment of all indications other than the Licensed Indications, and for treatment of the Licensed Indications in all countries not included in the Territory. 2.2. The license grant to BIOPHARM under this Agreement shall commence on the effective date of this Agreement and shall terminate immediately upon the termination or 3 4 expiration of this Agreement unless extended by the parties at least one hundred and eighty (180) days prior to the expiration date. 2.3. BIOPHARM shall have the right to use and sell Licensed Product only in the Territory. BIOPHARM shall not seek customers, establish any branch or maintain any distribution depot for Licensed Product in any country outside the Territory. BIOPHARM shall not sell Licensed Product to any customer in any country outside the Territory or to any customer in the Territory if, to the knowledge of BIOPHARM, such customer intends to resell the Licensed Product in any country outside the Territory. BIOPHARM shall cause ABI's name to appear on each outer package of the Licensed Product distributed in the Territory, providing that it complies with local laws and Ministry of Health regulations.. 2.4. Licensed Product sold by BIOPHARM shall bear the trademark "BIOFERON-A" or another trademark proposed by BIOPHARM to which ABI agrees, acknowledging ABI as developer and manufacturer, providing that it complies with local laws and Ministry of Health regulations. ABI shall own all rights to such trademarks. BIOPHARM will inform ABI if registration of such trademark, in the opinion of BIOPHARM, is advisable. ABI hereby grants to BIOPHARM during the term of this Agreement the exclusive license to use the BIOFERON-A trademark or another trademark agreed to by the parties in the Territory in connection with the use or sale of Licensed Product. ARTICLE III SUPPLY OF PRODUCT 3.1. Subject to the terms and conditions of this Agreement, ABI shall supply clinical trial samples, including 150 I.U. HBL IFN-a lozenges and placebos to BIOPHARM at no cost, and (upon government approval) will provide Licensed Product for sale in the Territory for the consideration set forth in Paragraph 4.1, below. The quantity of clinical trial samples provided for 4 5 clinical testing will be agreed to by the parties as part of the clinical development plan. Licensed Product shall be supplied in response to issuance by BIOPHARM of written purchase orders delivered to ABI specifying the quantity to be supplied, along with any special instructions/requests regarding supply and/or delivery. ABI shall have no responsibility for obtaining any required regulatory approvals, nor for distribution, promotion, pricing, or marketing of lozenges in the Territory, all of which shall be completed by BIOPHARM with the assistance of ABI. 3.2. ABI agrees to allow BIOPHARM right of reference to ABI's US FDA Drug Master File for HBL IFN-a and to do such other acts as are reasonably necessary, and within ABI's control, to facilitate approval of HBL IFN-a-containing lozenges in the Territory for use in the Licensed Indications, and ABI also hereby agrees to consult with BIOPHARM at BIOPHARM's request concerning regulatory affairs, to review documents to be submitted to governmental agencies for approval, and to take such other actions as may be necessary from time to time to facilitate approval of Licensed Product for sale and use in the Territory. ABI also agrees to provide clinical data from its past, current or future studies, relating to safety or bioavailability, or clinical data relating to the use of HBL IFN-a in hepatitis B or C. BIOPHARM will be responsible for packaging and labeling of the clinical trial material. Further, BIOPHARM will be responsible for the preparation of all necessary materials including case report forms, and Investigator Brochures as required by ABI for conducting the clinical trials in Egypt. ABI shall reasonably provide to BIOPHARM other support or assistance requested by BIOPHARM and within ABI's capabilities with respect to regulatory and clinical activities, on a fully reimbursed basis for actual out-of-pocket expenses including time of key personnel to be charged at $750.00 (US) per day. 5 6 ARTICLE IV CONSIDERATION 4.1. For all Licensed Product supplied by ABI to BIOPHARM (other than quantities provided pursuant to Paragraph 3.2 above), ABI shall receive from BIOPHARM the payment per Dose specified at Exhibit "A". Payment for each shipment of Licensed Product shall be made by BIOPHARM by irrevocable letter of credit on a U.S. bank. The price per Dose shall be further adjusted from time to time as may be necessary to reflect any Change in the Producers Price Index, Drugs and Pharmaceuticals, Subdivision Code 063, after the date of this Agreement. In addition, both the price per Dose and the amount to be invoiced and paid for Licensed Product shall be further adjusted to reflect any changes for (i) the variable cost of any raw material or combination of raw materials that changes by more than twenty percent (20%) from ABI's cost at the date of this Agreement, and (ii) the variable cost arising from changes in product specifications, manufacturing, testing, or release of the product; provided, however, that if such variable cost increases occur within five (5) years after the date of approval of a Licensed Product for sale in the Territory, under circumstances where MOH does not permit an increase in the sales price of the Licensed Product, then the price adjustment otherwise provided for under this sentence shall be reduced by fifty percent (50%). BIOPHARM shall receive Licensed Product at a named port of destination in the Territory and the shipping arrangements shall be made by ABI's nominated shipping agent (Mitsubishi Corporation). BIOPHARM shall pay the price set forth at Exhibit A at the named port of destination in the Territory, which price includes freight and insurance. Title to Licensed Product purchased by BIOPHARM shall transfer to BIOPHARM, and BIOPHARM shall pay all freight charges and bear the risk of loss and damage, from the time Licensed Product is placed at the disposal of BIOPHARM at the port of destination. 6 7 4.2. BIOPHARM shall within five (5) months of the Effective date of this agreement commence clinical trials in the Licensed Indications using protocols developed jointly and approved by ABI. BIOPHARM will conduct all clinical trials at its own expense. BIOPHARM shall, within three (3) months of the conclusion of the appropriate clinical study, apply for, at its own cost and expense and without any contribution from ABI, all necessary licenses, registrations or approvals required to be issued in the Territory, or any agency or instrumentality thereof, as a precondition to the import and sale of Licensed Product. BIOPHARM will apply for any pricing or reimbursement approvals, will exercise diligence to maintain all such approvals, and will diligently market the approved Licensed Product through the term of this Agreement. BIOPHARM will launch Licensed Product in the Territory within three (3) months of receipt of all necessary governmental approvals, and shall thereafter use its best efforts to advertise, promote and sell such Licensed Product after such approval. If at any time during the term of this Agreement BIOPHARM should fail to comply in a timely way with any of the requirements set forth in this Section 4.2, or if at any time during the term of this Agreement BIOPHARM should no longer be actively pursuing the application for any such approval or license in the Territory, or if, having obtained such approval or license, BIOPHARM should no longer be actively developing or marketing any Licensed Product under this Agreement in the Territory, under the preconditions permitted by applicable laws and regulations, both parties shall enter into consultation to decide the assignment of such applications, approvals and/or licenses from BIOPHARM. 4.3. BIOPHARM shall provide ABI by December 31st of each year during the term of this Agreement, a report of ongoing efforts for the development of Licensed Products, including a report of efforts by BIOPHARM with respect to clinical testing, regulatory approval efforts, marketing/sales strategy, and any other areas into which BIOPHARM's reasonable business efforts in accordance with this paragraph may reasonably be categorized. Such report shall be provided in 7 8 English and shall be accompanied by labeling, instructions, promotional and other support materials developed for BIOPHARM's sales force, patients, physicians, or other outside parties. Such a report shall be prepared more often if ABI so requests in writing, provided that ABI pays to BIOPHARM the expenses incurred by BIOPHARM in generating such additional reports. It is understood that ABI will receive a copy in English of all BIOPHARM Technical Information. 4.4. During the term of this Agreement, BIOPHARM shall provide to ABI all data relating to the clinical testing and development of the Licensed Product for the Licensed Indications. ABI shall be free to use all clinical results obtained in the Territory and subject to notification to BIOPHARM, to use these results in non-BIOPHARM territories. The foregoing notwithstanding, if ABI or its licensee or distributor should utilize hepatitis C clinical trial data generated by or at the expense of BIOPHARM for the purpose of filing or cross referencing with respect to an application for regulatory approval in any jurisdiction outside the Territory under any arrangement or agreement to which BIOPHARM is not a party, ABI shall pay to BIOPHARM the amount of $50,000 per regulatory jurisdiction in which such use is made, until such time as BIOPHARM shall have recouped the total amount of its expenditures with respect to its hepatitis C clinical trials, and its regulatory approval activities related thereto. 4.5 Unless specifically authorized in writing by ABI, BIOPHARM shall not sell, or offer for sale, or act as sales agent for the solicitation of orders for any oral products (other than Licensed Products) that contain any IFN-a derived from any species and designated, detailed, or labeled for oral use for the Licensed Indications. ABI shall not authorize any third parties, directly or indirectly, to market or sell any IFN-a in the Territory for oral use in the treatment of the Licensed Indications. 4.6 BIOPHARM shall provide medical, pharmaco-vigilance and other appropriate customer support services in connection with sale of Licensed Products, and will report to ABI on 8 9 a timely basis all material adverse reactions, product complaints and other relevant customer feedback. BIOPHARM agrees to advise ABI fully with respect to health, safety, environmental, and other standards, specifications, and other requirements imposed by law, regulation, or order in the Territory and applicable to Licensed Product which may be brought to BIOPHARM's attention from time to time, and which would have a material effect on the use or sale of Licensed Product for Licensed Indications in the Territory. BIOPHARM shall also advise ABI of all instructions, warnings, and labels applicable to Licensed Product for the Licensed Indications that are necessary or desirable under laws, regulations, or practices in the Territory. ABI shall meet such safety standards or specifications. ABI shall not increase the price charged to BIOPHARM for the Licensed Product unless changes to the specification are required. ARTICLE V ORDERS AND SHIPMENTS 5.1. 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, BIOPHARM will furnish ABI with its projected requirements for Licensed Product during the next succeeding calendar year. BIOPHARM may amend its projected requirements from time-to-time, provided, however, that ABI shall be obligated only to make its best effort to comply with any requests 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 ABI be required to deliver to BIOPHARM hereunder, an amount of Licensed Product which exceeds the amount ABI is able, in good faith, to acquire from HBL, or from HBL's contract manufacturers. The exact composition of Licensed Product shall be disclosed in writing by ABI to BIOPHARM. Subject to the foregoing, ABI shall use its best efforts to deliver Licensed Product in accordance with BIOPHARM's projected requirements and product specifications. 9 10 5.2. ABI shall ship product within thirty (30) days of request by BIOPHARM, against an irrevocable letter of credit on a U.S. bank (or other financial surety acceptable to ABI or to the agent nominated by ABI) in an amount sufficient to cover the CIF price payable to ABI or the agent nominated by ABI under Paragraph 4.1 above. The letter of credit shall be issued by a financial institution acceptable to ABI or to the agent nominated by ABI, shall be in U.S. dollars and shall not expire until the final payment for the respective shipment has been made to ABI or to the agent nominated by ABI. 5.3. Orders of Licensed Product for commercial sales shall be made for "full lot" quantities of 500,000 Doses. BIOPHARM shall meet or exceed the following annual minimum purchases from ABI. If BIOPHARM does not achieve these levels, it will enter into consultations with ABI to evaluate and remedy the situation, after which BIOPHARM will have the opportunity to make up the difference by either purchasing product or by cash payment within 90 days of the end of the period. If BIOPHARM does not elect to so make up the difference, then ABI will have the right to make the Agreement non-exclusive, and appoint another licensee or market the Product under the ABI name. 1st twelve months after launch 500,000 doses 2nd twelve months after launch 1.5 million doses 3rd twelve months after launch and beyond 3 million doses
ARTICLE VI TERM AND TERMINATION 6.1. This Agreement and all rights granted hereunder by each Party shall terminate ten years from the effective date of this agreement, unless extended on a yearly basis by request of BIOPHARM at least one hundred and eighty (180) days prior to the expiration date; provided, however, that if (a) BIOPHARM does not commence application for government approval, as may be 10 11 required or advisable, within five (5) months after BIOPHARM receives all supporting documentation required for application for approval of commencement of the pivotal clinical trial; and (b) after approval of the Licensed Product, place orders for minimum annual shipments as provided in Paragraph 5.3, above; then ABI shall have the right to terminate this Agreement upon ninety (90) days prior written notice to BIOPHARM. BIOPHARM will proceed diligently to obtain market approval for the Territory according to the timetable set forth in paragraph 4.2 of this Agreement. 6.2. Termination of this Agreement for any reason shall not relieve the Parties of any obligation accruing prior to such termination. In addition, ARTICLE VIII ("Confidentiality") shall survive termination of this Agreement. 6.3. On termination of this Agreement for any reason set forth herein, BIOPHARM shall cease to sell Licensed Product after it sells all Licensed Product in its inventory that has already been paid for, and shall surrender to ABI all ABI Technical Information that it may have received during the term of this Agreement, and at the request of ABI, BIOPHARM may conditionally assign any approval, permit, or license it holds relating to Licensed Products to ABI. Any accrued payment obligations shall be paid within thirty (30) days of the termination of this Agreement. ARTICLE VII WARRANTY AND INDEMNIFICATION 7.1. ABI represents and warrants that as of the date of this Agreement, it is the exclusive owner of the right to sell and distribute Licensed Product for use in treating the Licensed Indications in the Territory. ABI further warrants that at the time of shipment, all product supplied by it (i) shall meet all product specifications previously agreed in writing between ABI and BIOPHARM; (ii) shall not be adulterated or misbranded; and (iii) shall be manufactured in accordance with good manufacturing practices in the country of manufacture. ABI shall indemnify and hold BIOPHARM harmless from any and all costs, expenses, damages, judgments, and liabilities 11 12 incurred by or rendered against BIOPHARM arising from any claim made or suit brought as a result of a breach by ABI of its warranties under this Paragraph 7.1. 7.2. BIOPHARM warrants that its operations and activities in the Territory shall be in compliance with applicable laws, statutes and regulations; and BIOPHARM shall indemnify and hold ABI harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against ABI or its Affiliates arising from the use, testing, recall, labelling, promotion, sale, or distribution of Licensed Product as a result of any breach of such warranty by BIOPHARM. ABI warrants that the manufacture of Licensed Product, including without limitation both bulk interferon alpha and finished product, shall be in compliance with applicable laws, statutes and regulations, and ABI shall indemnify and hold BIOPHARM harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against BIOPHARM or its Affiliates arising from the use, testing, recall, labeling, promotion, sale or distribution of Licensed Product as a result of any breach of such warranty by ABI. ARTICLE VIII CONFIDENTIALITY 8.1. ABI owns or is licensed under confidential or secret information relating to the Licensed Products, and BIOPHARM intends to conduct trials in the Territory which will generate confidential or secret information relating to the Licensed Products, and it is the intention of both ABI and BIOPHARM to maintain this confidentiality. 8.2. Each Party agrees to maintain confidential and secret all Technical Information which may be disclosed or provided to it by the other Party or that the Parties may together subsequently acquire. 12 13 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 Technical 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, as established by written evidence; 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 lawfully and not under circumstances forbidding its disclosure. 8.4. Neither Party will permit the other Party's 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 such 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 an unauthorized third party possesses Technical Information of the other Party. 8.6. BIOPHARM shall have the right to use ABI's Technical Information, and to access ABI's US FDA Drug Master File for HBL IFN-a, to the extent reasonably necessary to accomplish the objectives of this Agreement. 8.7. Upon written notification to BIOPHARM, ABI may use BIOPHARM's Technical Information for the purposes of designing protocols and studies, and for submission to regulatory authorities in any country outside the Territory in connection with an application for drug approval of the Product, subject, however, to the provisions of Section 4.4 regarding use of hepatitis C data. 13 14 ARTICLE IX MISCELLANEOUS 9.1. Force Majeure. The failure of BIOPHARM, ABI, or any of their Affiliates to take any action required by this Agreement if such failure is 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 exist or hereafter arise, shall not subject said Party to any liability to the other. 9.2. Additional Countries. At any time during the term of this Agreement, but in no event before December 1, 2000, if BIOPHARM should not be in violation of any material provision of this Agreement, including without limitation the milestones set forth in Section 4.2, above, BIOPHARM may request from ABI the addition of one or more of the following countries to the Territory: Saudi Arabia, United Arab Emirates, Yemen and Libya. ABI shall honor such request by adding the requested country or countries to the Territory within one (1) year of the receipt of such request in writing, unless ABI shall at any time have received a proposal from another distributor or licensee with terms more favorable to ABI than those set forth in this Agreement; and in such case, ABI shall notify BIOPHARM of all of the material proposed terms and conditions and BIOPHARM shall thereupon have an opportunity to accept such terms and conditions, in which event this Agreement shall be appropriately amended by the parties, in writing. Under no circumstances shall ABI enter into a distribution agreement for the countries of Saudi Arabia, United Arab Emirates, 14 15 Yemen, Libya, or any of them, without first having extended to BIOPHARM the option to enter into such an arrangement upon the same or substantially similar terms and conditions. 9.3. Communication. Any payment, notice or other communication required or permitted to be made or given to either Party 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 courier service, postage or delivery charge prepaid, addressed to it at its address set forth below, or to such other address as it may have designated by written notice given to the other Party. Fax numbers are given for convenience only, as an additional method of delivery, and no notice or other communication transmitted by fax shall be considered to be sufficiently made or given until such notice or communication is also sent by one of the other means described above. In case of BIOPHARM: Dr. Osama Kandil - ------------------- Chairman & CEO Biopharm International Group 1162 Millwood Pond Drive Herndon, VA 20170 Fax (703) 404-2301 And: Dr. Osama Kandil - --- Chairman & CEO Biopharm Healthcare Products Co. 57 Korniche El Nile, 11th Floor Maadi, Cairo, Egypt Fax 011-202-526-2400 In case of ABI: Dr. Joseph M. Cummins - -------------- Chairman & CEO Amarillo Biosciences, Inc. 800 W. 9th Amarillo, TX 79101 Fax: (806) 376-9301 And: Edward L. Morris, Legal Counsel - --- Sprouse, Smith & Rowley, PC P.O. Box 15208 Amarillo, TX 79105 Fax (806) 373-3454
9.4. Amendments to Agreement. This Agreement constitutes the entire Agreement between the Parties hereto on this subject matter and supersedes all previous arrangements whether 15 16 written or oral. Any amendment or modification of this Agreement shall be effective only if made in writing, and executed by both Parties. 9.5. Enforceability. 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, provided it does not contradict local laws and MOH regulations. 9.6. Relationship of Parties. All purchases and resales of Licensed Product by BIOPHARM shall be for BIOPHARM's own account as a principal and not as an agent of ABI. BIOPHARM shall act in all respects as an independent contractor and not as a representative or agent of ABI. This Agreement shall not be construed to create a relationship of partners, joint venturers, brokers, employees, agents, master or servant between the Parties. Neither Party shall have any right or authority to assume or create any responsibility, express or implied, in the name of the other Party or to bind the other Party in any manner whatsoever. 9.7. Assignment. Neither Party hereto shall assign any of its rights under this Agreement to any person or entity not an Affiliate of the assigning Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 9.8. Venue and Jurisdiction. Venue of any action brought under this Agreement shall be as follows: Actions initiated or filed by or behalf of ABI shall be brought in the federal district court of the Eastern District of Virginia; and actions initiated or filed by or on behalf of BIOPHARM shall be brought in the federal district court for the Northern District of Texas, Amarillo Division. 16 17 9.9. Governing Language. The English language of this Agreement shall govern and control any translations of the Agreement into any other language. Documents furnished by BIOPHARM to ABI under the terms of this Agreement shall be furnished in English, or alternatively, shall be accompanied by an English translation. 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. ABI: BIOPHARM: - --- -------- AMARILLO BIOSCIENCES, INC. BIOPHARM FOR SCIENTIFIC RESEARCH AND DRUG INDUSTRY DEVELOPMENT By: //signature on file// By: //signature on file// ----------------------- ----------------------- Joseph M. Cummins, Osama Kandil, Chairman & CEO Chairman & CEO 17 18 EXHIBIT "A" This Exhibit "A" is attached to that certain License Agreement by and between AMARILLO BIOSCIENCES, INC. and BIOPHARM FOR SCIENTIFIC RESEARCH AND DRUG INDUSTRY DEVELOPMENT and its affiliates dated April 25, 2000, and constitutes a part of said Agreement, as if fully set forth therein. ABI will supply to BIOPHARM either bulk finished lozenges or bulk interferon-a and anhydrous maltose from its subcontractor's plant for an agreed period of time up to a maximum quantity per year to be decided, at the price noted below. Finished bulk lozenges: $**** per lozenge Bulk interferon-a/anhydrous maltose: $**** per Dose **** Indicates that a portion of the text has been omitted and filed separately with the Commission 18 EX-10.40 6 d86181ex10-40.txt SALES AGREEMENT DATED 5/5/00 1 EXHIBIT 10.40 SALES AGREEMENT This Agreement is entered into and effective May 5, 2000 (the "Effective Date") between Wilke Resources, Inc. ("Wilke"), a Kansas corporation located in Lenexa, Kansas and Amarillo Biosciences, Inc. ("ABI"), a Texas corporation located in Amarillo, Texas. RECITALS WHEREAS, ABI offers to market Anhydrous Crystalline Maltose (ACM), ("Product") for sale into the nutritional supplement market ("Market") in North America ("Territory"); WHEREAS, ABI has expressed interest in marketing Product through Wilke on an exclusive basis and; WHEREAS, ABI and Wilke wish to formalize an agent agreement. NOW, THEREFORE, in exchange of the consideration set forth herein, the receipt and sufficiency of which is hereby acknowledged, the parties agree to work together as follows: 1. APPOINTMENT: ABI hereby appoints Wilke as its exclusive sales representative in the capacity of broker to sell "Product" into the "Market." 2. MARKET: "Market" is defined as all companies doing business in the nutritional supplement, nutraceutical, dietary supplement, and sports nutrition industries. 3. PRODUCT: "Product" is defined as Anhydrous Crystalline Maltose. 4. TERRITORY: The "Territory" shall be defined as North America which shall include USA, Canada and Mexico. The "Territory" may be expanded by mutual agreement of both parties. 5. TERM: The term of this Agreement shall be for a period of three years from the Effective Date and shall continue thereafter in two (2) year increments until terminated by either party upon giving to the other party at least (90) days written notice before ending of period. If terminated by ABI, ABI will pay to Wilke, commission on all existing Products customers for a period of one year from termination of this agreement. 6. AUTHORITY AND CAPACITY: Wilke is not an employee of ABI and agrees to conduct all of its business in its own name as an independent contractor except where Wilke's name is listed as an agent for ABI. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 1 2 7. BROKER: As a Broker, Wilke will solicit and secure the customer's order. ABI will ship Product directly to and invoice the customer and ABI will pay Wilke a commission on each sale. In this capacity, Wilke will only offer pricing and terms previously agreed to with ABI on a customer-by-customer basis. Wilke shall secure orders and forward them to ABI on a timely basis. 8. WILKE: Wilke shall not broker any other crystalline maltose during the term of this Agreement. 9. COMMISSIONS: ABI will pay a commission fee of ***% of all sales of Product up to the **** dollars ($****) annually and ***% on annual amounts in excess of *** dollars in the Territory to Wilkie. Sales are computed as net sales FOB ABI's warehouse. 10. PAYMENTS OF COMMISSION: ABI shall pay commissions to Wilke within 30 days of receipt of ABI's payment in full for the invoiced Product. 11. SPECIAL PAYMENTS: ABI may, at times, pay to Wilke special fees to reimburse mutually agreed upon expenses and fees. 12. SPECIAL AGREEMENTS: Agreements to variations from established standards such as pricing, commissions, and other special considerations on a customer by customer basis shall be in writing and deemed as becoming part of this agreement on the date the special situation is agreed to by both parties. 13. PROMOTIONAL MATERIALS: ABI will prepare product literature and literature about ABI and supply Wilke with these materials. Wilke and ABI agree to jointly develop all the applications and market development literature relating to the Product. 14. TRADE SHOWS: Wilke and ABI will at times agree to exhibit at trade shows in the Market. ABI and Wilke will agree to cost sharing on a show-by-show basis. 15. ENTIRETY: This Agreement contains the entire agreement of the parties and there are no other contracts, agreements or understandings, oral or written existing between them except as contained in this Agreement. 16. ASSIGNABILITY: Neither party may assign the Agreement without the prior written consent of the other party. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 2 3 17. SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon and inure to the benefit of the parties hereto and respective successors and assigns. 18. PROPRIETARY RIGHTS: Wilke agrees to assign to ABI all rights to patents, trademarks, and copyrights related to the business of ABI that are discovered or created during the performance of sales and marketing representation of ABI. Wilke also agrees to sign applications or other documents as ABI may require for the documentation, establishment and protection of its ownership of such ideas, trademarks, patents, copyrights or trade secrets, either during the term of this contract or thereafter. 19. CONFIDENTIALITY COVENANT: Wilke recognizes the highly confidential nature of ABI's business, products, customer lists, patents and trade secrets. During the term of this Agreement and for 3 years thereafter, Wilke will not directly, indirectly, or otherwise use, Communicate, disclose, reproduce, lecture, publish or otherwise appropriate any confidential or proprietary information regarding ABI's business, products, customers, patent or trade secrets without the prior written consent of an officer of ABI. 20. SURVIVAL: The confidentiality Covenant and proprietary interest Covenant shall survive the termination of this Agreement. 21. CHOICE OF LAW: The provisions of this Agreement shall be governed by and construed in accordance with the laws of the State of Kansas. Please acknowledge acceptance of the above terms by having a duly authorized officer of your company sign below. AMARILLO BIOSCIENCES, INC. By: Date: -------------------------------- --------------------------- Joseph M. Cummins, DVM, PhD President and CEO WILKE RESOURCES, INC. By: Date: -------------------------------- --------------------------- Wayne Wilke, President **** Indicates that a portion of the text has been omitted and filed separately with the Commission 3 EX-10.41 7 d86181ex10-41.txt ENGAGEMENT AGREEMENT DATED 9/26/00 1 EXHIBIT 10.41 HUNTER WISE FINANCIAL GROUP - LLC September 26, 2000 Joseph M. Cummins, CEO Amarillo Biosciences, Inc. 800 West Ninth Ave. Amarillo, Texas 79101-3206 Re: Engagement Agreement Dear Dr. Cummins: This Engagement Agreement ("Agreement") defines the scope of services to be provided by Hunter Wise Financial Group, LLC ("Hunter Wise") to Amarillo Biosciences, Inc. its successors and/or affiliates (the "Company") as well as the compensation to be paid by the Company to Hunter Wise in exchange. 1.0 ENGAGEMENT. 1.1 ADVISORY SERVICES. Hunter Wise will provide advisory services to the Company in the areas of corporate development corporate finance and capital placement transactions. Hunter Wise will assign a managing director to lead its activities and act as primary interface with the company. Hunter Wise will also introduce other firms, products and services to the Company as indicated during the normal course of business and act as coordinator for all activities within its purview. It is also understood that Hunter Wise is acting as an advisor only, and shall have no authority to enter into any commitments on the Company's behalf, or to negotiate the terms of any transaction, or to hold any funds or securities in connection with any transaction or to perform any other acts on behalf of the Company without the Company's express written consent. 1.2 TRANSACTIONS. During the course of the engagement period, it is anticipated that the Company will choose to execute one or more corporate development and/or corporate finance transactions. Hunter Wise will assist the Company in executing these transactions on a best efforts basis, on terms satisfactory and acceptable to the Company. 2.0 ENGAGEMENT TERMS. 2.1 PERIOD. The period of Hunter Wise's engagement (the "Engagement Period") will expire upon the earlier to occur of (i) 12 months from the date we receive an executed copy of the Agreement from the Company or (ii) the mutual written agreement of the Company and Hunter Wise. The Engagement Period may be extended for additional 6-month periods under the same terms and conditions as described herein upon mutual consent of the Company and Hunter Wise. 1 2 Notwithstanding the foregoing, Hunter Wise may at its sole option, terminate its obligation hereunder without liability if, in the reasonable opinion of Hunter Wise, a change has occurred in the Company's financial condition, results of operations, properties, business prospects, or the composition of the Company's management which, in Hunter Wise's sole determination has adversely affected the Company's business. 2.2 EXCLUSIVITY. The company engages Hunter Wise on an exclusive basis. The company shall not be permitted to engage any other firm or person as an investment banker or other financial intermediary for the duration of this engagement except Transition Partners representing Atrix. Notwithstanding any other provisions of this Agreement if at any time during the 12 month period following the end of the Engagement Period the Company completes a securities transaction with an investor or potential investor introduced by Hunter Wise (or an affiliate of any such entity), upon the closing of any such transaction Hunter Wise will be paid the Compensation which would be due under section 3.0 hereof. 3.0 COMPENSATION. Throughout the course of what Hunter Wise anticipates will be a long-term relationship with the Company, Hunter Wise may perform a variety of services. No compensation shall be due for funds received from Atrix Inc. or from existing shareholders of the Company and/or their direct affiliates, including but not limited to conversions by existing shareholders of debt to equity. In exchange for these services Hunter Wise shall receive compensation as follows: 3.1 TRANSACTIONS. Any sale, merger, acquisition, joint venture, strategic alliance, technology partnership, licensing agreement strategic purchasing, agreement, taking private, or other similar agreements shall accrue compensation to Hunter Wise under a standard "Lehman Formula" percentage fee of the Aggregate Consideration calculated as follows: 5.0% for Aggregate Consideration of less than $5,000,000, plus 4.0% for Aggregate Consideration between $5,000,000 - $10,000,000, plus 3.0% for Aggregate Consideration between $10,000,001 - $15,000,000, plus 2.0% for Aggregate Consideration above $15,000,000 A minimum of $100,000 fee will be due for any transacdon falling under the description defined above. "Aggregate Consideration" is defined as the greater of the total amount actually payable or the value assigned to such a transaction, whether due at Closing or deferred by the Company or any affiliate of the Company, and shall include all cash or cash equivalents, the principal amount of any notes, all classes of securities issued, the aggregate amounts payable pursuant to any consulting agreements, employment agreements, agreements not to complete and similar agreements, and the aggregate amount of value of any bank or term loans or other debts assumed or refinanced as part of the transaction. 3.2 CORPORATE FINANCE. All securities transactions for the benefit of the Company will accrue compensation to Hunter Wise according to the corresponding categories below: 2 3 3.2.1 SECURED DEBT FINANCING. For any traditional financing (which includes senior debt financing, revolving lines of credit, equipment lease financing, purchase order financing, accounts receivable, or any other type of secured debt financing), with the exception of any extension, expansion or revision of the Company's existing credit facilities, Hunter Wise shall receive upon Closing: a success fee, payable in cash, equal to one and one-half percent (1.5%) of the gross proceeds received by the Company at each such Closing, and no warrants. 3.2.2 SUBORDINATED DEBT FINANCING. For any debt investment placed for the Company (including mezzanine funding, notes, term loans, promissory notes, debentures, etc.), with the exception of any extension, expansion or revision of the Company's existing credit facilities, Hunter Wise shall receive upon Closing: (i) a success fee, payable in cash, equal to three and on half percent (3.5%) of the gross proceeds received by the Company at each such Closing; plus (ii) warrants in the entity financed, with a cashless exercise provision, equal to three and one-half percent (3.5%) of the gross proceeds received by the Company at each such Closing; exercisable at a strike price equal to one hundred percent (100%) of the fair market value price of the common stock for the Company as of the date the Company receives the funds, in whole or in part, at any time within 7 years from issuance. 3.2.3 EQUITY INVESTMENT. For any equity investment into the Company by a financing source contact of Hunter Wise for which the Company receives funds (including any common stock, preferred stock, convertible preferred stock, convertible debentures, subordinated debt with warrants or any other securities convertible into common stock), Hunter Wise shall receive upon Closing: (i) a success fee, payable in cash, equal to seven percent (7%) of the gross amount to be disbursed to the Company each said Closing plus (ii) warrants in the entity financed, with a cashless exercise provision, equal to six percent (6%) of the gross amount to be disbursed to the Company at each such Closing; exercisable at a strike price equal to 100% of the fair market value price of the common stock for the Company as of the date the Company receives the funds, in whole or in part at any time within 7 years from issuance. 3.3 RETAINER. The Company will, simultaneously with delivery of this executed Agreement to Hunter Wise, make a $25,000 non-refundable advance payment to Hunter Wise. Upon a successful Closing, if any, such $25,000 will be deducted from the success fee payable to Hunter Wise. 3.4 EXPENSES. In addition to any success fee payable to Hunter Wise herein, the Company will reimburse Hunter Wise monthly for Hunter Wise's reasonable direct out-of-pocket expenses incurred in connection with their services; however all expenses in excess of $1000 shall be pre-approved. 3.5 FEE REDUCTIONS. Not withstanding any other provisions to the contrary within this, section #3, if any of the companies listed in Exhibit "A" attached hereto and made a part of the Agreement enter into a dual signed Letter of Intent with the Company within 90 days of executing this Agreement the Success Fee will be reduced by 50%; if within 120 days, 25%. After 120 days, there will be no reduction. 3 4 4.0 OTHER 4.1 OFFERING MATERIALS. Hunter Wise will use no offeiing materials other than such materials approved by the Company. The Company agrees to use its best efforts to approve and/or prepare, as necessary, any offering materials within 15 days from the date the Company advises Hunter Wise that it intends to execute a financial transaction, in accordance with section 1.2 hereof. 4.2 CLOSING. Hunter Wise will assist with the closing of any transaction or financing (the "Closing") which will occur through an escrow established with City National Bank or other escrow agent designated by Hunter Wise and reasonably acceptable to the Company. 4.3 CONFIDENTIALITY. This Agreement is for the confidential use of the Company and Hunter Wise only and may not be disclosed by the Company to any person other than its attorneys, accountants and financial advisors, and,only on a confidential basis in connection with the proposed transaction or financing, except where disclosure is required by law or is mutually consented to in writing by Hunter Wise and the Company. 4.4 DISCLOSURE. During the Engagement Period and for sixty days thereafter, the Company agrees not to issue any press releases or communications to the public relating to the transactions or financings without Hunter Wise's prior approval or unless otherwise required by law, which will not be unreasonably withheld or delayed, and the Company agrees that such press release will state that the transaction or financing was arranged by Hunter Wise, unless we mutually agree otherwise or unless otherwise required by law. The Company further agrees that Hunter Wise may, at its own expense, publicize its services to the Company hereunder including, without limitation, issuing press releases, placing advertisements and referring to the transaction or financing on Hunter Wise's website. 4.5 PERFORMANCE. Notwithstanding any other provision of this Agreement, nothing set forth herein shall be construed as a firm commitment to execute any transaction or place the full amount of any offering or any minimum portion thereof. Hunter Wise cannot guarantee the successful conclusion of any transaction, for which the Company has the right to reject, for any reason, in its sole and absolute discretion. 4.6 INDEMNIFICATION. The Company shall indemnify and hold harmless Hunter Wise from and against all claims, damages, losses, and liabilities (including, without limitation, reasonable attorneys' fees and expenses) arising out of or based upon (i) any misstatement or omission or alleged misstatement or omission, in any Company documentation or any other materials or information supplied or approved by the Company which are disseminated by Hunter Wise to third parties, including financing sources, or (ii) any agreement between the Company and any financing source; except that the Company shall not be liable for any claim damage, loss or liability which is finally determined to have resulted from Hunter Wise's fraud, gross negligence or willful misconduct In any action where indemnity applies, Hunter Wise shall be entitled to its own separate counsel at the Company's expense. Neither termination nor completion of this Agreement shall affect these 4 5 indemnification provisions, which shall survive any such termination or completion and remain operative and in full force and effect. 4.7 GOVERNING LAW/ARBITRATION. The terms of this Agreement will be governed by and interpreted in accordance with the internal laws of the State of California, without regard to the principles of conflict of laws. Any controversy, dispute or claim between the parties relating to this Agreement shall be resolved by binding arbitration in Orange County, California in accordance with the rules of the American Arbitration Association. The parties agree that in the event that any controversy, dispute or claim between the parties relating to this Agreement is resolved by binding arbitration, the prevailing party, if any, as determined by the arbitrators' award, shall be entitled to reimbursement of all expenses incurred in the arbitration including reasonable attorneys' fees; provided that in no, event shall the arbitrator have the authority to award punitive damages. Judgment on the award may be entered in any court having jurisdiction over the award. 4.8 MISCELLANEOUS. The Company undertakes and represents to Hunter Wise that the number of shares necessary to fulfill any offerings will be available at Closing, that the number of shares of common stock underlying the shares will be available upon each conversion of the shares; that the shares of common stock underlying the warrants will be available upon exercise of the warrants; and that the Company will comply in all respects with the terms of each purchase agreement and registration rights agreement entered into with the purchasers of the shares. If the foregoing is acceptable, please sign and return to Hunter Wise a copy of this Agreement, which shall represent the entire agreement between us with respect to the matters addressed herein. We look forward to working with and remain, Yours very truly, Hunter Wise Financial Group, LLC - ---------------------------------- Fred G. Jager President ACCEPTED AND AGREED TO THIS __ DAY OF ___________, 2000. Amarillo Biosciences, Inc. By: ----------------------------- Its: ---------------------------- 5 6 ADDENDUM "A"TO ENGAGEMENT AGREEMENT DATED SEPTEMBER 26, 2000 BY AND BETWEEN HUNTER WISE FINANCIAL GROUP, LLC AND AMARILLO BIOSCIENCES, INC. Antex Demegen MGI Pharma Biopharm and Middle Eastern investors introduced through Biopharm Crystaal/Biovail 6 EX-10.42 8 d86181ex10-42.txt SUPPLY AGREEMENT DATED 10/13/00 1 EXHIBIT 10.42 SUPPLY AGREEMENT ANHYDROUS CRYSTALLINE MALTOSE THIS AGREEMENT is made and effective this 13 day of October , 2000, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation with its principal place of business at 800 West 9th, Amarillo, Texas 79101 (hereinafter "ABI") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. and HAYASHIBARA SHOJI, INC., each of them with its principal place of business at 2-3, Shimoishii 1-chome, Okayama 700-0907, Japan (hereinafter collectively "Hayashibara"). ABI and Hayashibara collectively referred to hereinafter as the "Parties". WHEREAS, Hayashibara desires to grant to ABI, and ABI desires to have, the exclusive right to purchase and distribute Hayashibara's pharmaceutical grade anhydrous crystalline maltose, subject to the specifications as attached herewith (hereinafter "ACM"), for sale as an active ingredient in nutraceutical products which are developed, produced and commercialized by ABI's proprietary technology worldwide, except Japan. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, Hayashibara and ABI agree as follows: Section 1. Right to Purchase and Distribute. Hayashibara hereby grants to ABI the exclusive right to purchase, distribute and sell, worldwide except Japan, nutraceutical and health-care products for human consumption containing ACM as an active ingredient to relieve dry mouth (hereinafter the "Products"). Section 2. Consideration. Hayashibara shall receive a transfer fee from ABI in the amount of (US) **** Dollars ($****) per kilogram. f.o.b. Kobe, Japan. Section 3. Term. 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 that initial term, the Agreement shall be automatically renewed for successive One (1) year term unless one of the Parties gives written notice of termination or modification of this Agreement to the other within Thirty (30) days prior to commencement of the renewal term. Any termination pursuant to this paragraph shall not relieve Hayashibara of any obligation to fill purchase orders placed with Hayashibara prior to termination. Similarly such termination shall not **** Indicates that a portion of the text has been omitted and filed separately with the Commission. 2 relieve ABI of any obligation to Hayashibara to pay for ACM delivered by Hayashibara and any payment due hereunder prior to termination. If ABI shall at any time during the initial term of 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 Hayashibara to ABI specifying the nature of the default, Hayashibara may terminate this Agreement, or may demand specific performance and remedies for violation of the terms of this Agreement or under applicable law. If ABI shall be involved in financial difficulties as evidenced (a) by its commencement of a voluntary bankruptcy under any applicable bankruptcy code or statute, or by its authorizing, by appropriate proceedings, the commencement of such a voluntary bankruptcy; or (b) by its failing to receive dismissal of any involuntary case under any applicable bankruptcy code or statute within Sixty (60) days after initiation of such action or petition; or (c) by its seeking relief as a debtor under any applicable law of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by consenting to or acquiescing in such relief; or (d) by the entry of an order by a court of competent jurisdiction finding it to be bankrupt or insolvent, or ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors or assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property or assets; or (e) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property, this Agreement shall be terminated immediately. Section 4. Orders, Shipment and Payment. Actual quantities and delivery dates relating to ACM shall be specified in purchase orders submitted by ABI to Hayashibara, which purchase orders shall constitute firm and legally binding orders. Unless otherwise agreed in writing, Hayashibara hereunder shall accept each individual purchase order by notifying ABI in writing its acceptance of an order within Ten (10) business days of receipt of the purchase order. Hayashibara shall ship ACM as specified in such accepted purchase orders within Thirty (30) days after Hayashibara's acceptance of a purchase order from ABI. The shipment of ACM under this Agreement shall be made on f.o.b. Kobe, Japan, unless otherwise agreed in writing. For shipment of ACM Hayashibara may arrange for a vessel or vessel space in ABI's name at ABI's cost. **** Indicates that a portion of the text has been omitted and filed separately with the Commission. 3 Section 5. Minimum Purchase. ABI agrees that, commencing 12 months following the date when the sale of the Products is commenced, it shall guarantee the annual minimum purchase quantity of ACM in the amount of 10 MT (metric tons). ABI agrees that the complete performance of the above minimum purchase guarantee is of essence for assuring the maintenance and continuation of this Agreement as an exclusive Supply Agreement. In the event such minimum purchases are not effected, this Agreement shall become nonexclusive. Section 6. Indemnification. ABI shall indemnify, hold harmless and defend Hayashibara from all claims, demands, payments, suits, actions and judgments brought, recovered or executed against the Parties on account of death, injury or damage sustained by any party in connection with ABI's distribution, marketing or sales of the Products under this Agreement, to the extent that such claims are the result of actions or inactions by ABI or its affiliates acting hereunder pursuant to this Section. Hayashibara shall indemnify, hold harmless and defend ABI from all claims, demands, payments, suits, actions and judgments brought, recovered or executed against the Parties on account of death, injury or damage sustained by any party in connection with Hayashibara's manufacture or shipment of ACM under this Agreement, to the extent that such claims are the result of actions or inactions by Hayashibara. Section 7. Confidentiality. Each of the Parties agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other and that the Parties may together subsequently acquire in relation to the Products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. 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: (1) Is publicly known and available through some means other than by the recipient Party's act or omission; or (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 **** Indicates that a portion of the text has been omitted and filed separately with the Commission. 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 information lawfully and not under circumstances forbidding its disclosure. 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. 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 the Products. Section 8. Miscellaneous. (1) Force Majeure. The failure of Hayashibara, ABI, or any of their affiliates or sublicenses 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 circumstances 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 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. (2) Arbitration. The Parties hereto desire to avoid and settle without litigation future disputes that 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 Hayashibara, it shall be held in the State of Texas, USA, in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ABI, it shall be held in Tokyo, 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. (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 Federal Express or a similar overnight courier service, postage or delivery charge prepaid, by telex, or telephone **** Indicates that a portion of the text has been omitted and filed separately with the Commission. 5 facsimile 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 Overseas Business Development Hayashibara Company Ltd. 2-3 Shimoishii 1-chome Okayama Japan In case of ABI Dr. Joseph M. Cummins, President Amarillo Biosciences Inc 800 W 9th Amarillo, Texas 79101 (4) Assignment. This Agreement shall not be assignable by ABI to any person or entity without prior written consent of HBL, which consent shall not be unreasonably withheld, in any case including merger, amalgamation, reorganization, or sale or transfer of major business or assets on ABI. The designation by ABI of one or more affiliates shall not relieve ABI from any responsibility from performing all of ABI's obligations under this Agreement. The foregoing notwithstanding, HBL's prior written consent ABI may transfer or spinoff its nutraceutical business, including its rights under this Supply Agreement, at anytime to its shareholders, or to an entity all of whose equity interests are held by ABI shareholders. (5) Amendment. This Agreement shall not be amended, in whole or in part, without the prior written consent of the Parties. (6) Nature of Relationship. Nothing herein shall be construed to place the Parties in a relationship of partners or joint ventures, 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 the other in any manner whatsoever. **** Indicates that a portion of the text has been omitted and filed separately with the Commission. 6 IN WITNESS WHEREOF, the Parties hereunto have caused this Distribution Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. ABI On behalf of Hayashibara AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. By By --------------------------- --------------------------- Joseph M. Cummins, DVM, PhD Mr. Ken Hayashibara President President **** Indicates that a portion of the text has been omitted and filed separately with the Commission. EX-10.43 9 d86181ex10-43.txt SUPPLY AGREEMENT DATED 12/11/00 1 EXHIBIT 10.43 SUPPLY AGREEMENT THIS AGREEMENT is entered into this 11 day of December, 2000, by and between Natrol, Inc., a Delaware corporation with its principal place of business in Chatsworth, California (herein referred to as "Natrol") and Amarillo Biosciences, Inc., a Texas corporation with its principal place of business in Amarillo, Texas (herein referred to as "Amarillo"). WHEREAS, Amarillo has entered into an agreement with Hayashibara Biochemical Laboratories, Inc. and Hayashibara Shoji, Inc. (collectively referred to as "Hayashibara") whereby Amarillo has been granted the exclusive right to purchase, distribute and sell worldwide except Japan, nutraceutical and health-care products for human consumption containing anhydrous crystalline maltose as the primary ingredient to relieve dry mouth; WHEREAS, such anhydrous crystalline maltose is the subject of U.S. Patent No. 4,816,445 which was assigned to Hayashibara by the inventors; WHEREAS, Amarillo desires to sell anhydrous crystalline maltose (hereinafter referred to by its tradename "SALIVE(TM)") exclusively to Natrol; and WHEREAS, Amarillo and Natrol desire to establish terms by which Amarillo will supply SALIVE(TM) for incorporation into products to be sold in the United States of America, U.S. owned territories, and Canada exclusively to Natrol. NOW THEREFORE, in consideration of the covenants and conditions hereinafter contained, the parties hereto mutually agree as follows: 1. AGREEMENT TO SUPPLY 1.1. Exclusive Dealing. Amarillo shall supply SALIVE(TM) manufactured by Hayashibara, for incorporation into products to be sold in the United States of America, U.S. owned territories, and Canada, exclusively to Natrol during the term of this Agreement and any subsequent renewal. SALIVE(TM) purchased and sold under this Agreement shall conform to the specifications set forth in Exhibit A (as such specifications may be revised or amended from time to time by agreement of all parties). 1.2 Limited Grant of Continued Sales. Amarillo may continue to sell, in the United States, U.S. owned territories, and Canada, products containing SALIVE(TM) until notified by Natrol that Natrol is prepared to commence the sale and marketing of its SALIVE(TM) product(s). Upon receipt of such notice, Amarillo will cease all sales of SALIVE(TM)-containing products and shall provide Natrol with all pertinent sales information including the names and address of all persons and/or businesses that have purchased SALIVE(TM)-containing products in the United States, U.S. owned territories, and Canada. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 1 2 1.3 Notice of Requirements. Commencing January 1, 2001 and continuing each quarter ninety (90) days thereafter, Natrol shall inform Amarillo of its estimated requirements for SALIVE(TM) for such quarter and for the year commencing on the first day of such quarter. 2. PRICE, DELIVERY AND PAYMENT TERMS 2.1. Price. A. So long as Natrol meets the minimum purchase requirements set forth in Paragraph 3 of this Agreement, the price to be paid by Natrol for SALIVE(TM) shall be **** dollars ($****) per kilogram, FCA, Kobe, Japan. The term "FCA" shall have the meaning ascribed thereto in INCOTERMS 1990 as published by the International Chamber of Commerce, Paris, France. B. In the event Natrol's purchases of SALIVE(TM) exceed Ten Thousand (10,000) kilograms in any given year, the price for each additional kilogram purchased during that same given year, shall be **** dollars ($****). 2.2. Delivery. All orders for SALIVE(TM)shall be delivered to Natrol's designated carrier in Kobe, Japan within twenty-one (21) days from the date on which Amarillo receives a purchase order. 2.3. Payment. Natrol shall remit to Amarillo full payment for each order of SALIVE(TM)within thirty (30) days from the date Natrol receives SALIVE(TM)pursuant to a valid purchase order. 3. MINIMUM PURCHASE REQUIREMENTS 3.1. Natrol shall purchase from Amarillo at least the following amounts of SALIVE(TM): A. Four thousand (4,000) kilograms within one year of the date of this Agreement. The purchase of these four thousand (4,000) kilograms shall be made as follows: i. Fifteen hundred (1,500) kilograms during the first quarter of this Agreement. Within fourteen (14) days of the effective date of this Agreement a purchase order shall be sent by Natrol for four hundred and eighty (480) kilograms of SALIVE(TM). Such amount shall be applied toward Natrol's first quarter purchase requirements. ii. Fifteen hundred (1,500) kilograms during the second quarter of this Agreement. iii. One thousand (1,000) kilograms during the third quarter. B. Six thousand (6,000) kilograms during the second year following the effective date of this Agreement. C. Eight thousand (8,000) kilograms during the third year following the effective date of this Agreement and for each succeeding year during the term of this Agreement. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 2 3 3.2. Within thirty (30) days from the end of any term designated in Paragraphs A, B, and C, hereof, Amarillo shall notify Natrol of the amount by which it has failed to purchase the required minimum amount. Natrol shall have thirty (30) days from the date of receipt of such notification to send to Amarillo a non-cancelable purchase order for immediate delivery in at least the amount necessary to equal the required minimum amount. If Natrol fails to correct such default within thirty (30) days, it shall immediately cease being the exclusive purchaser of SALIVE(TM) and shall commence acting as a non-exclusive purchaser for such product. This is the sole remedy of Amarillo for any alleged failure on the part of Natrol to promote, market, sell or purchase SALIVE(TM) under this Agreement. Furthermore, if Natrol ceases to be the exclusive purchaser of SALIVE(TM) the provisions of Paragraph 2.1 shall terminate and Amarillo may establish any price it deems appropriate for SALIVE(TM). However, the price charged to Natrol for SALIVE(TM) shall not be higher than the price charged to any other person for similar quantities of SALIVE(TM) in the United States, U.S. owned territories, or Canada. 4. REPRESENTATIONS OF AMARILLO 4.1. Specifications. Amarillo represents and warrants that the SALIVE(TM)supplied to Natrol under this Agreement shall comply with the specifications set forth in Exhibit A. 4.2. Good Manufacturing Practices. Amarillo represents and warrants that all SALIVE(TM) supplied to Natrol shall comply with Good Manufacturing Practices established by the United States Food and Drug Administration (hereinafter "FDA") which are or may become applicable to the manufacture of SALIVE(TM) to be used in the production of a dietary supplement in the U.S. 4.3. Patent Infringement Claims. Amarillo will indemnify and hold Natrol and its customers harmless against any and all actions, suits, claims, demands or prosecutions that may be brought or instituted against Natrol or its customers based on any claim that the manufacture of SALIVE(TM) for Natrol infringes any patent or other intellectual property right provided that Natrol shall have first (a) promptly notified Amarillo in writing of any notice to Natrol or institution of any proceeding against it charging such infringement, and (b) at Amarillo's request, give all reasonable assistance in the defense of such claims. 4.4. FDA Guaranty. All SALIVE(TM) supplied to Natrol, pursuant to this Agreement, will not be, as of the date of delivery, adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, or an article which may not under provisions of said Act, be shipped and/or sold in interstate or foreign commerce. 4.5. Non-retail Packaging. Amarillo shall make certain that all SALIVE(TM)supplied to Natrol shall be adequately packaged. 4.6. Exclusivity. Except as permitted by paragraph 1.2 hereof, Amarillo represents and warrants that it shall not sell in the United States of America, U.S. owned territories, or Canada or **** Indicates that a portion of the text has been omitted and filed separately with the Commission 3 4 permit any person to sell in the United States of America, U.S. owned territories, or Canada, SALIVE(TM) or any product containing SALIVE(TM) other than to Natrol. 5. REPRESENTATIONS OF NATROL 5.1. Defective Product. Natrol shall notify Amarillo in writing of any alleged defects in SALIVE(TM) no later than thirty (30) days from the date of its receipt. 5.2. Trademark. During the term of this Agreement Natrol shall have the exclusive right and license as well as the obligation, to use the name "SALIVE(TM)" in connection with the sale of products containing SALIVE(TM) and shall use said trademark on the label of products containing the same. Natrol shall have no right after termination of this Agreement to use the name "SALIVE(TM)" or any similar name which may confuse or intend to confuse the general public as a trademark for other than product supplied by Amarillo. 5.3. Marketing. Natrol agrees to commit a sum equivalent to ten (10%) of net revenues from the sale of products containing SALIVE(TM) to marketing support. 6. TERM 6.1. General. This Agreement shall become effective as of the date hereof and, unless sooner terminated pursuant to the terms hereof, shall continue in effect until December 31, 2005, and thereafter from year to year, unless terminated by either party by notice to the other given not less than ninety (90) days prior to the end of the initial term or any one year extension thereof. 6.2 Termination for Cause. a. This agreement may be terminated by either party upon material default by a party of its obligations under this Agreement by giving written notice to the defaulting party specifying in detail the facts constituting such material default and specifying a termination date of not less than thirty (30) days following the giving of such notice. Any such termination shall take effect on the date specified unless the other party has remedied such default and has given written notice to the other party specifying in detail the steps taken to effect the remedy. b. If either party becomes bankrupt of insolvent during the term of this Agreement, the other party may terminate this Agreement by giving that party written termination notice. 7. FURTHER ASSURANCES All parties hereto shall do and perform and cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments or documents as the other party hereto may reasonably request in order to carry out the intent and purposes of this Agreement and the consummation of the transactions, contemplated hereby. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 4 5 8. GENERAL PROVISIONS 8.1. Entire Agreement. This Agreement, along with all exhibits, comprise the entire agreement between the parties with respect to the subject matter of this Agreement and shall supersede all prior agreements or understandings, oral or written, with respect thereto. 8.2. Notices. All notices to parties required under this Agreement shall be sent (i) by Overnight Courier Delivery, or (ii) by Facsimile Message if confirmed by phone and by mailing a copy by First Class Mail. All notices required under this Agreement shall be sent to: If to Amarillo, to: Amarillo Biosciences, Inc. 800 W. Ninth Ave. Amarillo, TX 79101-3206 ATTN: President Fax: If to Natrol, to: Natrol, Inc. 21411 Prairie Chatsworth, CA 91811 ATTN: Elliott Balbert Fax: 818-739-6011 or, in each case, at such other address as may be specified in writing to the other party. 8.3. Force Majeure. Neither party hereto shall be responsible for any failure to comply with the terms hereof for the time and to the extent that such failure is due to a cause or causes beyond its responsible control, or could not have been avoided by reasonable diligence. These causes shall include, without limitation, fire, flood, explosions, strike, labor disputes, labor shortages, picketing, lockout, transportation embargo or failure of transportation, inability to secure power, fuel, or other materials required for the production of SALIVE(TM), inability to utilize the full capacity of any facility due to governmental actions, machinery malfunctions, inability to obtain necessary permits, licenses or regulatory approvals, war, riot, civil disturbance or insurrection, epidemics, quarantine restrictions, any action or inaction of any government or agency thereof, or any judicial action. Upon the occurrence of an event of force majeure, the party so affected shall notify the other party specifying in reasonable detail the nature and expected duration of the event of force majeure, and such party will have the right to suspend or reduce deliveries or acceptance during the period of the event of force majeure. **** Indicates that a portion of the text has been omitted and filed separately with the Commission 5 6 8.4. Amendment and Assignment. This Agreement may not be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by both parties. This Agreement shall be binding upon the respective successors and assigns of the parties. This Agreement may not be assigned by either party without the prior written consent of the other party which consent shall not be unreasonably withheld. 8.5. Law Governing. This Agreement shall be construed, enforced and performed in accordance with the laws of the State of California, USA, excluding principles of conflicts of law. 8.6. Language. The English language version of this Agreement shall govern and control any translations of the Agreement into any other language. This Agreement may be executed in several English counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.7. Arbitration. All disputes between the parties in connection with this Agreement shall be finally settled by arbitration. If Natrol requests the arbitration, such arbitration shall take place in the State of Texas. If Amarillo requests the arbitration, the arbitration shall take place in Los Angles, California. In either event, the arbitration shall be conducted under the rules of the American Arbitration Association by one or more arbitrators appointed in accordance with said Rules applying the terms and conditions of this Agreement and consistent provisions of the internal laws of the State of California. Any judgement upon this award may be entered in any court having jurisdiction. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. AMARILLO BIOSCIENCES, INC. NATROL, INC. By: //signature on file// By: //signature on file// --------------------------- ------------------------------------- Title: President Title: President ------------------------ ---------------------------------- **** Indicates that a portion of the text has been omitted and filed separately with the Commission 6 EX-23.1 10 d86181ex23-1.txt CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-35368) pertaining to the 1999 Employee Stock Options for Salary Benefit Plan of Amarillo Biosciences, Inc. of our report dated March 21, 2001, with respect to the consolidated financial statements of Amarillo Biosciences, Inc. included in the Annual Report (Form 10-KSB) for the year ended December 31, 2000. ERNST & YOUNG LLP Dallas, Texas April 9, 2001 -----END PRIVACY-ENHANCED MESSAGE-----