-----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, QK7iGTwlhtmaWxrAJJQwL0L6YL++QOnaNvr86JcslzVjr3xcihYcofVhf67lYPJz myewpt5ZT/e5EmHEd1L5sg== 0000950134-98-002627.txt : 19980331 0000950134-98-002627.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950134-98-002627 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD 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: SEC FILE NUMBER: 000-20791 FILM NUMBER: 98577878 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 FORM 10-KSB FOR YEAR ENDED DECEMBER 31, 1997 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, 1997 [ ] 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 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 $652,658. As of March 17, 1998, there were outstanding 5,414,232 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 NASDAQ SmallCap Market) was approximately $12,110,010.00. 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 1998 Plan of Operation" 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 oral natural interferon alpha (IFNa), particularly for the treatment of Sjogren's syndrome, fibromyalgia, hepatitis B, hepatitis C and myeloproliferative diseases. The Company believes that significant worldwide opportunities exist for the development of low dose oral natural IFNa as an inexpensive, non-toxic, efficacious alternative to the treatment of disease by injection of high doses of IFNa. In addition, the Company believes that low dose oral natural IFNa will be an effective treatment for diseases or conditions for which current therapies are inadequate. The Company owns or licenses twelve 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, eight Investigational New Drug ("IND") Applications covering indicated uses for low dose oral IFNa, including treatment of Sjogren's syndrome, fibromyalgia and myeloproliferative diseases. 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 from the availability of more information for use in preparing applications for such approvals. The Company will attempt to gain market share for approved products by forming alliances with strong marketing partners. The Company has 7 full-time employees and one part-time employee. The Company makes extensive use of consultants in business and research and development, and paid consulting fees to 48 consultants in 1997. 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 progressive systemic sclerosis. 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, dry mouth, stinging in the tongue, painful throat, swollen lymph glands and dryness in the vagina. 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. The Sjogren's Syndrome Foundation, Inc. estimates that there are approximately two to three million people in the United States who suffer from Sjogren's syndrome. The Company believes that the incidence of Sjogren's syndrome worldwide is similar to its incidence in the United States. Topical use of artificial tears is the prevailing treatment for the dry eye symptom of the disease. Artificial tears must be used on a regular basis. Intensive oral hygiene is prescribed to prevent progressive periodontal problems that may develop as a result of the disease. The Company believes that oral IFNa therapy helps to relieve the dryness associated with Sjogren's syndrome and may effectively supplement, or be used in lieu of, existing treatments. In a study conducted by the Company from October 1994 to January 1996 at two universities, the Company found that oral IFNa therapy administered to Sjogren's syndrome patients led to increased saliva production in six of 14 patients. The Company has filed and there is now in effect an IND for the use of oral IFNa to treat Sjogren's syndrome. A phase II trail 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. Hepatitis C. The Company has licensed such technology from a Canadian university and prepared an Investigational New Drug submission in Canada and is conducting a clinical trial to evaluate oral IFNa pre-treatment as a means of increasing the effectiveness of parenteral IFNa therapy in hepatitis C patients. An estimated 40 million worldwide chronic cases of HCV are believed by the Company to be candidates for this treatment. HIV. ABI approved the start of two new studies in HIV+ patients. In California, HIV+ patients with oral warts are being treated with oral interferon. In Mississippi HIV+ patients with xerostomia (dry mouth) are being treated with oral interferon. In June 1997, the National Institutes of Health ("NIH") terminated enrollment in a clinical trial of the use of low dose oral IFNa therapy for the treatment of AIDS-related symptoms. The stated reason for the termination was the slow rate of patient accrual. Fibromyalgia. Another phase II trial in fibromyalgia patients in Texas was approved in 1997. A total of 120 patients will be enrolled to receive interferon or placebo in an effort to reproduce the positive effects noted in our previous study and to further define the most effective dose schedule. 3 4 Myeloproliferative Diseases. ABI has filed an IND to test 3 chronic myeloproliferative diseases at the Mayo clinic. These 3 chronic myeloproliferative disorders (polycythemia vera, primary thrombocythemia and agnogenic myeloid metaplasia) are clonal hematopoietic cell disorders with origin at the multipotent stem cell level. ABI will test low dose oral IFNa as a treatment for these disorders. STRATEGIC ALLIANCE WITH HBL Hayashibara Biochemical Laboratories, Inc. ("HBL") was established in 1970 to engage in biotechnical research and development. It is a subsidiary of Hayashibara Company, Ltd., a privately-owned Japanese holding corporation with diversified subsidiaries. For more than 100 years the Hayashibara Company, Ltd. and its predecessors have been applying microbiological technology in the starch industry for the production of maltose and other sugars. In 1981, HBL established the Fujisaki Institute to accelerate development of industrial methods for the production of biologics and to sponsor clinical trials for such products. In 1985, HBL built the Fujisaki Cell Center to support basic research. In 1987, HBL successfully accomplished the mass production of human cells in an animal host by producing human cells in hamsters. This made it possible to economically produce a natural form of human IFNa and other biologics. HBL also has developed and obtained patents for technology relating to the production of IFNa-containing lozenges by which the stability of the IFNa activity 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. 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. The Company is dependent on HBL as the sole supplier of products in human health. AGREEMENTS WITH ISI AND OTHERS In October 1989, the Company entered into a Manufacturing and Supply Agreement with Interferon Sciences, Inc. ("ISI"), under which ISI granted to the Company an exclusive worldwide license to market ISI IFNa for oral use in animals and agreed to supply ISI IFNa for such use exclusively to the Company. Pursuant to the agreement, ISI receives a specified price for ISI IFNa sold to the Company. ISI is also entitled to receive royalties on net sales as well as a percentage of any license fee, option fee or other payment, except royalty or specific research or patent expense reimbursements, which the Company receives for the assignment or sublicense of the Company's rights under the license agreement. Since 1994, the Company has been required to expend a minimum of $50,000 per year toward development of products under the Manufacturing and Supply Agreement in order to keep it in force. The Company has done so, and currently intends to continue to make such expenditures. The Manufacturing and Supply Agreement will continue for seven years after the Company's first 4 5 purchase order for Manufactured Products under the Agreement, and will be automatically renewed for successive three-year terms thereafter, subject to termination by the Company, with or without cause, and subject to termination by ISI at any time after the first renewal term if net sales for a calendar year do not exceed $100,000. The seven-year term has not yet commenced, since the Company has not yet placed an order with ISI for Manufactured Products. "Manufactured Products" is defined in the agreement as ISI IFNa, packaged in accordance with FDA approved dosage forms. The FDA has not yet approved any dosage form within the meaning of the agreement. In October 1989, the Company and ISI entered into a license agreement pursuant to which the Company granted to ISI a license (co-exclusive with the Company) of the Company's patented technology for the use and sale of IFNa - containing products for use in humans worldwide, except for Japan (where the Company has granted to HBL an exclusive license), for a royalty on net sales of licensed products made during the term of the agreement. The original term of the license agreement was to expire on October 20, 1994, but ISI extended its term as therein permitted. As amended in April 1995, the agreement will continue in force for the life of the licensed patents, subject only to ISI's right to terminate the agreement with or without cause (in which case ISI must cease any use or sale of the licensed products), and the Company's right to terminate for breach of the agreement by ISI, or upon certain other events. In April 1995, in connection with the settlement of certain patent and infringement litigation brought by the Company in New Zealand against Fernz Corporation Limited, Pharma Pacific Management Pty. Ltd. ("PPM") and certain other companies and certain opposition proceedings brought by PPM against the Company and certain of the Company's licensors in Australia and Europe, the Company entered into a non-exclusive license agreement with PPM. Pursuant to such agreement, the Company licenses to PPM worldwide, except in Japan, the right to use the Company's patented technology for the use and sale of IFNa - containing products in humans and PPM is obligated to pay the Company a royalty based on sales of the product in countries where any of the licensed patents has issued. To the Company's knowledge, PPM is not selling products covered by the license in any such country. PPM also paid to the Company $500,000 as a reimbursement of a portion of the Company's research and expenses related to the licensed technology and a $50,000 license fee to be credited against future royalties. In connection with the settlement, ISI and the Company agreed to an amendment of ISI's license from the Company pursuant to which ISI granted back to the Company any right to sublicense the licensed technology (except that ISI retained the right to sublicense such technology in connection with the use and sale of ISI IFNa products) and the Company purchased 312,500 shares of the Common Stock of ISI, a public company, for $625,000. Following a 4:1 reverse split in March 1997, the Company sold 65,000 shares of ISI stock, leaving a balance of 13,125 shares at December 31, 1997. PATENTS AND PROPRIETARY RIGHTS In July 1997, ABI and Hoffmann-La Roche (HLR) entered a license agreement whereby ABI was granted patent rights to make, have made, use and sell natural interferon alpha in the USA, under US Patent No. 4,503,035, owned by HLR. This license will require ABI to pay a royalty to HLR on sales in the USA until March 2002. 5 6 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 pursing 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 number of its competitors and potential competitors will increase as more IFNa products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful than the Company in manufacturing, marketing and distributing its products. There can be no assurance that the Company will be able to compete successfully. GOVERNMENT REGULATION The Company's research and development activities are subject to comprehensive regulation by numerous governmental authorities in the United States and other countries. If the Company is able to produce and market products, such production and marketing will place the Company under continued regulation. Among the applicable regulations in the United States, pharmaceutical products are subject to the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, other federal statutes and regulations, and certain state and local regulations. These statutes and regulations govern the development, testing, formulation, manufacture, labeling, storage, record keeping, quality control, advertising, promotion, sale, distribution and approval of pharmaceutical products. Failure to comply with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production, refusal by the government to approve marketing of the product and criminal prosecution. A new drug may not be legally marketed for commercial use in the United States without FDA approval. In addition, upon approval, a drug may only be marketed for the indications, in the formulations and at the dosage levels approved by the FDA. The FDA also has the authority to withdraw approval of drugs in accordance with applicable statutes and regulations. Analogous foreign regulators impose similar approval requirements relating to commercial marketing of a drug in their respective countries and may impose similar restrictions and limitations after approval. 6 7 In order to obtain FDA approval of a new product, the Company and its strategic partners, if any, must submit proof of safety, efficacy, purity, and stability, and the Company must demonstrate validation of its manufacturing process. The testing and application process is expensive and time consuming, often taking years to complete. There is no assurance that the FDA will act favorably or quickly in reviewing applications. With respect to patented products, processes or technologies, delays imposed or caused by the governmental approval process may materially reduce the period during which the Company will have the exclusive right to exploit them. Delays could also affect the commercial advantages derived from proprietary processes. There is no assurance that the regulatory agencies will find present or future submissions of the Company to be adequate. The FDA approval process for a pharmaceutical product such as oral IFNa includes review of (i) preclinical laboratory and animal studies to enable FDA review of an Investigational New Drug ("IND") or Investigational New Animal Drug ("INAD") applications, (ii) initial clinical studies to define safety and dose parameters and (iii) well-controlled clinical trials to demonstrate product efficacy and safety, followed by submission and FDA approval of a Product License Application ("PLA") concerning biologics and a New Drug Application ("NDA") with respect to drugs. FDA approval of the NDA and/or PLA is required prior to any commercial sale or shipment of the product, except as to certain exports. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the safety of the product. The results of the preclinical tests are submitted to the FDA as part of the IND or INAD application and are reviewed by the FDA. Unless the FDA objects to an IND, the application will become effective 30 days following its receipt by the FDA. INADs need only be filed prior to the shipment of the drug or biologic for testing. There can be no certainty that the FDA will not object to the commencement of clinical studies concerning any drug or biologic. Human clinical trials are typically conducted in three sequential phases with some amount of overlap allowed. Phase 1 trials normally consist of testing the product in a small number of patient volunteers for establishing safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. In Phase 2, the continued safety and initial efficacy of the product are evaluated in a somewhat larger patient population, and appropriate dosage amounts and treatment intervals are determined. Phase 3 trials typically involve more definitive testing of the appropriate dose for safety and clinical efficacy in an expanded patient population at multiple clinical testing centers. A clinical plan, or "protocol," accompanied by the approval of the institution participating in the trials, must be submitted to the FDA prior to commencement of each clinical trial. Each clinical study must be conducted under the auspices of an Institutional Review Board ("IRB") at the institution preforming the clinical study. An IRB may require changes in a protocol, and there can be no assurance that an IRB will permit any given study to be initiated or completed. In addition, the FDA may order the temporary or permanent discontinuation of clinical trials at any time. In light of this process, the Company must necessarily rely on other persons and institutions to conduct studies. The Company cannot guarantee that such persons and institutions will conduct studies properly. There also can be no assurance that Phase 1, Phase 2 and Phase 3 testing of the Company's products will be completed successfully within any specified time period, if at all. 7 8 All the results of the preclinical and clinical studies on a pharmaceutical product are submitted to the FDA in the form of a PLA or NDA, for approval to commence commercial distribution. Submission of a PLA or NDA does not assure FDA approval for marketing. The application review process takes more than two years on average to complete. However, the process may take substantially longer if the FDA has questions or concerns about a product or studies regarding the product. In general, the FDA requires at least two adequate and well-controlled clinical studies demonstrating efficacy with sufficient levels of statistical assurance. However, additional support may be required. The FDA also may request additional information relating to safety or efficacy, such as long-term toxicity studies. In responding to a PLA or NDA, the FDA may grant marketing approval, require additional testing and/or information or deny the application. Accordingly, there can be no assurance about any specific time frame for approval, if any, of products by the FDA. The FDA also may require post-marketing testing and surveillance to monitor the safety record of a product and its continued compliance with regulatory requirements. The facilities of each pharmaceutical manufacturer must be registered with and approved by the FDA as complaint with the agency's good manufacturing practice regulations ("GMP"). For biologics, except certain well-characterized ones, this requires the filing of an establishment license application ("ELA") that must be approved by the FDA for the facility in which the product is maintained. While the ELA and PLA are separate documents, they must be submitted at the same time and both documents must be approved before the sale of the biologic. Continued registration also requires compliance with the FDA's GMP regulations. Products must be formulated in accordance with the FDA's GMP requirements and preclinical tests must be conducted by laboratories that comply with FDA regulations governing the testing of drugs in humans and animals. In order to comply with GMP, manufacturers must continue to expend time, money and effort in production, record keeping and quality control. In addition, manufacturers must comply with regulations promulgated by the United States Drug Enforcement Administration and similar state and local regulatory authorities if they handle controlled substances, and they must be registered with the United States Environmental Protection Agency and similar state and local regulatory authorities if they generate toxic or dangerous waste streams. The Company asserts that the manufacture or use of IFNa does not pose an environmental hazard. Other regulatory agencies, such as the Occupational Safety and Health Administration, also monitor manufacturing facilities for compliance with workplace safety regulations. Each of these organizations conducts periodic establishment inspections to confirm continued compliance with its regulations. Failure to comply with any of these regulations could mean fines, interruption of production and even criminal prosecution. For foreign markets, a pharmaceutical company is subject to regulatory requirements, review procedures and product approvals which, generally, may be as extensive, if not more extensive, as those in the United States. Although the technical descriptions of the clinical trials are different, the trials themselves are often substantially the same as those in the United States. Approval of a product by regulatory authorities of foreign countries must be obtained prior to commencing commercial product marketing in those countries, regardless of whether FDA approval has been obtained. The time and cost required to obtain market approvals in foreign countries may be greater than required for FDA approval and may be subject to delay. There can be no assurance that regulatory authorities of foreign countries will grant approval. 8 9 RESEARCH AND DEVELOPMENT During the years ended December 31, 1997 and 1996, the Company incurred expenses of $1,650,415 and $766,871 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. Prior to 1997, the company did not classify expenditures as research and development until a study commenced and a project number was assigned. Starting in 1997, the company recognized as research and development preliminary activities leading up to a study including meeting with prospective research partners. In addition, certain facility expenses were recognized as directly supporting research and development activities. Research and development expenses for 1996 were restated from $644,368 to $766,871 to reflect these changes. Research and development increased in 1997 due primarily to the completion of the Phase II trial for Sjogren's syndrome. Spending on Sjogren's syndrome amounted to $507,078 in 1997, and $173,691 was spent on the common cold study in 1997. See also ITEM 6, "MANAGEMENT'S 1998 PLAN OF OPERATION - 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. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 9 10 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Since August 8, 1996, the Company's common stock has traded on the NASDAQ SmallCap Market. The range of high and low sales prices as quoted on the NASDAQ SmallCap Market for each quarter of 1997 and for the last two quarters of 1996 are as follows:
1997 1996 ----------------------------------- ----------------------------------- Quarter High Low High Low ------- ---------------- ---------------- ---------------- ---------------- First 8 3/4 3 3/4 N/A N/A Second 4 1/2 3 5/8 N/A N/A Third 4 1/4 3 1/2 5 3/4 4 3/4 Fourth 5 1/2 3 1/4 5 1/2 4 1/2
As of February 20, 1998, the Company had approximately 600 shareholders of record. ITEM 6. MANAGEMENT'S 1998 PLAN OF OPERATION The Company's Management has developed a Plan of Operation for 1998. 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. Other than very limited sales in past years of natural IFNa in Kenya, the Company has not commenced any 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 $6,574,163 at December 31, 1996, to $9,045,415 at December 31, 1997. 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 1998 the Company will continue its research and development activities, as well as the collateral activities necessary to support research and development. The Company's expenditure of financial resources in 1998 will fall principally into five broad categories, as follows: Research and Development; Personnel; Consulting and Professional (other than legal and accounting); Legal and Accounting; and Public Relations, Investor Relations, and Shareholder Relations. The Company's expectations and goals with respect to these categories will be addressed separately below, by category: 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 1998. The Company has budgeted approximately $680,000 for expenditure in 1998 on research and development, exclusive of amounts to be expended on the Company's Phase III Sjogren's Syndrome trial, as that budget is still in development. The budgeted amount does include $150,000 for 10 11 payments to a contract research organization to assist the Company in preparing and implementing its Sjogren's Syndrome development program. Services to be rendered by that organization will include strategic overview, market overview, market research strategy, and recommendations regarding a clinical development program. Of course, the actual Sjogren's Syndrome development program, including the Phase III trial, will involve substantial additional expenditures. The budgeted amount for Research and Development in 1998 includes approximately $32,000 for four different mechanism of action/basic science studies, $8,900 for an already completed cattle study, and approximately $450,000 for human clinical trials, which includes some final costs relating to completed studies. Other indications which will receive attention by the Company in 1998 are Hepatitis C, Fibromyalgia, and the treatment of dry mouth and oral warts in AIDS patients. 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 $550,000 for personnel expenses in 1998, including salaries, payroll taxes, worker's compensation insurance, directors and officers general liability insurance, and group life, health, dental, and liability insurance. At the present time, the President and CEO of the Company, Joseph M. Cummins, is also serving as the Company's Chief Financial Officer. Management foresees a need to recruit a qualified individual to serve the company in the finance and accounting areas. It has not yet been determined whether such individual will be full-time or part-time, and the Company's 1998 personnel budget therefore does not include salary or fringe benefits for such a person, although the Company's consulting and professional budget (see below) does include $24,000 as estimated costs for financial and accounting consulting, until such a person is employed by the Company. In addition as the research and development programs progress, Management foresees a possible need for an additional operating officer. The Company's personnel budget does not include any amounts relating to salary or fringe benefits for such an officer. CONSULTING AND PROFESSIONAL (EXCEPT LEGAL AND ACCOUNTING) The Company has budgeted approximately $230,000 for expenditure on professional consultants in 1998. Consulting fees are expected to be paid to the Company's scientific advisory board; to certain directors who perform specific consulting tasks at the Company's request; and to a number of independent consultants, in connection with the Company's Research and Development projects. 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 utilization of the Company's resources. 11 12 LEGAL AND ACCOUNTING Although the Company is not involved in litigation, it has budgeted legal expenses of approximately $190,000 in 1998. Almost 50% 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 1998. PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS The Company recognizes that its ability to raise capital will depend, to some extent, upon its relations with both potential future investors, and its existing shareholders. In turn, such relationships are built upon the foundation of adequate, timely, and comprehensible communications. Accordingly, the Company has budgeted approximately $125,000 for expenditure on these items in 1998. The expenditures will include payments to the Company's public relations consultants, as well as the Company's expenses in attending a number of meetings with analysts and institutional investors. The Company has also budgeted sufficient amounts to maintain its new web site (www.amacell.com). LIQUIDITY NEEDS The principal budget items discussed above, along with other miscellaneous costs and expenses, will cause the Company to expend approximately $2,200,000 in 1998, not counting the substantial expense of the Company's Phase III Sjogren's Syndrome trial, and the possible additional personnel costs referred to under "Personnel", above. Even though it is unlikely that all expenses related to the Company's Phase III Sjogren's Syndrome trial would be expended in 1998, it is nevertheless possible that aggregate 1998 cash expenditures will exceed $3,000,000. At December 31, 1997, the Company had total current assets of $6,957,131. The Company had interest income during 1997 in the amount of $411,700, but such will decrease, as the Company expends more of its capital reserves. Management therefore estimates that the Company will be able to maintain its current level of operations only through approximately year end 1999, or perhaps through the first quarter of 2000, without an influx of additional capital. The Company will therefore require additional financing to fully fund its development projects. The Company has no current arrangements with respect to or sources of additional financing. Furthermore, the Company could be required to seek additional financing sooner than currently anticipated. THE YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The Company has addressed the year 2000 issue, and has concluded that it will not be materially adversely affected, due to the nature of the Company's computer hardware and software, and the nature of the Company's business activities. Specifically, the Company is not dependent 12 13 upon mainframe hardware, or custom software, but rather utilizes personal computers which run non-customized, commercially available business software, all of which has been upgraded to deal with year 2000 issues. In addition, the Company has not yet contracted for the conduct of its Phase III Sjogren's Syndrome trials, and before doing so, will be able to ensure that the contract research organization has made all necessary provisions for dealing with year 2000 issues. FORWARD-LOOKING STATEMENTS Certain statements made in this Plan of Operation 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-Q and 10-K, and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("USFDA"); promulgation and implementation of regulations by foreign governmental instrumentalities with functions similar to those of the USFDA; 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 present inability to determine the eventual overall costs of its Phase III trial in Sjogren's Syndrome; its inability to ensure that the results of that trial, or any other trials performed by the Company, will be sufficiently favorable to ensure eventual regulatory approval for commercial sales; and its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel to assist the Company both with its operations, and with its finance and accounting functions. 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. 13 14 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 March 17, 1998, the directors and executive officers of the Company were as follows:
NAME AGE POSITION ---- --- -------- Joseph Cummins, DVM, Ph.D. (1)(3) . . . . . . . 55 Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Director Stephen Chen, Ph.D. (2)(4) . . . . . . . . . . 48 Director James Cook (1)(3) . . . . . . . . . . . . . . . 63 Director Thomas D'Alonzo (1)(2) . . . . . . . . . . . . 54 Director Katsuaki Hayashibara (3)(4) . . . . . . . . . . 54 Director Brian McLean, M.D. (3) . . . . . . . . . . . . 38 Director Dennis Moore, DVM (1)(4) . . . . . . . . . . . 51 Director James Page, M.D. (1)(2) . . . . . . . . . . . . 71 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. 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 1997. He received a Ph.D. degree in microbiology from the University of Missouri in 1978 and a doctor of veterinary medicine degree from Ohio State University in 1966. Dr. Cummins has been conducting research concerning IFN since 1969. 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. 14 15 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. He has been President of Pharmaceutical Product Development, Inc., a global clinical research organization, since 1996, 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. Brian McLean has been a director of the Company since September 1996. Dr. McLean is an M.D. and received an MBA degree from UCLA in 1992. He is a partner in a venture capital firm in New York City. 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. The Company's directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. The Company pays directors who are not employees of the Company a fee of $1,000 per regularly scheduled Board meeting attended (or $250 for participation in a regularly scheduled Board meeting by conference telephone). The Company reimburses all directors for their expenses in connection with their attendance at such meetings. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. The Company has agreed, for a period of five years from August 1996, if so requested by Whale Securities Co., L.P., the underwriter of the Company's initial public offering (the "Underwriter"), to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Company's officers and directors and substantially all of its existing shareholders have agreed to vote their shares of common stock in favor of such designee. The Underwriter named Dr. Brian McLean its designee in August 1996. 15 16 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 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 1996, Hayashibara Biochemical Laboratories, Inc., a 10% shareholder of the Company, did not file a Form 4 (Statement of Changes in Beneficial Ownership) within the time required by Section 16(a) of the Exchange Act. The subject transaction was reported on the Form 5 statement for 1997, Schedule 13G was timely filed in 1996, and the holdings were correctly reported in the Company's 1996 10-KSB, and in the 1996 Annual Report to Shareholders and Proxy Statement. Other than mentioned above, to the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during the year ended December 31, 1997, all filings applicable to its directors, officers and more than 10 percent beneficial owners were timely filed. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth for the three years ended December 31, 1997 compensation paid by the Company to its Chairman of the Board, President and Chief Executive Officer; and to its Executive Vice-President and Chief Financial 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, 1997. 16 17 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 . . . . 1997 $120,000 $20,000 $ 12,000 (3) 1996 120,000 -- 252,000 (4) 1995 120,000 500 -- Charles Hughes, Executive Vice- President and Chief Financial Officer (1) . . . . . . . . . 1997 147,435 (2) -- 10,333 (3) 1996 75,000 10,000 157,575 (5)
(1) Mr. Hughes terminated his employment with the Company on September 8, 1997 (2) Includes both 1997 salary and severance payments. (3) Represents a Company contribution to the Simplified Employee Pension Plan. (4) Represents the value of 30,000 shares of common stock issued at $5.00 per share and payment of withholding tax requirements in settlement of restricted stock grants and a Company contribution of $12,000 to the Simplified Employee Pension Plan. (5) Represents the value of 19,000 shares of common stock issued at $5.00 per share and payment of withholding tax requirements in settlement of restricted stock grants and a Company contribution of $7,500 to the Simplified Employee Pension Plan. OPTION GRANTS IN 1997 The following table sets forth certain information relating to options granted in 1997 to the executive officers named above, to purchase shares of Common Stock of the Company.
NUMBER OF SHARES OF COMMON STOCK % OF TOTAL UNDERLYING OPTIONS GRANTED EXERCISE OR OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION NAME GRANTED (#) IN 1997 ($/SH) DATE ---- ----------------- --------------- ----------- ----------- Joseph Cummins . . . . . . . . . . . . 7,000 30.4% $4.27 (1) 09/06/2002
(1) The fair market value of the Common Stock on the date of the grant was $3.875 per share. 17 18 AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1997 AND YEAR-END OPTION VALUES The following table sets forth information for the executive officers named above, regarding the exercise of options during 1997 and unexercised options held at the end of 1997.
NUMBER OF SHARES OF COMMON VALUE OF UNEXERCISED STOCK UNDERLYING IN-THE-MONEY SHARES VALUE UNEXERCISED OPTIONS AT OPTIONS AT ACQUIRED ON REALIZED DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) (1) EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ------------- -------- ------------------------- ------------------------- Joseph Cummins -- -- -- / 14,500 -- / 6,860
(1) Calculated based on the closing price of the Common Stock ($5.25) as reported by NASDAQ on December 31, 1997. DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
CASH COMPENSATION SECURITY GRANTS -------------------------------- ---------------- NUMBER OF SECURITIES MEETING FEES CONSULTING UNDERLYING NAME (1) FEES (2) OPTIONS ---- ------------ ----------- ----------- Stephen Chen, Ph.D. $4,000 $41,400 5,000 James Cook 4,000 5,000 5,000 Thomas D'Alonzo 3,000 2,000 15,000 Katsuaki Hayashibara 4,000 -- 5,000 Brian McLean, M.D. 3,000 1,000 5,000 Dennis Moore, D.V.M. 4,000 8,200 5,000 James Page, M.D. 4,000 5,400 5,000
(1) Each director receives a fee of $1,000 for in-person attendance at each regular directors' meeting. (2) Each director receives $1,200 per day for employment on special projects or assignments. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of December 31, 1997, there were 5,414,232 shares of the Company's common stock outstanding. The following table sets forth as of December 31, 1997, the beneficial ownership of each person who owns more than 5% of such outstanding common stock: 18 19
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF TOTAL ---------------- ---------------- ---------------- Hayashibara Biochemical Laboratories, Inc. 2-3 Shimoishii 1-chome Okayama 700, Japan 1,232,856 22.8% Dr. Joseph Cummins 800 West 9th Avenue Amarillo, Texas 79101 684,784 (1) 12.7% Mesa Operating Limited Partnership P.O. Box 2009 Amarillo, Texas 79189-2009 315,120 5.8% Mochida Pharmaceutical Co., Ltd. 7, Yotsuya 1-chome Shinjuku-Ku Tokyo 160, Japan 300,000 5.5%
(1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph Cummins as trustee under certain trusts for the benefit of his children and 9,590 shares owned by Dr. Cummins wife. The following table sets forth the beneficial ownership of the Company's stock as of December 31, 1997 by each director, and by all executive officers and directors as a group:
DIRECTORS NUMBER OF SHARES PERCENT OF TOTAL --------- ---------------- ---------------- Joseph Cummins 684,784 (1) 12.7% Dennis Moore 149,616 2.8% James Cook 66,600 (2) 1.2% Katsuaki Hayashibara 48,240 1.0% Stephen Chen 1,800 * Thomas D'Alonzo 1,000 * Brian McLean -- -- James Page -- -- Total Group (all directors and executive officers - 8 persons) 952,040 17.6%
* Less than 1% (1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph Cummins as trustee under certain trusts for the benefit of his children and 9,590 shares owned by Dr. Cummins' wife. (2) All of such shares are owned jointly with Mr. Cook's wife. 19 20 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. From 1989 to 1996, HBL has provided an aggregate of $9,000,000 of funding pursuant to the Development Agreement, purchased from the Company an aggregate of 661,620 shares of common stock for a total purchase price of $2,444,300 and made loans to the Company aggregating $3,600,000, of which $1,000,000 loaned after March 31, 1996 was repaid simultaneously with the consummation of the IPO. As of December 31, 1997, the outstanding amount of the Company's indebtedness to HBL (including accrued interest) was $2,691,356. HBL owns 1,232,856 shares, approximately 23% of the Company's common stock. In addition to the Development Agreement, HBL and the Company are parties to various license and manufacturing and supply agreements pursuant to which the Company licenses certain technology to or from HBL and HBL supplies formulations of its IFNa to the Company. Pursuant to a Stock Purchase Agreement entered into in September 1987 between the Company and Mesa, Inc. ("Mesa"), which owns 315,120 shares of common stock, the Company has agreed that for as long as Mesa is a shareholder of the Company, the Company shall not without the prior written approval of Mesa engage in any repurchase or redemption of its issued and outstanding shares of common stock, unless such repurchase or redemption is offered, pro rata, to all then existing shareholders. During the years ended December 31, 1997 and 1996, the Company paid $88,000 and $81,600, respectively, for legal services rendered by Morris, Moore, Moss and Douglass, P.C. Edward Morris, the Secretary of the Company, is a member of such firm. Although the Company believes that the foregoing transactions were on terms no less favorable to the Company than would have been available from unaffiliated third parties in arm's length transactions, there can be no assurance that this is the case. 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. 20 21 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT INDEX NUMBER DESCRIPTION ------ ----------- 3.1* Restated Articles of Incorporation of the Company. 3.2* Articles of Amendment of Restated Articles of Incorporation of the Company. 3.3* Bylaws of the Company. 4.1* Specimen Common Stock Certificate. 4.2* Form of Underwriter's Warrant. 10.1* Agreement dated as of April 1, 1984 between University Patents, Inc. and the Company. 10.2* License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System. 10.3* License Agreement dated October 20, 1989 between the Company and ISI. 10.4* Manufacturing and Supply Agreement dated October 20, 1989 between the Company and ISI. 10.5* Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 between the Company and HBL, as amended. 10.6* Amended and Restated Agreement dated as of November 24, 1992 between Mitsubishi and the Company. 10.7* Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL. 10.9* 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. 10.15* License and Supply Agreement dated July 10, 1995 between Veldona Africa, Inc. ("VAF") and Innovative Therapeutics, Ltd. ("ITL"). 10.16* Pricing Amendment, dated December 5, 1995 between VAF and ITL. 10.17* License Agreement dated September 25, 1995 between McGill University and the Company.
21 22 NUMBER DESCRIPTION ------ ----------- 10.18* Form of Consulting Agreement between the Company and the Underwriter. 10.19* Research Agreement dated March 25, 1996 between the Company and Ajinomoto Co., Inc. 10.20 1996 Employee Stock Option Plan, Amended and Restated as of May 13, 1997. 10.21 Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 13, 1997. 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. 10.24* Stock Purchase Agreement dated as of September 21, 1987 between Mesa Operating Limited Partnership and the Company. 10.25* Research License and Supply Agreement dated May 20, 1996 between the Company and Virbac S.A. 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. 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). 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 27. Financial Data Schedule
*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. 22 23 REPORTS ON FORM 8-K No reports on Form 8-K have been filed for the quarter ended December 31, 1997. 23 24 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: March 24, 1998 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, March 24, 1998 - ----------------------------------- President, Chief Financial Officer, Director and Chief Executive Officer /s/ STEVE CHEN Director March 26, 1998 - ----------------------------------- Steve Chen /s/ JAMES COOK Director March 27, 1998 - ----------------------------------- James Cook /s/ DENNIS MOORE Director March 26, 1998 - ----------------------------------- Dennis Moore /s/ JAMES PAGE Director March 25, 1998 - ----------------------------------- James Page
25 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Financial Statements CONTENTS Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Audited Consolidated Financial Statements Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the years ending December 31, 1997 and 1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 . . . . . F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ending December 31, 1997 and 1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows for the years ending December 31, 1997 and 1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-8
F-1 26 Report of 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. 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, 1997, 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended, and the period from June 25, 1984 (inception) through December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP February 6, 1998 Dallas, Texas F-2 27 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Balance Sheets
DECEMBER 31, ------------------------------ 1997 1996 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 879,170 $ 2,799,297 Marketable securities 6,007,182 5,984,370 Other current assets 70,779 107,535 ------------ ------------ Total current assets 6,957,131 8,891,202 Property and equipment, net 125,179 144,507 Patent license, net of accumulated amortization of $73,824 and $66,471 in 1997 and 1996, respectively 51,176 58,529 Organizational costs, net of accumulated amortization of $4,962 and $4,667 in 1997 and 1996, respectively 1,122 330 Investment in ISI common stock 114,023 471,500 ------------ ------------ Total assets $ 7,248,631 $ 9,566,068 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 74,754 $ 138,298 Accrued interest expense 91,356 273,296 Accrued legal expense 28,341 -- Accrued vacation 19,000 19,000 Other accrued expense 617 46,357 ------------ ------------ Total current liabilities 214,068 476,951 Notes payable 2,600,000 2,300,000 ------------ ------------ Total liabilities 2,814,068 2,776,951 ============ ============ Commitments and contingencies Stockholders' equity Common stock, $.01 par value: Authorized shares -10,000,000 Issued shares- 5,414,232 in 1997 and 1996 54,142 54,142 Additional paid-in capital 13,392,138 13,312,638 Deficit accumulated during the development stage (9,045,415) (6,574,163) Unrealized gain (loss) on marketable securities 33,698 (3,500) ------------ ------------ Total stockholders' equity 4,434,563 6,789,117 ------------ ------------ Total liabilities and stockholders' equity $ 7,248,631 $ 9,566,068 ============ ============
See accompanying notes. F-3 28 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Operations
CUMULATIVE FROM JUNE 25, 1984 YEAR ENDED YEAR ENDED (INCEPTION) THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 ------------ ------------ ------------ Revenues: Contract revenues $ -- $ 417,140 $ 9,000,000 Interferon sales 396 6,805 420,974 Interest income 411,700 196,842 1,117,818 Sublicense fees -- 5,000 113,334 Royalty income -- -- 31,544 Gain on sale of ISI stock 188,562 -- 188,562 Other 52,000 43,000 604,371 ------------ ------------ ------------ 652,658 668,787 11,476,603 Expenses: Research and development expenses 1,650,415 766,871 9,979,594 Selling, general, and administrative expenses 1,355,435 1,394,041 9,807,480 Interest expense 118,060 126,063 699,944 ------------ ------------ ------------ 3,123,910 2,286,975 20,487,018 ------------ ------------ ------------ Loss before income taxes (2,471,252) (1,618,188) (9,010,415) Income tax expense -- -- 35,000 ------------ ------------ ------------ Net loss $ (2,471,252) $ (1,618,188) $ (9,045,415) ============ ============ ============ Basic and diluted net loss per share $ (0.46) $ (0.41) ============ ============ Weighted average shares outstanding 5,414,232 3,939,912 ============ ============
See accompanying notes. F-4 29 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, 1997
ADDITIONAL ISSUANCE COMMON STOCK 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 cumulative from June 25, 1984 (inception) through December 31, 1991 -- -- -- 1992 Net loss for year ended December 31, 1992 -- -- -- --------- ------ --------- Balance at December 31, 1992 3,019,032 30,190 3,515,788 1993 Net loss for year ended December 31, 1993 -- -- -- --------- ------------ ------------ Balance at December 31, 1993 3,019,032 30,190 3,515,788 1994 Net loss for year ended December 31, 1994 -- -- -- Adjustment to unrealized loss on investments -- -- -- --------- ------------ ------------ 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 -- -- -- --------- ------------ ------------ 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 -- -- -- --------- ------------ ------------ 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 -- -- -- Options issued for professional services -- -- 79,500 --------- ------------ ------------ Balance at December 31, 1997 5,414,232 $ 54,142 $ 13,392,138 ========= ============ ============ DEFICIT ACCUMULATED UNREALIZED NOTE DURING THE GAIN (LOSS) RECEIVABLE TOTAL DEVELOPMENT ON FROM TREASURY STOCKHOLDERS' STAGE INVESTMENT STOCKHOLDER STOCK EQUITY ----------- ---------- ----------- ----------- ------------- 1984 Initial issuance for cash $ -- $ -- $ -- $ -- $ 24,500 Initial issuance in exchange for legal fees -- -- -- -- 8,750 Initial issuance in exchange for services and research and development costs -- -- -- -- 905 1985 Issuance for cash -- -- -- -- 85,000 Issuance in exchange for professional fees, salaries and research services -- -- -- -- 9,000 1986 Issuance in exchange for professional fees, salaries and services -- -- -- -- 19,000 Treasury stock purchase; 11,040 shares at cost -- -- -- (22,500) (22,500) Issuance for cash -- -- -- -- 156,450 Issuance in exchange for professional fees, salaries and research services -- -- -- -- 15,850 1987 Issuance for cash -- -- -- -- 449,070 Treasury stock purchase; 2,400 shares at cost -- -- -- (3,500) (3,500) 1988 Issuance for cash -- -- -- -- 226,823 1989 Issuance for cash -- -- -- -- 5,350 Issuance for cash -- -- -- -- 569,370 1990 Issuance for cash -- -- -- -- 1,114,560 Issuance for cash -- -- -- -- 725,000 Issuance in exchange for note receivable from stockholder -- -- (136,350) -- -- 1991 Repayment of note receivable from stockholder $ -- $ -- $ 136,350 $ -- $ 136,350 Net loss cumulative from June 25, 1984 (inception) through December 31, 1991 (3,901,236) -- -- -- (3,901,236) 1992 Net loss for year ended December 31, 1992 (505,558) -- -- -- (505,558) ----------- --------- --------- ----------- ----------- Balance at December 31, 1992 (4,406,794) -- -- (26,000) (886,816) 1993 Net loss for year ended December 31, 1993 (108,363) -- -- -- (108,363) ----------- --------- --------- ----------- ----------- Balance at December 31, 1993 (4,515,157) -- -- (26,000) (995,179) 1994 Net loss for year ended December 31, 1994 (129,239) -- -- -- (129,239) Adjustment to unrealized loss on investments -- (57,316) -- -- (57,316) ----------- --------- --------- ----------- ----------- Balance at December 31, 1994 (4,644,396) (57,316) -- (26,000) (1,181,734) 1995 Issuance for stock grant -- -- -- -- 74,100 Net loss for year ended December 31, 1995 (311,579) -- -- -- (311,579) Adjustment to unrealized loss on investments -- 57,316 -- -- 57,316 ----------- --------- --------- ----------- ----------- Balance at December 31, 1995 (4,955,975) -- -- (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) -- -- -- (1,618,188) Adjustment to unrealized loss on investments -- (3,500) -- -- (3,500) ----------- --------- --------- ----------- ----------- Balance at December 31, 1996 (6,574,163) (3,500) -- -- 6,789,117 1997 Net loss for year ended December 31, 1997 (2,471,252) -- -- -- (2,471,252) Adjustment to unrealized gain (loss) on investment -- 37,198 -- -- 37,198 Options issued for professional services -- -- -- -- 79,500 ----------- --------- --------- ----------- ----------- Balance at December 31, 1997 $(9,045,415) $ 33,698 $ -- $ -- $ 4,434,563 =========== ========= ========= =========== =========== See accompanying notes.
F-5 30 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Cash Flows
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 -------------- -------------- -------------- OPERATING ACTIVITIES Net loss $ (2,471,252) $ (1,618,188) $ (9,045,415) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 21,388 18,280 170,980 Amortization 7,648 7,686 83,742 Discount on investment in ISI (125,325) -- 24,675 Recognition of deferred sub-license fees -- -- (32,844) Organization costs (1,087) -- (11,040) Gain (loss) on sale of assets 1,002 -- (7,373) Common stock issued for stock grant -- 395,000 469,100 Common stock issued for services -- -- 53,505 Options issued for services 79,500 -- 79,500 Changes in operating assets and liabilities: Other current assets 36,756 (81,140) (70,779) Accounts payable (63,544) (9,976) 74,754 Accrued expenses (199,339) (248,890) 139,314 Deferred contract revenue -- (417,140) -- -------------- -------------- -------------- Net cash used in operating activities (2,714,253) (1,954,368) (8,071,881) INVESTING ACTIVITIES Sale (purchase) of marketable securities (22,812) (5,984,370) (6,007,182) Capital expenditures (12,688) (48,194) (311,857) Proceeds from sale of equipment 9,626 -- 23,071 Purchase of patent license -- -- (125,000) Sale of (investment in) ISI common stock 520,000 -- (105,000) -------------- -------------- -------------- Net cash used in investing activities 494,126 (6,032,564) (6,525,968)
F-6 31 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Consolidated Statements of Cash Flows (continued)
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 ------------ ------------ ------------ FINANCING ACTIVITIES Receipt of sub-license fees $ -- $ -- $ 32,844 Proceeds from notes payable 300,000 300,000 2,600,000 Repayment of note receivable from stockholder for purchase of common stock -- -- 136,350 Issuance of common stock -- 9,377,702 12,733,825 Acquisition of treasury stock -- -- (26,000) ------------ ------------ ------------ Net cash provided by financing activities 300,000 9,677,702 15,477,019 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,920,127) 1,690,770 879,170 Cash and cash equivalents at beginning of period 2,799,297 1,108,527 -- ------------ ------------ ------------ Cash and cash equivalents at end of period $ 879,170 $ 2,799,297 $ 879,170 ============ ============ ============ SUPPLEMENTAL INFORMATION Cash paid for income taxes $ -- $ -- $ 37,084 ============ ============ ============ Cash paid for interest $ -- $ 6,466 $ 6,466 ============ ============ ============
See accompanying notes. F-7 32 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES ORGANIZATION Amarillo Biosciences, Inc. (the Company), formerly Amarillo Cell Culture Company, Inc., is a development stage company incorporated on June 25, 1984, for the purpose of developing and marketing, within the United States and internationally, eleven patents and eight pending applications relating to low dosage oral and non-oral natural interferon alpha used in the treatment of human and animal diseases. The Company has obtained certain patent rights through licensing agreements (see Note 5) and is currently conducting clinical studies as part of the process of obtaining regulatory approval from the United States Food and Drug Administration (FDA), so that commercial marketing can begin in the United States. The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. All of the Company's products will require significant additional development, laboratory and clinical testing and investment prior to obtaining regulatory approval to commercially market its product(s). Accordingly, for at least the next few years, the Company will continue to incur research and development and general and administrative expenses and likely will not generate sufficient revenues from product sales to support its operations. The Company has been dependent upon financing from its 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 has no current arrangements with respect to further sources of financing and there can be no assurance that any of its officers, directors or stockholders (including the major stockholder) will provide any portion of the Company's future financing requirements. The possible inability to obtain further financing would have a material adverse effect on the Company, including possibly requiring the Company to cease operations. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the 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. MARKETABLE SECURITIES AND INVESTMENT IN ISI COMMON STOCK Marketable securities and the investment in ISI common stock are classified as held-to-maturity and available-for-sale, respectively. Held-to-maturity securities are carried at amortized cost and mature in June 1998. Available-for-sale securities are carried at fair value, with any unrealized gain or loss reported as a separate component of stockholders' equity. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-8 33 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using methods that approximate the declining balance method over the estimated useful lives of the assets. PATENT LICENSE The patent license represents payments made under one of the license agreements described in Note 5. The agreement remains in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over 17 years using the straight-line method. 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 Accounts Standards No. 109, Accounting for Income Taxes (Statement No. 109). As permitted by the new rules, prior years' financial statements have not been restated. The effect of adopting Statement No. 109 was not material. REVENUE RECOGNITION Contract revenue for research and development performed under the manufacturing and supply agreement with Hayashibara Biochemical Laboratories, Inc. (HBL) (see Note 4) 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. 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 F-9 34 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES (CONTINUED) 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 Note 7) is anti-dilutive. The effect of adopting Statement of Financial Accounting Standards Number 128, Earnings Per Share, was not material. RECLASSIFICATION Certain amounts have been reclassified from selling, general and administrative expenses to research and development expenses in 1996 and the period from June 25, 1984 (inception) through December 31, 1996 to conform to the current year presentation. The impact of the reclassification was approximately $108,000 and $1,234,000 for 1996 and the period from June 25, 1984 (inception) through December 31, 1996, respectively. 2. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and consist of the following:
DECEMBER 31, ------------------------------- 1997 1996 ------------ ------------ Land $ 8,000 $ 8,000 Building 94,532 94,532 Furniture and equipment 117,943 132,807 Automobile 13,688 29,741 ------------ ------------ 234,163 265,080 Less accumulated depreciation 108,984 120,573 ------------ ------------ $ 125,179 $ 144,507 ============ ============
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 accrues 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 accrues interest at the rate of 4 1/2%. Each of the notes provide that the principal and accrued interest be paid only from 10% of the Company's gross revenues from sales of interferon. All payments are to be applied first to accrued interest. As repayment of the notes is dependent on future sales, management is unable to estimate the fair value of the notes at December 31, 1997. Because material amounts of sales are not expected in the next twelve months, the notes continue to be classified as non-current liabilities. 4. MANUFACTURING AND SUPPLY AGREEMENTS The Company was a party to the following manufacturing and supply agreements at December 31, 1997: 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 F-10 35 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 4. MANUFACTURING AND SUPPLY AGREEMENTS (CONTINUED) 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. Under the Development Agreement, HBL provided $9,000,000 in research funding to the Company. Costs incurred under the Development Agreement amounted to $0 and $417,140 in the years ended December 31, 1997 and 1996, respectively, and $9,000,000 cumulative from June 25, 1984 (inception) through December 31, 1997. The agreement also provides that a royalty fee be paid to HBL. The initial term of the agreement is for seven years, but it will be renewed automatically for successive three-year terms subject to prior written agreement. HBL can terminate the agreement at any time after the end of the first renewal term if certain conditions are not met. On October 20, 1989, the Company entered into a manufacturing and supply agreement with Interferon Sciences, Inc. (ISI), 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. 5. LICENSE AND SUBLICENSE AGREEMENTS The Company holds patent rights for which the Company has paid certain license fees under three license agreements. Under these agreements, the Company will pay the licensor a portion of any 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, 1997, the Company had commitments to provide additional funding of approximately $223,000 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 one million shares to ten million shares. The stockholders also approved a ten-for-one stock split for the currently issued and outstanding shares of the Company. Since 1984, the Company has issued common stock in exchange for various professional, research, and consulting services. The stock issued for non-cash consideration was assigned a value based on the fair value of the services received. In December 1989, the Company issued 218,400 shares of stock to HBL for $2.50 per share. In February 1990, an additional 174,000 shares were issued to HBL for $4.17 per share, and in November 1990, an additional 69,120 shares were issued to HBL for $2.50 per share. These shares, combined with purchases from various other stockholders and the 200,100 shares purchased by HBL in the public offering, give HBL control of 23% of the outstanding common stock, or 1,232,856 shares at December 31, 1997. F-11 36 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 7. COMMON STOCK (CONTINUED) 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 for the year ended December 31, 1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 were $515,156 and $735,000, respectively. In August 1996, the Company completed its initial public offering and issued 5,300,000 shares of common stock resulting in net proceeds of approximately $9,377,702. The Company has (i) 200,000 shares of Common Stock reserved for issuance upon exercise of Warrants granted to the Company's Underwriter (exercisable through August 2000 at $8.10 per share); (ii) an aggregate of 188,500 shares of Common Stock reserved for issuance upon the exercise of stock options outstanding under the Company's 1996 Employee Stock Option Plan and the Company's Outside Director and Advisor Stock Option Plan (collectively, the Plans), 23,875 of which are currently exercisable; and (iii) an aggregate of 161,500 shares of Common Stock reserved for issuance upon exercise of stock options which are available for future grant under the Plans. 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. Under a stock purchase agreement with a stockholder. Mesa. Inc. (Mesa), the Company is prohibited from repurchasing or redeeming any of its issued and outstanding shares without the prior written approval of Mesa unless such redemption or repurchase is offered pro rata to all stockholders. 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 a maximum of 200,000 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 150,000 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. The ten year options become exercisable over a period of five years. 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 1997: risk-free interest rate of 6.61%; F-12 37 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 8. STOCK OPTION PLAN (CONTINUED) dividend yield of 0%; volatility factors of the expected market price of the Company's common stock of .692; and a weighted-average expected life of the option of 4.9 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 and the expense for 1997 and 1996 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:
1997 1996 ------------- ------------- Pro forma net loss $ (2,544,335) $ (1,635,839) Pro forma basic and diluted net loss per share $ (0.47) $ (0.41)
Based on the Black-Scholes method, the fair value of the options granted as of December 31, is as follows:
1997 1996 -------- -------- Number of options issued at fair market value of stock 66,000 128,000 Weighted-average fair value of options $2.48 $2.52 Weighted-average exercise price of options $3.94 $5.08 Number of options issued in excess of fair market value of stock 7,000 7,500 Weighted-average fair value of options $2.11 $1.78 Weighted-average exercise price of options $4.27 $5.50
A summary of the Company's stock option activity, and related information for the year ended December 31, is as follows:
1997 1996 ------------------------ -------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ---------- -------------- ---------- -------------- Outstanding, beginning of year 135,500 $ 5.10 -- $ -- Granted 73,000 3.97 135,500 5.10 Expired, unexercised (20,000) 5.25 -- -- Exercised -- -- -- -- ---------- ---------- Outstanding, end of year 188,500 $ 4.64 135,500 $ 5.10 ========== ========== Exercisable at end of year 23,875 $ 5.08 -- -- ========== ==========
Exercise prices for options outstanding as of December 31, 1997 ranged from $3.875 to $5.50. The weighted-average remaining contractual life of those options is 9.33 years. F-13 38 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 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, 1997 and 1996, and cumulative from June 25, 1984 (inception) through December 31, 1997 was $49,131, $46,357 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. Significant components of the Company's deferred tax liabilities and assets are as follows at December 31:
1997 1996 ----------- ----------- Deferred tax liability: Prepaid expenses $ 24,065 $ 34,456 Deferred tax assets: Net operating loss and AMT carryforward 2,599,564 1,981,494 Accrued interest and note payable 235,061 194,921 Depreciation and amortization 116,520 91,698 Other 67,509 53,481 ----------- ----------- 3,018,654 2,321,594 Valuation allowance for deferred tax assets (2,994,589) (2,287,138) ----------- ----------- Total deferred tax assets, net of valuation allowance 24,065 34,456 ----------- ----------- Net deferred taxes $ -- $ -- =========== ===========
At December 31, 1997, the Company has net operating loss carryforwards of approximately $7,539,000 for federal income tax purposes expiring in 2006 through 2011. The ability of the Company to utilize these carryforwards may be limited should changes in stockholder ownership occur in the future. At December 31, 1997, the Company had approximately $36,000 of alternative minimum tax credits which may be carried forward indefinitely. The difference between the reported income tax provision and the benefit normally expected by applying the statutory rate to the loss before income taxes results primarily from the inability of the Company to recognize its tax losses. 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, 1997. 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, such related party transactions included legal fees of approximately $88,000 and $81,600 paid to Morris, Moore, Moss and Douglass, P.C., a member of which is an officer and stockholder of the Company, in 1997 and 1996, respectively. The Company also employs various stockholders as researchers and consultants and pays fees based on contractual agreements. F-14 39 Amarillo Biosciences, Inc. and Subsidiaries (companies in the development stage) Notes to Consolidated Financial Statements (Continued) 13. SETTLEMENT OF LITIGATION Commencing in 1993, the Company was the plaintiff in litigation involving a patent infringement action in New Zealand. In May 1996, a settlement was reached whereby the Company: (1) amended its manufacturing and supply agreement with ISI to allow the sub-license of certain products previously exclusively licensed to ISI and purchased 312,500 shares of ISI common stock for $625,000, or $2 per share, representing the quoted market price of ISI stock at that time; and (2) received $550,000 cash from the defendant in the lawsuit, comprising $50,000 in exchange for a sub-license of the technology that was the subject of the lawsuit and $500,000 as a payment toward research and development costs incurred by the Company. As a result of restrictions on the sale by the Company of its ISI stock until August 1997, the Company discounted the ISI stock (quoted price $1.66 per share at December 31, 1996) to a carrying value of $471,500 at December 31, 1996 and during 1995 charged $150,000 to selling, general and administrative expenses and charged $3,500 to unrealized loss on marketable securities in 1996. During 1997, after a four for one reverse stock split, the Company sold 65,000 shares of ISI stock for $580,850 and realized a gain on the sale of $188,562. F-15 40 EXHIBIT INDEX
EXHIBIT DESCRIPTION - ----------------- ----------------------------------------------------------------------------------------------- 3.1* Restated Articles of Incorporation of the Company. 3.2* Articles of Amendment of Restated Articles of Incorporation of the Company. 3.3* Bylaws of the Company. 4.1* Specimen Common Stock Certificate. 4.2* Form of Underwriter's Warrant. 10.1* Agreement dated as of April 1, 1984 between University Patents, Inc. and the Company. 10.2* License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System. 10.3* License Agreement dated October 20, 1989 between the Company and ISI. 10.4* Manufacturing and Supply Agreement dated October 20, 1989 between the Company and ISI. 10.5* Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 between the Company and HBL, as amended. 10.6* Amended and Restated Agreement dated as of November 24, 1992 between Mitsubishi and the Company. 10.7* Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL. 10.9* 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. 10.15* License and Supply Agreement dated July 10, 1995 between Veldona Africa, Inc. ("VAF") and Innovative Therapeutics, Ltd. ("ITL"). 10.16* Pricing Amendment, dated December 5, 1995 between VAF and ITL. 10.17* License Agreement dated September 25, 1995 between McGill University and the Company.
41 10.18* Form of Consulting Agreement between the Company and the Underwriter. 10.19* Research Agreement dated March 25, 1996 between the Company and Ajinomoto Co., Inc. 10.20 1996 Employee Stock Option Plan, Amended and Restated as of May 13, 1997. 10.21 Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 13, 1997. 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. 10.24* Stock Purchase Agreement dated as of September 21, 1987 between Mesa Operating Limited Partnership and the Company. 10.25* Research License and Supply Agreement dated May 20, 1996 between the Company and Virbac S.A. 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. 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). 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 27. Financial Data Schedule
*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. EX-10.20 2 AMENDED/RESTATED 1996 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.20 AMARILLO BIOSCIENCES, INC. 1996 EMPLOYEE STOCK OPTION PLAN AMENDED AND RESTATED AS OF MAY 13, 1997 ARTICLE I -- GENERAL 1.01. PURPOSES. The purposes of this 1996 Employee Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the management of AMARILLO BIOSCIENCES, INC. ("ABI") and its Subsidiaries and Affiliates (collectively referred to as the "Company") with the shareholders by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide management with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and (4) provide an incentive to management for continuous employment with the Company. 1.02. ADMINISTRATION. (a) The Plan shall be administered by a committee of directors appointed by the Board of Directors of ABI (the "Committee"), as constituted from time to time. The Committee shall consist of at least two members of the Board. Notwithstanding anything in this Section 1.02 to the contrary, so long as any equity security of the Company is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor statute, all authority to exercise discretion with respect to participation in the Plan by persons who are (i) "officers" within the meaning of the applicable Securities and Exchange Commission rules and regulations relating to Section 16 of the 1934 Act, or any successor statute, (ii) directors of the Company and/or (iii) beneficial owners of more than ten percent (10%) of any class of equity securities of the Company who are otherwise eligible to participate in the Plan, and the timing, pricing, amounts and other terms and conditions of awards granted under the Plan to such officers, directors and beneficial owners, shall be vested in the Committee, if all of the members of the Committee are disinterested persons within the meaning ascribed to such term in Rule 16b-3 promulgated under the 1934 Act, or within any successor definition or under any successor rule ("disinterested persons"). (b) The Committee shall have the authority, in its sole discretion and from time to time to: -1- 2 (i) designate the employees or classes of employees eligible to participate in the Plan; (ii) grant awards provided in the Plan in such form and amount as the Committee shall determine; (iii) impose such limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; and (iv) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan. (c) Decisions and determinations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder. (d) With respect to persons subject to Section 16 of the Securities Exchange act of 1934 (the "1934 Act"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors or the Committee, as applicable. (e) All usual and reasonable expenses of the Committee shall be paid by the Company, and no member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. The Board of Directors and the Committee may employ attorneys, consultants, accountants or other persons, and the Board of Directors, the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors or the Committee in good faith shall be final and binding upon all Employees who have received awards, and upon the Company and all other interested persons. No member of Board of Directors or the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan or -2- 3 awards made thereunder, and the Company shall indemnify and hold harmless each member of the Board of Directors or the Committee against all loss, cost, expenses or damages, occasioned by any act or omission to act in connection with any such action, determination or interpretation under or of the Plan, consistent with the Company's certificate of incorporation and bylaws. 1.03. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan shall be selected by the Committee from among the employees of the Company. In making this selection and in determining the form and amount of awards, the Committee shall consider any factors deemed relevant, including the individual's functions, responsibilities, value of services to the Company and past and potential contributions to the Company's profitability and sound growth. 1.04. TYPES OF AWARDS UNDER PLAN. Awards under the Plan will be in the form of Incentive Stock Options, as described in Article II; provided, however, that Limited Rights, as described in Article III, may be awarded with respect to Options concurrently or previously awarded. 1.05. AGGREGATE LIMITATION ON AWARDS. (a) Shares of stock which may be issued under the Plan shall be authorized and unissued or treasury shares of Common Stock of ABI ("Common Stock"). The maximum number of shares of Common Stock which may be issued under the Plan shall be two hundred thousand (200,000) shares. The maximum number of shares of Common Stock with respect to which Incentive Stock Options may be granted in any one year to any employee shall not exceed 50,000. (b) In addition to shares of Common Stock actually issued pursuant to the exercise of Incentive Stock Options, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights (as described in Article III) shall have been exercised. (c) Any shares of Common Stock subject to an Incentive Stock Option which for any reason is terminated unexercised or expires shall again be available for issuance under the Plan, but shares subject to an Incentive Stock Option which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan. -3- 4 1.06. EFFECTIVE DATE AND TERM OF PLAN. (a) The Plan shall become effective on the date approved by the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of ABI. (b) No awards shall be made under the Plan after the last day of the Company's 2001 fiscal year provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. ARTICLE II -- INCENTIVE STOCK OPTIONS 2.01. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more "Incentive Stock Options," intended to qualify as such under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock Options") to purchase for cash the number of shares of Common Stock allotted by the Committee. The date an Incentive Stock Option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan. 2.02. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive Stock Option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an Incentive Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Incentive Stock Option evidenced thereby, and in such form as the Committee may from time to time determine. 2.03. INCENTIVE STOCK OPTION PRICE. The Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted; provided, however, that with respect to any Optionee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of ABI or of its parent or Subsidiary corporation (with such ownership determined in view of the attribution provisions of Section 424(d) of the Code), the -4- 5 Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 110% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted. The Committee shall determine the date on which an option is granted, provided that such date is consistent with the Code and any applicable rules or regulations thereunder; in the absence of such determination, the date on which the Committee adopts a resolution granting an option shall be considered the date on which such option is granted, provided the Employee to whom the option is granted is promptly notified of the grant and a written option agreement is duly executed as of the date of the resolution. 2.04. TERM AND EXERCISE. Each Incentive Stock Option for employees who are not 10% owners is exercisable during a period of ten years from the date of grant thereof (the "Option Term"), subject to the Vesting Schedule for Employees who are not 10% Owners, set forth below. With respect to any Optionee who at the time the Option is granted owns stock possessing more than 10% of the total combined voting power of all classes of stock of ABI or of its parent or Subsidiary corporation (with such ownership determined pursuant to the attribution rules set forth in Section 424(d) of the Code), each Incentive Stock Option is exercisable during a period of five years from the date of grant thereof, subject to the Vesting Schedule for Employees who are 10% Owners, set forth below. No Incentive Stock Option shall be exercisable after the expiration of its Option Term. The Committee may also, in its sole discretion, accelerate the exerciseability of any option or installment thereof at any time. VESTING SCHEDULE FOR EMPLOYEES WHO ARE NOT 10% OWNERS. Options awarded shall be exercisable, subject to the other terms and conditions of the Plan, only upon the expiration of the designated number of years of active employment with the Company from date of award, as provided below: 20% of Options awarded - 1 year 40% of Options awarded - 2 years 60% of Options awarded - 3 years 80% of Options awarded - 4 years 100% of Options awarded - 5 years -5- 6 VESTING SCHEDULE FOR EMPLOYEES WHO ARE 10% OWNERS. 25% of Options awarded - 1 year 50% of Options awarded - 2 years 75% of Options awarded - 3 years 100% of Options awarded - 4 years Except as provided in Sections 2.06, 2.07 and 2.08 hereof, no Incentive Stock Option shall be exercised at any time unless the holder thereof is then a regular full-time employee of the Company or one of its subsidiaries. 2.05. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. In no event shall the aggregate Fair Market Value of all Common Stock (determined at the time the option is granted) with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year (under all plans of the Company and its subsidiaries) exceed $100,000. 2.06. DEATH OF OPTIONEE. (a) Upon the death of the Optionee, any Incentive Stock Option exercisable on the date of death may be exercised by the Optionee's estate or by a person who acquires the right to exercise such Incentive Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Incentive Stock Option and one year after the Optionee's death. (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any Incentive Stock Options exercisable on the date of death. 2.07. RETIREMENT OR DISABILITY. Upon the termination of the Optionee's employment by reason of permanent disability (as defined herein) or retirement (as determined by the Committee), the Optionee may, within 36 months from the date of such termination of employment, exercise any Incentive Stock Options to the extent such Incentive Stock Options were exercisable at the date of such termination of employment. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months -6- 7 after the date of termination of employment due to retirement. For purposes hereof, "permanent disability" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor provision thereto. 2.08. TERMINATION FOR OTHER REASONS. Except as provided in Sections 2.06 and 2.07 or except as otherwise determined by the Committee, all Incentive Stock Options shall terminate upon the termination of the Optionee's employment; provided, however, that if the Optionee's employment was involuntarily terminated (with or without cause), Optionee may exercise, during a 90-day period commencing with date of termination, all Options theretofore vested, or which vest during said 90-day period, under the Vesting Schedules set forth in Paragraph 2.04, above. At the end of the 90-day period, all rights of such Optionee under any then outstanding option or right shall terminate and shall be forfeited immediately as to any unexercised portion thereof. 2.09. MANNER OF PAYMENT. Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or in shares of the Common Stock, valued at the Fair Market Value per Share on the date of exercise. 2.10. ISSUANCE OF SHARES. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. The Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. 2.11. EFFECT OF EXERCISE. The exercise of any Stock Option shall cancel that number of related Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Option. -7- 8 2.12. RULE 16b-3 EXEMPTION. Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any successor, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the 1934 Act with respect to Plan transactions. ARTICLE III -- LIMITED RIGHTS 3.01. AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to the award of any Incentive Stock Option, the Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each Option, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Common Stock in lieu of exercising the Option ("Limited Right"). 3.02. LIMITED RIGHTS AGREEMENT. Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine. 3.03. EXERCISE PERIOD. Limited Rights shall (and must) be exercised immediately preceding or simultaneous with the date of a Change in Control of ABI (the "Exercise Period"), and all Limited Rights held by the Optionee shall be exercised during such Exercise Period, without regard to the Vesting Schedules set forth in Paragraph 2.04; provided, however, that if a Change in Control shall have occurred without notice or opportunity for exercise of Limited Rights, then the Limited Rights shall be exercised as soon as practicable after a determination has been made that a "Change in Control" has occurred, or has been deemed to have occurred. As used in the Plan, a "Change in Control" shall be deemed to have occurred if (a) individuals who were directors of ABI, immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board of Directors of ABI (or of the Board of Directors of any successor to ABI or to all or substantially all of its assets), or -8- 9 (b) any entity, person or Group other than ABI or a Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof acquires shares of ABI in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51%) or more of the outstanding shares. As used herein, "Control Transaction" shall be (i) any tender offer for or acquisition of capital stock of ABI, (ii) any merger, consolidation, or sale of all or substantially all of the assets of ABI which has been approved by the shareholders, (iii) any contested election of directors of ABI, or (iv) any combination of the foregoing; which results in a change in voting power sufficient to elect a majority of the Board of Directors of ABI. As used herein, "Group" shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended. 3.04. AMOUNT OF PAYMENT. The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100% of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Market Price of a share of such Common Stock. Market Price is defined to be the greater of (i) the highest price per share of the Company's Common Stock paid in connection with any Change in Control and (ii) the highest price per share of the Company's Common Stock paid pursuant to an unsolicited brokerage transaction during the 60-day period prior to the Change in Control. 3.05. FORM OF PAYMENT. Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be made solely in cash. -9- 10 3.06. EFFECT OF EXERCISE. If Limited Rights are exercised, the Stock Options related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the extent of the number of shares as to which the related Options were exercised or terminated. 3.07. RETIREMENT OR DISABILITY. Upon termination of the Optionee's employment with the Company by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Limited Right to the extent such Limited Right is otherwise exercisable during such 36-month period. 3.08. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as provided in Section 3.07, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate upon the termination of the Optionee's employment with the Company, or upon the death of the Optionee. ARTICLE IV -- MISCELLANEOUS 4.01. GENERAL RESTRICTION. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. -10- 11 4.02. NON-ASSIGNABILITY. No award under the Plan shall be assignable or transferable by the recipient thereof, except by will or by the laws of descent and distribution. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. 4.03. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such participant. 4.04. NON-UNIFORM DETERMINATIONS. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 4.05. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him. 4.06. DEFINITIONS. In this Plan the following definitions (along with other definitions set forth elsewhere in the Plan) shall apply: (a) "Affiliate" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with ABI. (b) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without -11- 12 limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in The Wall Street Journal or such other source as the Board deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. (c) "Option" means Incentive Stock Option. (d) "Option Price" means the purchase price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option. (e) "Subsidiary" means any corporation of which, at the time more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by ABI or any Subsidiary thereof. 4.07. LEAVES OF ABSENCE. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute -12- 13 a termination of employment within the meaning of the Plan and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence. 4.08. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof after the commencement of an award or incentive period. 4.09. ADJUSTMENTS. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount and terms of any Limited Rights theretofore awarded under the Plan, and any and all other matters deemed appropriate by the Committee. 4.10. AMENDMENT OF THE PLAN. (a) The Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements. (b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without shareholder approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 4.10), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his or her rights under an award previously granted to him or her. -13- 14 4.11. DISPOSITION OF OPTION SHARES; WITHHOLDING TAXES. Upon the disposition (within the meaning of Code Section 424(c)) of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the expiration of the holding period requirements of Code Section 422(a)(1), the Optionee shall be required to give notice to the Company of such disposition and the Company shall have the right to require the Optionee to pay to the Company the amount of any taxes that are required by law to be withheld with respect to such disposition. -14- EX-10.21 3 AMENDED/RESTATED OUTSIDE DIRECTOR & ADVISOR STOCK 1 EXHIBIT 10.21 AMARILLO BIOSCIENCES, INC. OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN AMENDED AND RESTATED AS OF MAY 13, 1997 ARTICLE I -- GENERAL 1.01. PURPOSES. The purposes of this Outside Director and Advisor Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the Outside Directors and Scientific Advisors of AMARILLO BIOSCIENCES, INC. ("ABI") and its Subsidiaries and Affiliates (collectively referred to as the "Company") with the shareholders by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide ABI's Outside Directors and Scientific Advisors with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; and (3) provide an incentive to Outside Directors and Scientific Advisors for continuous association with the Company. The Plan is not an incentive stock option plan within the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"). 1.02. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by a Committee of persons appointed by the Board of Directors of ABI (the "Committee"), as constituted from time to time. The Committee shall consist of at least two members of the Board. (b) The Committee shall have the authority, in its sole discretion and from time to time, to: (i) designate the Directors and Advisors eligible to participate in the Plan; (ii) grant awards provided in the Plan in such form and amount as the Committee shall determine; (iii) impose such limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; and (iv) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan. -1- 2 (c) Decisions and determinations of the Committee on all matters relating to the Plan shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder. (d) With respect to persons subject to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors or the Committee, as applicable. (e) All usual and reasonable expenses of the Committee shall be paid by the Company, and no member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. The Board of Directors and the Committee may employ attorneys, consultants, accountants or other persons, and the Board of Directors, the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors or the Committee in good faith shall be final and binding upon all person who have received awards, and upon the Company and all other interested persons. No member of Board of Directors or the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan or awards made thereunder, and the Company shall indemnify and hold harmless each member of the Board of Directors or the Committee against all loss, cost, expenses or damages, occasioned by any act or omission to act in connection with any such action, determination or interpretation under or of the Plan, consistent with the Company's certificate of incorporation and bylaws. 1.03. AWARDS UNDER PLAN. Each award under the Plan will include both: (i) Stock Options, as described in Article II; and (ii) Limited Rights, as described in Article III. -2- 3 1.04. AGGREGATE LIMITATION ON AWARDS. (a) Shares of stock which may be issued under the Plan shall be authorized and unissued or treasury shares of Common Stock of ABI ("Common Stock"). The maximum number of shares of Common Stock which may be issued under the Plan shall be one hundred fifty thousand (150,000) shares. (b) In addition to shares of Common Stock actually issued pursuant to the exercise of Stock Options, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights (as described in Article III) shall have been exercised. (c) Any shares of Common Stock subject to a Stock Option which for any reason is terminated unexercised or expires shall again be available for issuance under the Plan, but shares subject to a Stock Option which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan. 1.05. EFFECTIVE DATE AND TERM OF PLAN. (a) The Plan shall become effective on the date approved by the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of ABI. (b) No awards shall be made under the Plan after the last day of the Company's 2001 fiscal year provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. ARTICLE II -- STOCK OPTIONS 2.01. AWARD OF STOCK OPTIONS. (a) The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more non-qualified stock options ("Options") to purchase for cash the number of shares of Common Stock allotted by the Committee. (b) Each Outside Director shall be automatically granted an Option to purchase ten thousand (10,000) shares on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the -3- 4 Company or appointment by the Board to fill a vacancy. The foregoing notwithstanding, any Outside Director who has previously received an Option award as a Scientific Advisor under Section 2.01(c), below, shall be automatically awarded, in his capacity as an Outside Director, an option to purchase only five thousand (5,000) shares, instead of ten thousand (10,000) shares, although additional Options may be awarded by the Committee. (c) Each Scientific Advisor who is not also serving as an Outside Director shall be automatically granted an Option to purchase five thousand (5,000) shares on the date on which such person first becomes a Scientific Advisor. The foregoing notwithstanding, any Scientific Advisor who has previously received an Option award as an Outside Director shall not automatically be awarded any additional Options as a Scientific Advisor, although additional Options may be awarded by the Committee. (d) In the event any Option granted under the Plan would cause the number of shares subject to outstanding Options plus the number of shares previously purchased under Options to exceed the total number of shares available for issuance under the Plan, then the remaining Options shall be granted to persons qualifying for same, on a pro rata basis, and no further grants shall be made until such time, if any, as additional shares become available for grant under the Plan through action of the shareholders to increase the number of shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (e) Options may be granted only to Outside Directors and/or Scientific Advisors. (f) Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any successor provisions thereto, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the 1934 Act with respect to Plan transactions. 2.02. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall be evidenced by a written Stock Option Agreement, executed by the Company and the holder of a Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Stock Option evidenced thereby, and in such form as the Committee may from time to time determine. -4- 5 2.03. STOCK OPTION PRICE. The Option Price per share of Common Stock deliverable upon the exercise of a Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Stock Option is granted. 2.04. TERM AND EXERCISE. Each Stock Option may be exercised during a period of ten years from the date of grant thereof (the "Option Term"), subject to the vesting schedule set forth below. No Stock Option shall be exercisable after the expiration of its Option Term. VESTING SCHEDULE. Options awarded shall be exercisable, subject to the other terms and conditions of the Plan, only upon the expiration of the designated number of years of active association with the Company as an Outside Director or Scientific Advisor, from date of award, as provided below: 20% of Options awarded - 1 year 40% of Options awarded - 2 years 60% of Options awarded - 3 years 80% of Options awarded - 4 years 100% of Options awarded - 5 years 2.05. MANNER OF PAYMENT. Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or in shares of the Common Stock, valued at the Fair Market Value per Share on the date of exercise. 2.06. ISSUANCE OF SHARES. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. The Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. -5- 6 2.07. DEATH OF OPTIONEE. (a) Upon the death of the Optionee, any rights to the extent exercisable on the date of death may be exercised by the Optionee's estate, or by a person who acquires the right to exercise such Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining effective term of the Stock Option and one year after the Optionee's death. (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's association may have terminated prior to death, but only to the extent of any rights exercisable on the date of death. 2.08. DISABILITY. Upon termination of the Optionee's association by reason of permanent disability (as defined herein), the Optionee may, within 36 months from the date of termination, exercise any Stock Options to the extent such Options are exercisable during such 36-month period. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months after the date of termination of employment due to retirement. For purposes hereof, "permanent disability" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor provision thereto. 2.09. TERMINATION FOR OTHER REASONS. Except as provided in Sections 2.07 and 2.08, or except as otherwise determined by the Committee, all Stock Options shall terminate upon the termination of the Optionee's association with the Company as an Outside Director or Scientific Advisor; provided, however, that if the Optionee's association was involuntarily terminated (with or without cause), Optionee may exercise, during a 90-day period commencing with date of termination, all Options theretofore vested, or which vest during said 90-day period, under the Vesting Schedule set forth in Paragraph 2.04, above. At the end of the 90-day period, all rights of such Optionee under any then outstanding option or right shall terminate and shall be forfeited immediately as to any unexercised portion thereof. -6- 7 2.10. EFFECT OF EXERCISE. The exercise of any Stock Option shall cancel that number of related Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Option. 2.11. RULE 16b-3 EXEMPTION. Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any successor provisions thereto, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the 1934 Act with respect to Plan transactions. ARTICLE III -- LIMITED RIGHTS 3.01. AWARD OF LIMITED RIGHTS. Concurrently with the award of each Stock Option, there shall automatically be awarded to the Optionee, with respect to each Option, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Common Stock in lieu of exercising the Option ("Limited Right"). 3.02. LIMITED RIGHTS AGREEMENT. Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine. 3.03. EXERCISE PERIOD. Limited Rights shall (and must) be exercised immediately preceding or simultaneous with the date of a Change in Control of ABI (the "Exercise Period"), and all Limited Rights held by the Optionee shall be exercised during such Exercise Period, without regard to the Vesting Schedule set forth in Paragraph 2.04; provided, however, that if a Change in Control shall have occurred without notice or opportunity for exercise of Limited Rights, then the Limited Rights shall be exercised as soon as practicable after a determination has been made that a "Change in Control" has occurred, or has been deemed to have occurred. As used in the Plan, a "Change in Control" shall be deemed to have occurred if -7- 8 (a) individuals who were directors of ABI immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board of Directors of ABI (or of the Board of Directors of any successor to ABI or to all or substantially all of its assets), or (b) any entity, person or Group other than ABI or a Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof acquires shares of ABI in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51%) or more of the outstanding shares. As used herein, "Control Transaction" shall be (i) any tender offer for or acquisition of capital stock of ABI, (ii) any merger, consolidation, or sale of all or substantially all of the assets of ABI which has been approved by the shareholders, (iii) any contested election of directors of ABI, or (iv) any combination of the foregoing; which results in a change in voting power sufficient to elect a majority of the Board of Directors of ABI. As used herein, "Group" shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the 1934 Act, as amended. 3.04. AMOUNT OF PAYMENT. The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100% of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Market Price of a share of such Common Stock. Market Price is defined to be the greater of (i) the highest price per share of the Company's Common Stock paid in connection with any Change in Control and (ii) the highest price per share of the Company's Common Stock paid pursuant to an unsolicited brokerage transaction during the 60-day period prior to the Change in Control. -8- 9 3.05. FORM OF PAYMENT. Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be made solely in cash. 3.06. EFFECT OF EXERCISE. If Limited Rights are exercised, the Stock Options related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the extent of the number of shares as to which the related Options were exercised or terminated. 3.07. DISABILITY. Upon termination of the Optionee's association with the Company as either an Outside Director or Scientific Advisor by reason of permanent disability (as determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Limited Right to the extent such Limited Right is otherwise exercisable during such 36-month period. 3.08. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as provided in Section 3.07, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate upon the termination of the Optionee's association with the Company as either an Outside Director or Scientific Advisor or upon the death of the Optionee. ARTICLE IV -- MISCELLANEOUS 4.01. GENERAL RESTRICTION. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be consummated in -9- 10 whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 4.02. NON-ASSIGNABILITY. Unless otherwise provided in the agreement with the Optionee, Options shall not be assignable or transferable by the recipient thereof, except by will or by the laws of descent and distribution, and during the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. If provided in the agreement with the Optionee, Options and rights may be transferred by the holder to Permitted Transferees, provided that there cannot be any consideration for the transfer. "Permitted Transferee" means a member of a holder's immediate family, trusts for the benefit of such immediate family members, and partnerships in which the holder and such immediate family members are the only partners. An immediate family member shall include a holder's descendants, spouse, and spouses of descendants. 4.03. RIGHT TO TERMINATE ASSOCIATION. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in association with the Company or affect any right which the Company or the shareholders of the Company may have to terminate the association of such participant. 4.04. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him. 4.05. DEFINITIONS. In this Plan the following definitions (along with other definitions elsewhere set forth in the Plan) shall apply: (a) "Affiliate" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with ABI. (b) "Board" means the Board of Directors of ABI. -10- 11 (c) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in The Wall Street Journal or such other source as the Board deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. (d) "Option" or "Stock Option" means all or any Options granted under the Plan. (e) "Option Price" means the purchase price per share of Common Stock deliverable upon the exercise of a Stock Option. (f) "Outside Director" means a director of ABI, who is not an employee of the Company. (g) "Scientific Advisor" means a person named by the Board of Directors of ABI to serve on the Company's Board of Scientific Advisors. -11- 12 (h) "Shares" or "shares," unless otherwise specified, shall mean shares of Common Stock. (i) "Subsidiary" means any corporation of which, at the time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by ABI or any Subsidiary thereof. 4.06. ADJUSTMENTS. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount and terms of any Limited Rights theretofore awarded under the Plan, and any and all other matters deemed appropriate by the Committee. 4.07. AMENDMENT OF THE PLAN. (a) Subject to subsection (b), the Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements. (b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without shareholder approval the Committee may not extend the term of the Plan. ABI shall seek and obtain shareholder approval of any amendment to increase the number of shares of Common Stock which may be issued under the Plan or for any other amendment to the Plan to the extent that such increase or other amendment requires shareholder approval under the requirements of the stock exchange or market system under which shares of Common Stock of the Company are then listed or the Internal Revenue Code of 1986 or other laws then in effect and applicable to the Company and the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant affect his rights under an award previously granted to him. -12- EX-10.26 4 LICENSE AGREEMENT DATED JULY 22, 1997 1 EXHIBIT 10.26 LICENSE AGREEMENT License Agreement, dated as of July 22, 1997, between Amarillo Biosciences, Inc., a Texas corporation with offices at 800 West Ninth Avenue, Amarillo, Texas 79101-3206 ("ABI"), and Hoffmann-La Roche Inc., a New Jersey corporation with offices at 340 Kingsland Street, Nutley, New Jersey 07110 ("HLR"). WITNESSETH: WHEREAS, ABI has developed technology and information relating to the field of the use of oral a-interferon for the treatment of human and animal diseases and disorders (this field hereinafter referred to as "The Field"). WHEREAS, HLR is the owner of certain patent rights in the field of human alpha interferon, including U.S. Patent No. 4,503,035 (the "Patent") expiring March 5, 2002 (the "Patent Expiration Date") and continuations, divisions or reissues thereof relating to homogeneous alpha interferon, (hereinafter collectively referred to as the "HLR Patent Rights"); WHEREAS, ABI desires to obtain a license from HLR under the HLR Patent Rights to make, have made, use, and sell in the United States natural (non- recombinant) human alpha interferon preparations in dosage forms for the treatment of animal and human diseases, and HLR is agreeable to grant such a license to ABI; and NOW, THEREFORE, in consideration of the mutual covenants herein contained the parties agree as follows: 2 1. DEFINITIONS. (a) "Licensed Product" means dosage forms of natural (non- recombinant) human alpha-interferon for the treatment of animal and human diseases, the manufacture, use or sale of which would, but for this License, infringe a valid claim under HLR Patent Rights. (b) "Affiliate" shall mean any entity controlling, controlled by or under common control with the named entity. Without limiting the generality of the foregoing, Genentech, Inc. shall not be considered to be an Affiliated Company of HLR. 2. GRANT OF LICENSE. HLR hereby grants to ABI and its Affiliates a non-exclusive and, subject to the terms of this Agreement, irrevocable and perpetual, right and license under the HLR Patent Rights (including the Patent) to make, have made, use, import, offer to sell and sell in the United States Licensed Product. ABI shall have the right to sublicense under this Agreement with the understanding that sales of Licensed Product by sublicensee(s) shall be included in Net Sales under this Agreement. ABI will provide HLR with a copy of any sublicense granted hereunder within sixty (60) days of granting such a sublicense. 3. ROYALTIES. (a) If any use of the Licensed Product is approved by the FDA, ABI shall give HLR notice of such approval not later than twenty business days after the date ABI is informed of such approval. -2- 3 (b) (i) ABI shall pay to HLR a percentage fee (the "Percentage Fee") based upon Net Sales (as hereinafter defined) of Licensed Product during each Annual Period (as hereinafter defined). "Net Sales" shall mean the invoiced amount of Licensed Product, either made in the United States or imported into the United States, and sold by ABI, less actual trade discounts, returns, allowances, charges for customs duty, freight, and sales, use, and other similar taxes (except income taxes), if any. The "Annual Period" shall be the calendar year, except that the first Annual Period shall be from the date of the first commercial sale of the Licensed Product by ABI or a Marketing Partner to the next December 31 (or to the date of termination of this Agreement, if earlier), and the last Annual Period shall be from the last January 1 during the term of this Agreement to the earlier of (A) the Patent Expiration Date and (B) the date of termination of this Agreement. (ii) The Percentage Fee that ABI shall pay to HLR for each Annual Period shall be an amount equal to 8% of Net Sales during such Annual Period up to $20,000,000 and 9.5% of Net Sales during such Annual Period in excess of $20,000,000. (iii) ABI shall deliver to HLR within 45 days following the end of each three month period (other than the last three month period) during each Annual Period, a statement signed by the chief financial officer of ABI and certified as accurate, indicating the amount of Net Sales during such three month period. Each such statement shall also indicate the number, description, -3- 4 and invoice price of Licensed Product sold during the period covered, the amount of actual trade discounts, returns, allowances, charges for customs duty, freight, and sales, use, and other similar taxes which may be deducted therefrom, and a computation of the amount of the Percentage Fee payable hereunder in respect of such Net Sales for such period. Such statement shall be furnished to HLR whether or not any Licensed Products have been sold during the period for which such statement is due. (iv) ABI shall deliver to HLR within 45 days following the end of each Annual Period, a report certified by the chief financial officer of ABI covering such Annual Period and containing the same information required to be contained in the statements referred to in Section 3(b)(iii). (v) The Percentage Fee shall be paid quarterly for each Annual Period. The Percentage Fee for each three month period (other than the last three month period) during each Annual Period shall be paid simultaneously with the delivery of the statement referred to in Section 3(b)(iii) relating to such three month period during such Annual Period, and the Percentage Fee for the last three month period of each Annual Period shall be paid simultaneously with the delivery of the report referred to in Section 3 (b)(iv) relating to such Annual Period. The Percentage Fee for each such three month period shall be computed on the basis of Net Sales from the beginning of such Annual Period through the last day of the most recent three month period, with a credit for the Percentage Fee theretofore paid to HLR for such Annual Period. -4- 5 (c) ABI shall prepare and maintain complete and accurate books of account and records covering all transactions relating to this Agreement. HLR and its duly authorized representatives shall have the right, at the sole cost and expense of HLR, during regular business hours, on not more than one occasion during any 12 month period, to examine such books of account and records with respect to the subject matter and the terms of this Agreement. All such books of account and records shall be kept available by ABI for at least three years after the Annual Period to which they relate. 4. TERM AND TERMINATION. (a) This License Agreement shall come into full force and effect as date of the last signature on the signature page and shall continue in full force and effect until the expiration date of U.S. Patent No. 4,503,035 unless sooner terminated in accordance with sections 4(b) or 4(c). (b) ABI shall have the right to terminate this Agreement at any time upon at least 30 days' written notice, after which time this Agreement shall be of no further force or effect other than the obligation of ABI to pay HLR any royalties payable as of the date of termination. (c) If ABI shall fail to perform in any material respect any material term, condition, or covenant in this Agreement on its part to be performed and such default shall continued uncured for a period of 30 days after a notice of default specifying the nature of the default has been given to ABI by HLR, HLR shall have the right to terminate this Agreement upon written notice, at which -5- 6 time this Agreement shall be of no further force or effect other than the obligation of ABI to pay HLR any royalties payable as of the date of termination. (d) The following sections shall survive expiration or termination of this License Agreement for any reason: 4(b), 4(c), 4(d), 5(b), 6(i) and 6(j). 5. PATENT INFRINGEMENT. (a) HLR shall retain the sole right at HLR's sole discretion, to enforce the Patent Rights against third party infringers. (b) Nothing in this License Agreement shall be construed as representation made or warranty given by HLR that the exercise or practice by ABI of the rights granted by HLR to ABI hereunder will not infringe the patent rights of a third party that dominate the claims of the Patent Rights. 6. MISCELLANEOUS. (a) All reports, approvals, and notices required or permitted by this Agreement to be given to a party shall be in writing and shall be deemed to be duly given if personally delivered or mailed by certified or registered mail, return receipt requested, to the party concerned at its address as set forth on page 1 above (or at such other address as a party may specify by notice to the other). All reports, approvals, and notices given to ABI shall be addressed to the attention of its President, and all reports, approvals, and notices given to HLR shall be addressed to the attention of its Corporate Secretary and all payments in cash -6- 7 made to HLR shall be sent to Hoffmann-La Roche Inc., P.O. Box 12069, Newark, New Jersey 07100. (b) Neither party may sell, assign, transfer, or otherwise convey any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other, except to a corporation which has succeeded to substantially acquire all the business and assets of the assignor and assumed in writing its obligations under this Agreement or to a corporation surviving a merger or consolidation to which the party to this Agreement is a party. Any attempted sale, assignment, transfer, conveyance, or delegation in violation of this Section 6(b) shall be void. (c) This Agreement contains the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, supersedes all prior oral and written understandings and agreements relating thereto, and may not be modified, discharged, or terminated orally. (d) Nothing herein contained shall be construed to constitute the parties hereto as partners or as joint venturers, or either as agent of the other. (e) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to principles of conflict of laws. (f) Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach -7- 8 of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. (g) If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. (h) This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. (i) Nothing contained herein shall be construed to grant either party hereto the right to use, for advertising, publicity or any other purposes, the name, trade name or trademark, or contraction, abbreviation or simulation thereof, of the other party hereto. (j) ABI does hereby indemnify and agrees to save and hold HLR harmless of and from any and all liabilities, claims, causes of action, suits, losses, damages, and reasonable expenses (including, but not limited to, reasonable attorneys' fees and expenses) for which HLR may become liable or may incur or be compelled to pay in any action or claim (including, but not limited to, any action or claim relating to products liability) against HLR -8- 9 for or by reason of the manufacture, use, or sale of the Licensed Product by ABI. HLR shall give ABI prompt written notice of any such action or claim and ABI may then, in its sole discretion, take such action as it deems advisable to defend such action or claim on behalf of HLR. In the event appropriate action is not taken by ABI within 20 days of its receipt of notice from HLR, HLR shall have the right to defend such action or claim, but no settlement thereof may be made without the approval of ABI. In any case, ABI and HLR shall keep each other fully advised of all developments and shall cooperate fully with each other in all respects in connection with any such defense as is made. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written. AMARILLO BIOSCIENCES, INC. HOFFMAN-LA ROCHE, INC. By:____________________________ By:____________________________ Name: Joseph M. Cummins, Name: George W. Johnston DVM, Ph.D. Title: President and CEO Title: Vice President Date: July 22, 1997 Date: July 22, 1997 -9- EX-10.27 5 DISTRIBUTION AGREEMENT DATED JANUARY 12, 1998 1 EXHIBIT 10.27 DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT ("Agreement") is made and effective this 12th day of January, 1998, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation with its principal place of business at 800 W. 9th, Amarillo, Texas 79101 (hereinafter "SUPPLIER") and GLOBAL DAMON PHARMACEUTICAL, a company organized under the laws of the Republic of Korea with its principal place of business at Rm #1803, Garden Tower Building, 98-78 Wooni-Dong, Chongro-Ku, Seoul, Korea (hereinafter "DISTRIBUTOR") (SUPPLIER and DISTRIBUTOR are hereinafter collectively referred to as the "Parties"). MITSUBISHI CORPORATION is SUPPLIER'S shipping agent with respect to product shipped to DISTRIBUTOR under this Agreement. WHEREAS, SUPPLIER and its contract suppliers have substantial expertise in the production and use of interferon alpha (hereinafter, "IFN-a") and have proprietary rights and know-how in the field of production, purification and formulation of IFN-a; WHEREAS, SUPPLIER is willing to disclose to DISTRIBUTOR SUPPLIER Technical Information including preliminary human data; and WHEREAS, SUPPLIER has an exclusive worldwide license to market and distribute HBL IFN (as defined in ARTICLE I, below), and desires to provide HBL IFN to DISTRIBUTOR on the terms and conditions herein set forth, and DISTRIBUTOR desires to obtain the right to test, distribute and market HBL IFN on the terms and conditions herein set forth; -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, DISTRIBUTOR and SUPPLIER agree as follows: ARTICLE I DEFINITIONS 1.1. "SUPPLIER" and "DISTRIBUTOR" 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 Distribution Agreement. 1.4. "Assignee" means any permitted assignee or sublicensee of rights under this Agreement. 1.5. "HBL IFN" means the culture derived human lympho-blastoid interferon alpha used for the formulation by HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. ("HBL") of natural IFN alpha-containing formulations for use in the treatment of human renal cell carcinoma and hepatitis B and C in Japan, which may be produced, purified and formulated by HBL in Japan, or under license from HBL in Japan, or elsewhere. 1.6. "Licensed Indications" means the human diseases of hepatitis B, hepatitis C, and primary liver cancer. -2- 3 1.7. "Licensed Product" means a dose formulation or composition containing HBL IFN and designated, detailed, or labeled for oral use in the treatment of any Licensed Indication. 1.8. "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 IFN-containing compositions, and any non-public information relevant to the business of the Parties which is necessarily disclosed by one to the other during the Parties' conduct under this Agreement. "SUPPLIER Technical Information" refers to Technical Information originating with SUPPLIER or which SUPPLIER has obtained through its contractual relationships with third parties. "DISTRIBUTOR Technical Information" refers to Technical Information originating with DISTRIBUTOR or which DISTRIBUTOR has obtained through its contractual relationships with third parties. "Technical Information" when not otherwise specified herein means both SUPPLIER Technical Information and DISTRIBUTOR Technical Information. ARTICLE II GRANT OF DISTRIBUTION RIGHTS 2.1. SUPPLIER grants to DISTRIBUTOR and DISTRIBUTOR accepts, subject to the terms of this Agreement, the exclusive right to use Licensed Product for testing or trials, and upon proper regulatory approval, for marketing and distribution to treat the Licensed Indications in Korea. -3- 4 2.2. The distribution rights granted to DISTRIBUTOR under this Agreement shall commence on the effective date of this Agreement and shall terminate immediately upon the termination or expiration of this Agreement. 2.3. DISTRIBUTOR shall have the right to use and sell Licensed Product only in Korea. DISTRIBUTOR shall not seek customers, establish any branch or maintain any distribution depot for Licensed Product in any country other than Korea. DISTRIBUTOR shall not sell Licensed Product to any customer in any country other than Korea or to any customer in Korea if to the knowledge of DISTRIBUTOR such customer intends to resell the Licensed Product in any country other than Korea. 2.4. All Licensed Product sold by DISTRIBUTOR shall bear SUPPLIER'S trademark or logo, acknowledging SUPPLIER as developer and manufacturer. Alternatively, DISTRIBUTOR may recommend to SUPPLIER for its approval one or more other registerable trademarks for the Licensed Products in Korea. If needed, SUPPLIER shall apply for any new trademark registration, and SUPPLIER shall own all rights to such trademarks. SUPPLIER hereby grants to DISTRIBUTOR during the term of this Agreement the exclusive license to use such trademarks in Korea in connection with the use or sale of Licensed Products. DISTRIBUTOR shall not directly or indirectly use any of SUPPLIER'S trademarks or part thereof, or any mark or name confusingly similar thereto, as part of its corporate or -4- 5 business name or in any other manner, except that (1) DISTRIBUTOR may identify itself as an authorized distributor of SUPPLIER and (2) on SUPPLIER'S written consent DISTRIBUTOR may use SUPPLIER'S trademarks relating to the Licensed Product for display purposes in connection with solicitation of orders for Licensed Product from customers in Korea, and in any other manner previously approved by SUPPLIER in writing. In addition, DISTRIBUTOR shall not register any of SUPPLIER'S trademarks or any mark or name closely resembling them. 2.5. DISTRIBUTOR agrees to cooperate with and assist SUPPLIER, at SUPPLIER'S expense, in the protection of trademarks, patents, or copyrights owned by or licensed to SUPPLIER and shall inform SUPPLIER immediately of any infringements or other improper action with respect to such trademarks, patents, or copyrights that shall come to the attention of DISTRIBUTOR. 2.6. In the event SUPPLIER or an Affiliate of SUPPLIER obtains at any time during the term of this Agreement US FDA approval of an HBL interferon-containing product for oral use in humans in any indication other than a Licensed Indication, then SUPPLIER will thereupon extend to DISTRIBUTOR a right of first refusal to the distribution rights for any such indication(s) in the Republic of Korea. SUPPLIER and DISTRIBUTOR shall negotiate in good faith, with the goal of entering into a distribution agreement with respect to any such products. In the event the Parties should fail to reach agreement with respect to one or more indications, SUPPLIER may (at its election) provide to DISTRIBUTOR in writing an -5- 6 itemization of the material terms and provisions which SUPPLIER wishes to have contained in such an agreement. Thereupon, DISTRIBUTOR shall have a period of sixty (60) days during which DISTRIBUTOR may accept such terms, and offer to enter into a distribution agreement with SUPPLIER, on that basis. In the event DISTRIBUTOR fails to acknowledge its acceptance of such terms in writing within said sixty (60) day period, SUPPLIER shall thereupon be permitted to enter into a distribution agreement with an entity other than DISTRIBUTOR, upon the same terms and conditions which had been noticed to DISTRIBUTOR, or upon terms and conditions no less favorable to SUPPLIER, nor more favorable to the distributor, than those terms previously noticed to DISTRIBUTOR. However, in the event SUPPLIER does not enter into such an agreement with another entity within six (6) months of the expiration of said sixty (60) day notice period, all of the terms and provisions of this Paragraph 2.6 shall once again be of full force and effect, and SUPPLIER shall not thereafter enter into any such distribution agreement with respect to sale or use of such products in Korea, without once again granting to DISTRIBUTOR the aforesaid right of first refusal. ARTICLE III SUPPLY OF PRODUCT 3.1. Subject to the terms and conditions of this Agreement, SUPPLIER shall supply Licensed Product for testing and (upon approval) sale in the country of Korea exclusively to DISTRIBUTOR, and to no other persons or entities. Licensed Product -6- 7 shall be supplied in response to issuance by DISTRIBUTOR of written purchase orders delivered to SUPPLIER specifying the quantity to be supplied, along with any special instructions/requests regarding supply and/or delivery. Foil stripping will be included at no additional cost, if requested by DISTRIBUTOR. 3.2. SUPPLIER agrees to allow DISTRIBUTOR right of reference to SUPPLIER'S US FDA Drug Master File for HBL IFN and to do such other acts that are reasonably necessary, and within SUPPLIER'S control, to facilitate approval of HBL IFN-containing lozenges in Korea for use in Licensed Indications, and SUPPLIER also hereby agrees to consult with DISTRIBUTOR concerning regulatory affairs, to review documents to be submitted to Korean agencies for approval, and to take such other actions as may be necessary from time to time to facilitate approval of Licensed Products for sale and use in Korea. SUPPLIER also agrees to provide clinical data from its past, current or future studies, that would be relevant to the testing, use or sale of Licensed Products. SUPPLIER further agrees to provide, at its actual cost, sufficient HBL IFN-containing lozenges for preliminary studies and clinical trials as may be appropriate and necessary to support applications for approval and commercialization of such products, including (if requested by DISTRIBUTOR) placebo, packaging, instructions, and inserts. 3.3. SUPPLIER shall provide to DISTRIBUTOR any support or assistance requested by DISTRIBUTOR with respect to regulatory and clinical activities, on a fully reimbursed basis. -7- 8 ARTICLE IV CONSIDERATION 4.1. For all Licensed Product supplied by SUPPLIER to DISTRIBUTOR (other than quantities provided for trials pursuant to Paragraph 3.2 above), SUPPLIER shall receive from DISTRIBUTOR the amount of two dollars ($2.00) per HBL IFN-containing lozenge, foil-stripped, plus SUPPLIER'S actual costs for any additional packaging, labeling, instructions, and other inserts requested by DISTRIBUTOR. The price shall be further adjusted from time to time as may be necessary to reflect any increase in the Producers Price Index, Drugs and Pharmaceuticals, Subdivision Code 063, after the date of this Agreement. In addition, the price shall be further increased to reflect any increases for (i) the incremental cost of any raw material or combination of raw materials that increases by more than twenty percent (20%) from SUPPLIER'S cost at the date of this Agreement, and (ii) the incremental cost arising from changes in product specifications, manufacturing, testing, or release of the product. After December 31, 2002, the price paid by DISTRIBUTOR shall be increased by fifty cents ($.50) per lozenge for the remaining term of this Agreement, in addition to any prior and/or subsequent adjustments made pursuant to the foregoing provisions of this Paragraph 4.1. DISTRIBUTOR shall receive product at the named port of destination in the Republic of Korea and the shipping arrangements shall be made by SUPPLIER'S nominated shipping agent. DISTRIBUTOR shall pay CIF price at the named port of destination in Republic of Korea against the invoice price containing shipping -8- 9 charge, freight, and insurance, in addition to the product price specified above. Title to product purchased by DISTRIBUTOR shall transfer to DISTRIBUTOR, and DISTRIBUTOR shall pay all freight charges and bear the risk of loss and damage, from the time product is placed at the disposal of ship's rail at the port of destination. 4.2. From and after the Effective Date of this Agreement, DISTRIBUTOR shall proceed with reasonable diligence, and shall make its best effort, to seek and obtain, and to maintain, in each case at its own cost and expense and without any contribution from SUPPLIER, all necessary licenses or approvals required to be issued by the Republic of Korea or any agency or instrumentality thereof as a pre-condition to the import and sale of Licensed Products, and including any pricing or reimbursement approvals, and will diligently market all approved Licensed Products throughout the term of this Agreement. DISTRIBUTOR will conduct clinical trials at its own expense (including conduct of Phase I, II and III trials, if required). Any approvals, import licenses, or other licenses ultimately issuing from the Republic of Korea or any agency or instrumentality thereof authorizing import and/or sale of any Licensed Product shall be issued in the name of SUPPLIER, if permitted by Korean law and regulations; and otherwise, shall be issued in the name of DISTRIBUTOR for use only pursuant to this Agreement. If at any time during the term of this Agreement DISTRIBUTOR should no longer be actively prosecuting the application for any such approval or license, or if, having obtained such -9- 10 approval or license, DISTRIBUTOR should no longer be actively developing or marketing any Licensed Product under this Agreement, SUPPLIER shall have the option to request assignment of such applications, approvals, and/or licenses from DISTRIBUTOR, and upon such request by SUPPLIER to DISTRIBUTOR, DISTRIBUTOR shall thereupon assign to SUPPLIER or its designee all of DISTRIBUTOR'S right, title and interest in and to all such applications, approvals and/or licenses, to the extent permitted by Korean law and regulations. 4.3. DISTRIBUTOR shall provide SUPPLIER by January 31 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 DISTRIBUTOR with respect to formulation development, pre-clinical and clinical testing, regulatory approval efforts, marketing/sales strategy, and any other areas into which DISTRIBUTOR'S reasonable business efforts in accordance with this paragraph may reasonably be categorized. Such report shall be accompanied by labelling, instructions, promotional and other support materials developed for DISTRIBUTOR'S sales force, patients, physicians, or other outside parties. Such a report shall be prepared more often if SUPPLIER so requests in writing, if SUPPLIER pays to DISTRIBUTOR the expenses incurred by DISTRIBUTOR in generating such additional reports. It is understood that SUPPLIER will receive all such information as DISTRIBUTOR Technical Information. -10- 11 4.4. DISTRIBUTOR shall seek SUPPLIER'S approval of protocols for proposed clinical studies, and will share the results of such studies with SUPPLIER. DISTRIBUTOR shall provide to SUPPLIER full access to all of the data related to IFN-a generated by any trials, tests or studies conducted by or for DISTRIBUTOR, or under contract from DISTRIBUTOR, or under its auspices, and whether such trials, tests or studies are conducted before or after drug approval. For purposes of this Section 4.4, "full access" shall mean and include copies of all data related to IFN-a generated by such trials, tests or studies, and copies of any analyses or compilations prepared by or for DISTRIBUTOR, or under contract from DISTRIBUTOR, or under its auspices. All such data, results, and compilations shall constitute DISTRIBUTOR Technical Information under this Agreement. 4.5. At any time during the term of this Agreement, DISTRIBUTOR shall provide to SUPPLIER, within thirty (30) days of SUPPLIER'S request, copies of all data not previously provided to SUPPLIER, relating to the testing and development of Licensed Product generated by DISTRIBUTOR or by others for DISTRIBUTOR during the term of this Agreement, to that date. 4.6. DISTRIBUTOR shall commence marketing of a Licensed Product within twelve (12) months after receiving government approval for commercial sale of such product in Korea. DISTRIBUTOR shall use its best efforts to advertise, promote and sell such product within Korea after approval, and in that regard, SUPPLIER shall pay to DISTRIBUTOR the sum of fifty cents ($.50) per lozenge -11- 12 purchased by DISTRIBUTOR, for DISTRIBUTOR'S use in marketing and promotion. Such funds shall be paid to DISTRIBUTOR on an annual basis with respect to lozenges purchased by DISTRIBUTOR during that year, against receipt by SUPPLIER of a current marketing and promotion budget prepared by DISTRIBUTOR. 4.7. Unless specifically authorized in writing by SUPPLIER, DISTRIBUTOR shall not sell, or offer for sale, or act as sales agent for the solicitation of orders for any products (other than Licensed Products) that contain any interferon derived from any species and designated, detailed, or labeled for oral use for any Licensed Indication. SUPPLIER shall not authorize any third parties, directly or indirectly, to market or sell any interferon in Korea for oral use in the treatment of any Licensed Indication. 4.8. DISTRIBUTOR shall provide medical, pharmacovigilance and other appropriate customer support services in connection with sale of Licensed Products, and will report to SUPPLIER on a timely basis all material adverse reactions, product complaints and other relevant customer feedback. DISTRIBUTOR agrees to advise SUPPLIER fully with respect to all health, safety, environmental, and other standards, specifications, and other requirements imposed by law, regulation, or order in Korea and applicable to Licensed Product. DISTRIBUTOR shall also advise SUPPLIER of all instructions, warnings, and labels applicable to Licensed Product that are necessary or desirable under laws, regulations, or practices in Korea. SUPPLIER shall be entitled to increase the price charged to DISTRIBUTOR by the amount of any increase in SUPPLIER'S cost of manufacturing attributable to compliance with any such safety standards, specifications, labels or other requirements. -12- 13 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, DISTRIBUTOR will furnish SUPPLIER with its projected requirements for HBL IFN-containing lozenges during the next succeeding calendar year. DISTRIBUTOR may amend its projected requirements from time-to-time, provided, however, that SUPPLIER 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 SUPPLIER be required to deliver to DISTRIBUTOR hereunder, an amount of HBL IFN which exceeds the amount SUPPLIER is able, in good faith, to acquire from HBL, or from HBL's contract manufacturers. HBL IFN delivered under this Agreement by SUPPLIER to DISTRIBUTOR may be delivered in the form of 150 I.U. lozenges, unless otherwise agreed by both Parties. Such lozenges may contain such other ingredients as are permitted to be contained in lozenges approved by U.S. FDA for U.S. trials and/or sales, and the exact composition of such lozenges shall be disclosed in writing by SUPPLIER to DISTRIBUTOR. If DISTRIBUTOR should at any time desire some other composition or formulation, it shall specify the requested composition or formulation in writing to SUPPLIER, and SUPPLIER -13- 14 shall exercise its best efforts to obtain such composition or formulation; provided, however, that SUPPLIER shall not be responsible for any loss, cost or damages of whatsoever nature which may arise to DISTRIBUTOR, its Affiliates, purchasers, or distributees by reason of SUPPLIER'S inability, for whatever reason, to obtain such alternate formulation; and further provided that SUPPLIER shall be entitled to be compensated for any cost or expense incurred by it in obtaining such alternate composition or formulation. Subject to the foregoing, SUPPLIER shall use its best efforts to deliver HBL IFN-containing lozenges in accordance with DISTRIBUTOR'S projected requirements and product specifications. 5.2. SUPPLIER shall ship product within fifteen (15) days of request by DISTRIBUTOR, against an irrevocable letter of credit (or other financial surety acceptable to SUPPLIER or to the agent nominated by SUPPLIER) in an amount sufficient to cover the CIF price payable to SUPPLIER or the agent nominated by SUPPLIER under Paragraph 4.1 above. The letter of credit shall be issued by a financial institution acceptable to SUPPLIER or to the agent nominated by SUPPLIER, shall be in U.S. dollars and shall not expire until the final payment for the respective shipment has been made to SUPPLIER or to the agent nominated by SUPPLIER. 5.3. Orders of product for commercial sales shall be made for "full lot" quantities of one hundred thousand (100,000) lozenges. A minimum of two hundred thousand (200,000) lozenges shall be purchased by DISTRIBUTOR during each year during the term of this Agreement, commencing with the first full calendar year after all necessary approvals for marketing and reimbursement have been obtained. -14- 15 ARTICLE VI TERM AND TERMINATION 6.1. This Agreement and all rights granted hereunder by each Party shall terminate upon December 31, 2007, provided, however, that if DISTRIBUTOR does not commence one (1) Phase I, Phase II or Phase III trial, as may be required or advisable, within one (1) year after DISTRIBUTOR receives all supporting documentation required for application to the Health Authority for approval of commencement of such trial; and after approval of at least one (1) Licensed Product, place orders for minimum annual shipments as provided in Paragraph 5.3, above; then SUPPLIER shall have the right to terminate this Agreement upon thirty (30) days prior written notice to DISTRIBUTOR. DISTRIBUTOR will proceed diligently to obtain market approval according to a timetable to be agreed upon between SUPPLIER and DISTRIBUTOR by December 31, 1998. In this connection, SUPPLIER and DISTRIBUTOR agree and stipulate that the time required to obtain market approval might reasonably be expected to be five (5) years from commencement of a Phase I trial; three (3) to four (4) years from commencement of a Phase II trial; and two (2) to three (3) years from commencement of a Phase III trial. 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. -15- 16 6.3. On termination of this Agreement for any reason, DISTRIBUTOR shall cease to use or evaluate any HBL IFN-containing products in its possession and shall cease to sell Licensed Product and shall surrender to SUPPLIER all SUPPLIER Technical Information that it may have received during the term of this Agreement, and shall assign any license it holds on behalf of SUPPLIER in accordance with Paragraph 4.2, above. Any accrued payment obligations shall be paid within thirty (30) days of the termination of this Agreement. ARTICLE VII WARRANTY AND INDEMNIFICATION 7.1. SUPPLIER represents and warrants that as of the date of this Agreement, it is the exclusive owner of the right to sell and distribute HBL IFN for oral use in humans in the country of Korea. SUPPLIER further warrants that at the time of shipment, all product supplied by it (i) shall meet product specifications as set forth in this Agreement, or as otherwise previously agreed in writing between SUPPLIER and DISTRIBUTOR; (ii) shall not be adulterated or misbranded; and (iii) shall be manufactured in accordance with good manufacturing practices. SUPPLIER shall indemnify and hold DISTRIBUTOR harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against DISTRIBUTOR arising from any claim made or suit brought as a result of a breach by SUPPLIER of its warranties under this Paragraph 7.1. -16- 17 7.2. DISTRIBUTOR warrants that its operations and activities in Korea shall be in compliance with Korean law, statutes and regulations; and DISTRIBUTOR shall indemnify and hold SUPPLIER harmless from any and all costs, expenses, damages, judgments, and liabilities incurred by or rendered against SUPPLIER or its affiliates arising from the use, testing, recall, labelling, promotions, sale or distribution of Licensed Product. ARTICLE VIII CONFIDENTIALITY 8.1. SUPPLIER owns or is licensed under confidential or secret information relating to the Licensed Products, and DISTRIBUTOR intends to conduct trials in Korea which will generate confidential or secret information relating to the Licensed Products, and it is the intention of both SUPPLIER and DISTRIBUTOR 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: -17- 18 8.3.1. Is publicly known and available through some means other than by the recipient Party's act or omission; or 8.3.2. Was in the recipient Party's possession prior to its disclosure by the other Party, provided that written evidence of such possession is established; or 8.3.3. Has come into the recipient Party's possession through a third party free of any obligation of confidentiality to the disclosing Party, where said third party has acquired said information 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. DISTRIBUTOR shall have the right to use SUPPLIER'S Technical Information, and to access SUPPLIER'S US FDA Drug Master File for HBL IFN, 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 DISTRIBUTOR shall secure Confidential Non-Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell Licensed Product. -18- 19 8.7. SUPPLIER shall have the right to use DISTRIBUTOR'S Technical Information for the purposes of designing protocols and studies outside Korea, and for submission to regulatory authorities in any country other than Korea, in connection with an application for drug approval. ARTICLE IX MISCELLANEOUS 9.1. Force Majeure. The failure of DISTRIBUTOR, SUPPLIER, 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. 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 -19- 20 registered mail, facsimile transmission, 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: In case of DISTRIBUTOR: President Global Damon Pharmaceutical Suite 1803, Garden Tower Building 98-78 Wooni-Dong, Chongro-Ku Seoul, Korea Fax: 82-2-3673-2369 In case of SUPPLIER: President Amarillo Biosciences, Inc. 800 W. 9th Amarillo, Texas 79101 Fax: 806/376-9301 And: Edward L. Morris Morris, Moore, Moss & Douglass, P.C. P. O. Box 15208 Amarillo, TX 79105 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 DISTRIBUTOR shall be for DISTRIBUTOR'S own -20- 21 account as a principal and not as an agent of SUPPLIER. DISTRIBUTOR shall act in all respects as an independent contractor and not as a representative or agent of SUPPLIER. 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 another person or entity without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 9.7. Dispute Resolution. A. Conciliation. All disputes arising between the Parties concerning the validity, construction, or effect of this Agreement, or the rights and obligations created hereunder, shall be brought before a conciliation committee of executives representing both Parties that shall, within two (2) weeks after being informed of the dispute, attempt to work out a recommendation for settlement of the dispute and transmit such recommendation to both Parties for due consideration. B. Arbitration. Any dispute that cannot be settled amicably by conciliation as provided above shall be heard, settled, and decided by binding arbitration. Such arbitration if initiated by SUPPLIER shall take place in Seoul, Korea; and if initiated by DISTRIBUTOR shall take place in Amarillo, Texas, -21- 22 U.S.A. In each case, the arbitration will take place under applicable laws and regulations in force at the specified situs. The award in such arbitration shall be final and enforceable in any court of competent jurisdiction. 9.8. Governing Language. The English language of this Agreement shall govern and control any translations of the Agreement into any other language. Documents furnished by DISTRIBUTOR to SUPPLIER under the terms of this Agreement shall be furnished in English, or alternatively, may be furnished in Korean, 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. SUPPLIER: DISTRIBUTOR: AMARILLO BIOSCIENCES, INC. GLOBAL DAMON PHARMACEUTICAL By: By: -------------------------------- -------------------------------- Joseph M. Cummins, D. K. Kim, President President -22- EX-10.28 6 DISTRIBUTION AGREEMENT DATED SEPTEMBER 17, 1997 1 EXHIBIT 10.28 DISTRIBUTION AGREEMENT: TNF-A: HUMAN, ORAL AND TOPICAL; OTHER SPECIES, ALL ROUTES THIS AGREEMENT is made and effective this 17th day of September, 1997, 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 HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan (hereinafter "HBL") (ABI and HBL collectively referred to hereinafter as the "Parties"). WHEREAS, HBL desires to grant to ABI, and ABI desires to have, the exclusive right to distribute HBL's human tumor necrosis factor alpha (hereinafter, "HBL TNF-a") for oral and topical use in human species and use by all routes of administration in non-human species worldwide, except Japan; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, HBL and ABI agree as follows: SECTION 1. RIGHT TO DISTRIBUTE. HBL hereby grants to ABI the exclusive right to distribute products containing HBL TNF-a for oral and topical use in human species and use by all routes of administration in non-human species worldwide, except Japan. SECTION 2. CONSIDERATION. HBL shall receive a transfer fee from ABI in the amount of (US) five cents ($.05) -1- 2 per 200 Japanese Reference Unit ("JRU") 200 mg tablet or lozenge, or comparable tablet or lozenge, f.o.b. Okayama, Japan, which price shall include the TNF-a contained therein, maltose, other required ingredients, TNF-a assays, and technical assistance. If HBL TNF-a is shipped in bulk, as may be requested by ABI, HBL shall receive, in lieu of the above, the amount of (US) one hundred fifty and no/100 dollars ($150.00) per two hundred thousand (200,000) JRU of HBL TNF-a, f.o.b. Okayama, Japan. If HBL TNF-a is formulated at ABI's request into tablets or lozenges by HBL in Japan, then in addition to the above transfer fee, HBL shall also be entitled to be reimbursed for incremental costs actually incurred by HBL with regard to tableting and packaging, including labor and materials. HBL shall also receive from ABI or its affiliate, a manufacturing and supply fee equal to eight percent (8%) of the Net Sales Value of HBL TNF-a-containing products sold by ABI for use in any species, worldwide. Net Sales Value for this purpose shall mean the amount of cash and/or other consideration actually received by ABI or its affiliates or sublicensees, with respect to the sale by ABI, its affiliates, or sublicensees of a HBL TNF-a-containing product after the product is diluted into packaged dose formulations or compositions designated or detailed and labeled for use in any species, including all packaging, instructional or other charges made to a purchaser, but less ABI's (or its -2- 3 affiliate's or sublicensee's) actual out-of-pocket costs related to packaging, labeling, and instructional materials, and less customary trade discounts or credits allowed for return of defective products. If products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to the commercial sale of similar products to unrelated third parties in similar quantities. Payment of the manufacturing and supply fee of eight percent (8%) of Net Sales Value shall be made within forty-five (45) days following the end of each calendar quarter of each year for all products sold by or for ABI and its affiliates and/or its sublicensees during said calendar quarter, beginning with the calendar quarter in which products are first sold by ABI, its affiliates, or sublicensees. Such fee payment shall be accompanied by a statement certified by an officer of ABI or its affiliate or sublicensee, as appropriate, which provides sufficient information from which to calculate the amount of the payments due hereunder, including the total quantity and Net Sales Value of products sold for which a fee has accrued during the preceding calendar quarter, and the aggregate payment due. A statement shall also be submitted to HBL in the event that no sales of products are made. -3- 4 Payments shall be made in U.S. Dollars and remitted to the bank account designated by HBL. With respect to sales in countries outside the United States, fees shall accrue in the currency of the country in which the sales are made and shall be payable to HBL in U.S. Dollars at the official rate of exchange prevailing on the last day of the quarter during which the fee accrued. In addition to the aforesaid fees, HBL shall receive fifty percent (50%) of any license fee, option fee, or other payment, except royalty or specific research or patent expense reimbursements, which ABI may receive for the sublicense of rights under this Agreement to the sale and/or use of HBL TNF- a (hereinafter, "50% fee"). The transfer fees payable to HBL for products delivered to ABI or sublicensees shall accrue on delivery and shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which the products are sold to ABI, its affiliate or sublicensee, and each calendar quarter thereafter. The 50% fee shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which ABI receives any payment from which such 50% fee should be calculated. SECTION 3. RECORD KEEPING. ABI and its affiliates or sublicensees shall keep accurate records in sufficient detail to enable determination of the fees payable to HBL hereunder. -4- 5 SECTION 4. TERM. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of ten (10) years from the date of this Agreement. After that initial term, the Agreement shall be automatically renewed for successive three (3) year terms unless one of the Parties gives written notice of termination to the other prior to commencement of the renewal term. Any termination pursuant to this paragraph shall not relieve HBL of any obligation to fill purchase orders placed with HBL prior to termination. If ABI shall at any time during the initial term or any subsequent Renewal Term of this Agreement default in any obligation hereunder or fail to pay any payment due, and such default shall not be cured within sixty (60) days after written notice from HBL to ABI specifying the nature of the default, HBL may terminate this Agreement, or may demand specific performance. SECTION 5. CONFIDENTIALITY. Each Party agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other Party and that the Parties may together subsequently acquire in relation to HBL TNF-a-containing products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. -5- 6 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 (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. 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 HBL TNF-a-containing products. -6- 7 ABI shall have the right to use HBL's confidential or secret information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its affiliates, actual and potential sublicensees, third party contract consultants and scientific investigators (from whom ABI shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell HBL TNF-a-containing products. SECTION 6. MISCELLANEOUS. (1) Force Majeure. The failure of HBL, ABI, or any of their affiliates or sublicensees to take any act required by this Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject said Party to any liability to the other. -7- 8 (2) Arbitration. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to 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 HBL, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ABI, it shall be held in Tokyo, Osaka, Japan in compliance with the Rules of the Japan Commercial Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any competent court having competent jurisdiction to enforce said award. (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, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as -8- 9 it may designate by written notice given to the other Party as follows: In case of HBL: Mr. Katsuaki Hayashibara Director, Overseas Business Development Hayashibara Company, Ltd. 2-3, Shimoishii l-chome Okayama 700, Japan In case of ABI: Dr. Joe Cummins, President Amarillo Biosciences, Inc. 800 W. 9th Amarillo, Texas 79101 (4) Assignment. This Agreement shall not be assignable by HBL to any person or entity other than an HBL affiliate without the prior written consent of ABI, which consent shall not be unreasonably withheld. This Agreement shall not be assignable by ABI to any person or entity other than an ABI affiliate or a sublicensee without the prior written consent of HBL, which consent shall not be unreasonably withheld. (5) Nature of Relationship. Nothing herein shall be construed to place the parties in a relationship of partners or joint venturers, nor does this Agreement make either party the agent or legal representative of the other for any purposes whatsoever. The parties further agree that no representation shall be made by either party that would create an apparent agency, employment, partnership or joint venture. Neither party shall have the power express or -9- 10 implied, to obligate or bind the other in any manner whatsoever. (6) Governmental Approval. In the event HBL has to obtain the approval from appropriate governmental authorities of Japan to deliver HBL TNF-a or products containing HBL TNF-a to the country in where ABI, ABI's affiliates or sublicensees will use and/or market HBL TNF-a or products containing HBL TNF-a, HBL's obligation pertaining to the supply of the said materials to the said country shall be subject to the receipt by HBL of such written approval. 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: HBL: AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. By: /s/ JOSEPH M. CUMMINS By: /s/ KEN HAYASHIBARA -------------------------------- -------------------------------- Dr. Joseph M. Cummins Mr. Ken Hayashibara President President -10- EX-10.29 7 DISTRIBUTION AGREEMENT DATED SEPTEMBER 17, 1997 1 EXHIBIT 10.29 DISTRIBUTION AGREEMENT: TNF-A: HUMAN, ORAL AND TOPICAL; OTHER SPECIES, ALL ROUTES THIS AGREEMENT is made and effective this 17th day of September 1997, 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 HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan (hereinafter "HBL") (ABI and HBL collectively referred to hereinafter as the "Parties"). WHEREAS, HBL desires to grant to ABI, and ABI desires to have, the exclusive right to distribute HBL's human tumor necrosis factor alpha (hereinafter, "HBL TNF-a") for oral and topical use in human species and use by all routes of administration in non-human species worldwide, except Japan; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, HBL and ABI agree as follows: SECTION 1. RIGHT TO DISTRIBUTE. HBL hereby grants to ABI the exclusive right to distribute products containing HBL TNF-a for oral and topical use in human species and use by all routes of administration in non-human species worldwide, except Japan. SECTION 2. CONSIDERATION. HBL shall receive a transfer fee from ABI in the amount of (US) five cents ($.05) -1- 2 per 200 Japanese Reference Unit ("JRU") 200 mg tablet or lozenge, or comparable tablet or lozenge, f.o.b. Okayama, Japan, which price shall include the TNF-a contained therein, maltose, other required ingredients, TNF-a assays, and techni- cal assistance. If HBL TNF-a is shipped in bulk, as may be requested by ABI, HBL shall receive, in lieu of the above, the amount of (US) one hundred fifty and no/100 dollars ($150.00) per two hundred thousand (200,000) JRU of HBL TNF-a, f.o.b. Okayama, Japan. If HBL TNF-a is formulated at ABI's request into tablets or lozenges by HBL in Japan, then in addition to the above transfer fee, HBL shall also be entitled to be reimbursed for incremental costs actually incurred by HBL with regard to tableting and packaging, including labor and materials. HBL shall also receive from ABI or its affiliate, a manufacturing and supply fee equal to eight percent (8%) of the Net Sales Value of HBL TNF-a-containing products sold by ABI for use in any species, worldwide. Net Sales Value for this purpose shall mean the amount of cash and/or other consideration actually received by ABI or its affiliates or sublicensees, with respect to the sale by ABI, its affiliates, or sublicensees of a HBL TNF-a-containing product after the product is diluted into packaged dose formulations or compositions designated or detailed and labeled for use in any species, including all packaging, instructional or other charges made to a purchaser, but less ABI's (or its -2- 3 affiliate's or sublicensee's) actual out-of-pocket costs related to packaging, labeling, and instructional materials, and less customary trade discounts or credits allowed for return of defective products. If products are sold in transactions which are not bona fide arms-length transactions, Net Sales Value for such sales shall be valued as equal to the commercial sale of similar products to unrelated third parties in similar quantities. Payment of the manufacturing and supply fee of eight percent (8%) of Net Sales Value shall be made within forty-five (45) days following the end of each calendar quarter of each year for all products sold by or for ABI and its affiliates and/or its sublicensees during said calendar quarter, beginning with the calendar quarter in which products are first sold by ABI, its affiliates, or sublicensees. Such fee payment shall be accompanied by a statement certified by an officer of ABI or its affiliate or sublicensee, as appropriate, which provides sufficient information from which to calculate the amount of the payments due hereunder, including the total quantity and Net Sales Value of products sold for which a fee has accrued during the preceding calendar quarter, and the aggregate payment due. A statement shall also be submitted to HBL in the event that no sales of products are made. -3- 4 Payments shall be made in U.S. Dollars and remitted to the bank account designated by HBL. With respect to sales in countries outside the United States, fees shall accrue in the currency of the country in which the sales are made and shall be payable to HBL in U.S. Dollars at the official rate of exchange prevailing on the last day of the quarter during which the fee accrued. In addition to the aforesaid fees, HBL shall receive fifty percent (50%) of any license fee, option fee, or other payment, except royalty or specific research or patent expense reimbursements, which ABI may receive for the sublicense of rights under this Agreement to the sale and/or use of HBL TNF-a (hereinafter, "50% fee"). The transfer fees payable to HBL for products delivered to ABI or sublicensees shall accrue on delivery and shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which the products are sold to ABI, its affiliate or sublicensee, and each calendar quarter thereafter. The 50% fee shall be payable to HBL within forty-five (45) days of the close of the calendar quarter in which ABI receives any payment from which such 50% fee should be calculated. SECTION 3. RECORD KEEPING. ABI and its affiliates or sublicensees shall keep accurate records in sufficient detail to enable determination of the fees payable to HBL hereunder. -4- 5 SECTION 4. TERM. Unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of ten (10) years from the date of this Agreement. After that initial term, the Agreement shall be automatically renewed for successive three (3) year terms unless one of the Parties gives written notice of termination to the other prior to commencement of the renewal term. Any termination pursuant to this paragraph shall not relieve HBL of any obligation to fill purchase orders placed with HBL prior to termination. If ABI shall at any time during the initial term or any subsequent Renewal Term of this Agreement default in any obligation hereunder or fail to pay any payment due, and such default shall not be cured within sixty (60) days after written notice from HBL to ABI specifying the nature of the default, HBL may terminate this Agreement, or may demand specific performance. SECTION 5. CONFIDENTIALITY. Each Party agrees to maintain confidential and secret all information which may be disclosed or provided to it by the other Party and that the Parties may together subsequently acquire in relation to HBL TNF-a-containing products and which is designated in writing by clearly identifiable legend as being confidential or secret in character. -5- 6 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 (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. 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 HBL TNF-a-containing products. -6- 7 ABI shall have the right to use HBL's confidential or secret information to the extent reasonably necessary to accomplish the objectives of this Agreement, including specifically the right to disclose such information to its affiliates, actual and potential sublicensees, third party contract consultants and scientific investigators (from whom ABI shall secure Confidential Disclosure Agreements) and to regulatory agencies in support of applications for regulatory agency approval to make, test and/or sell HBL TNF-a-containing products. SECTION 6. MISCELLANEOUS. (1) Force Majeure. The failure of HBL, ABI, or any of their affiliates or sublicensees to take any act required by this Agreement if occasioned by an act of God or the public enemy, fire, explosion, perils of the sea, floods, drought, war riot, sabotage, accident, embargo or any circumstance of like or different character beyond the reasonable control of the Party so failing or by the interruption or delay in transportation, inadequacy, or shortage or failure of the supply of materials and/or equipment, equipment breakdown, labor trouble or compliance with any order, direction, action or request of any governmental officer, department or agency and whether in any case such circumstance now exists or hereafter arises, shall not subject said Party to any liability to the other. -7- 8 (2) Arbitration. The parties hereto desire to avoid and settle without litigation future disputes which may arise between them relative to this Agreement. Accordingly, the parties agree to engage in good faith negotiations to 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 HBL, it shall be held in the State of Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the American Arbitration Association. If arbitration is initiated by ABI, it shall be held in Tokyo, Osaka, Japan in compliance with the Rules of the Japan Commercial Arbitration Association. The arbitration award shall be final and binding upon the parties hereto and may be filed with and enforced by any competent court having competent jurisdiction to enforce said award. (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, or by telex or telefax addressed to it at its address set forth, or to such other address(es) as -8- 9 it may designate by written notice given to the other Party as follows: In case of HBL: Mr. Katsuaki Hayashibara Director, Overseas Business Development Hayashibara Company, Ltd. 2-3, Shimoishii l-chome Okayama 700, Japan In case of ABI: Dr. Joe Cummins, President Amarillo Biosciences, Inc. 800 W. 9th Amarillo, Texas 79101 (4) Assignment. This Agreement shall not be assignable by HBL to any person or entity other than an HBL affiliate without the prior written consent of ABI, which consent shall not be unreasonably withheld. This Agreement shall not be assignable by ABI to any person or entity other than an ABI affiliate or a sublicensee without the prior written consent of HBL, which consent shall not be unreasonably withheld. (5) Nature of Relationship. Nothing herein shall be construed to place the parties in a relationship of partners or joint venturers, nor does this Agreement make either party the agent or legal representative of the other for any purposes whatsoever. The parties further agree that no representation shall be made by either party that would create an apparent agency, employment, partnership or joint venture. Neither party shall have the power express or -9- 10 implied, to obligate or bind the other in any manner whatsoever. (6) Governmental Approval. In the event HBL has to obtain the approval from appropriate governmental authorities of Japan to deliver HBL TNF-a or products containing HBL TNF-a to the country in where ABI, ABI's affiliates or sublicensees will use and/or market HBL TNF-a or products containing HBL TNF-a, HBL's obligation pertaining to the supply of the said materials to the said country shall be subject to the receipt by HBL of such written approval. 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: HBL: - --- --- AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. By: /s/ JOSEPH M. CUMMINS By: /s/ KEN HAYASHIBARA ----------------------------------- -------------------------------- Dr. Joseph M. Cummins Mr. Ken Hayashibara President President -10- EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 879,170 6,007,182 0 0 0 6,957,131 234,163 108,984 7,248,631 214,068 2,600,000 0 0 54,142 4,380,421 7,248,631 396 652,658 0 1,650,415 0 0 118,060 (2,471,252) 0 (2,471,252) 0 0 0 (2,471,252) (.46) (.46)
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