FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-19825
CALIFORNIA 94-3116852
(State or other jurisdiction of incorporation or organization) (I.R.S. employer
identification no.)
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901 MARINERS ISLAND BLVD., SUITE 205, SAN MATEO, CALIFORNIA 94404
(Address of principal executive offices) (Zip code)
(650) 358-3456
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
As of November 13, 1998, 20,199,471 shares of the registrant's Common Stock, no par value, were issued and outstanding.
SCICLONE PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations
Three and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 2,358,516 $ 3,619,100
Short-term investments 3,032,388 3,866,007
Accounts receivable 1,663,273 1,024,802
Inventory 1,490,298 2,046,218
Prepaid expenses and other current assets 1,047,285 332,193
------------- -------------
Total current assets 9,591,760 10,888,320
Property and equipment, net 432,043 525,077
Long-term investments 1,527,968 5,415,358
Notes receivable from officers 1,562,050 2,326,851
Other assets 2,579,760 39,899
------------- -------------
Total assets $ 15,693,581 $ 19,195,505
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 487,549 $ 562,730
Accrued compensation and benefits 625,043 758,955
Accrued clinical trials expense 2,149,536 1,210,164
Accrued professional fees 900,250 818,000
Other accrued expenses 191,865 121,999
------------- -------------
Total current liabilities 4,354,243 3,471,848
Redeemable preferred stock, no par value; 10,000,000
shares authorized; 570,108 shares issued and
outstanding 6,156,398 --
Shareholders' equity:
Common stock, no par value; 75,000,000 shares
authorized; 18,706,085 and 17,348,108 shares
issued and outstanding 111,161,841 107,033,516
Note receivable from former officer (5,944,000) (5,944,000)
Net unrealized gain (loss) on available-for-sale
securities 34,717 (17,588)
Accumulated deficit (100,069,618) (85,348,271)
------------- -------------
Total shareholders' equity 11,339,338 15,723,657
------------- -------------
Total liabilities and shareholders' equity $ 15,693,581 $ 19,195,505
============= =============
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See notes to consolidated financial statements
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ----------- ------------ -------------
Product revenue $ 1,005,698 $ 673,499 $ 2,361,387 $ 1,967,117
Contract revenue -- -- 100,000 --
------------ ----------- ------------ -------------
Total revenue 1,005,698 673,499 2,461,387 1,967,117
Cost of product sales 252,760 263,861 680,904 788,339
------------ ----------- ------------ -------------
Gross profit 752,938 409,638 1,780,483 1,178,778
Operating expenses:
Research and development 2,131,791 2,383,822 6,494,633 6,469,421
Special research and development charges 708,363 -- 708,363 --
Marketing 1,307,104 1,017,447 3,861,886 2,996,899
General and administrative 925,571 884,455 2,773,545 2,649,752
------------ ----------- ------------ -------------
Total operating expenses 5,072,829 4,285,724 13,838,427 12,116,072
------------ ----------- ------------ -------------
Loss from operations (4,319,891) (3,876,086) (12,057,944) (10,937,294)
Interest and investment income, net 131,541 358,522 479,636 1,024,949
------------ ----------- ------------ -------------
Net loss (4,188,350) (3,517,564) (11,578,308) (9,732,345)
Deemed dividend on issuance of
preferred stock -- -- (3,143,039) --
------------ ----------- ------------ -------------
Net loss attributable to common
shareholders $ (4,188,350) $(3,517,564) $(14,721,347) $ (9,732,345)
============ =========== ============ ==============
Net loss per share (basic & diluted) $ (0.26) $ (0.22) $ (0.94) $ (0.58)
============ =========== ============ ==============
Weighted average shares used in
computing per share amounts 15,954,322 15,796,713 15,640,453 16,829,584
============ =========== ============ =============
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See notes to consolidated financial statements
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
1998 1997
--------------- ---------------
OPERATING ACTIVITIES:
Net loss attributable to common shareholders $(14,721,347) $ (9,732,345)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 170,247 90,614
Deemed dividend on issuance of Series C preferred stock 3,143,039 --
Acquisition of product rights 708,363 --
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,866,164) 1,591,179
Accounts receivable (638,471) (1,145,782)
Inventory 555,920 494,398
Accounts payable and other accrued expenses (5,315) (942,709)
Accrued clinical trial expense 939,372 67,617
Accrued professional fees 82,250 (1,011,000)
Accrued compensation and benefits (133,912) 16,409
------------ ------------
Net cash used in operating activities (11,766,018) (10,571,619)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (77,213) (203,032)
Sale of marketable securities, net 4,576,439 18,346,517
------------ ------------
Net cash provided by investing activities 4,499,226 18,143,485
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 221,730 1,099,465
Proceeds from issuance of equity line financing warrants, net 342,041 --
Proceeds from issuance of Sclavo warrants, net 735,000 --
Proceeds from issuance of Series C preferred stock & warrants, net 3,957,437 --
Note receivable from former officer -- (6,024,885)
Payment on notes receivable from officer 750,000 --
Repurchase of common stock -- (4,267,249)
------------ ------------
Net cash provided by (used in) financing activities 6,006,208 (9,192,669)
------------ ------------
Net decrease in cash and cash equivalents (1,260,584) (1,620,803)
Cash and cash equivalents, beginning of period 3,619,100 4,642,590
------------ ------------
Cash and cash equivalents, end of period $ 2,358,516 $ 3,021,787
============ ============
Supplemental disclosures of non-cash financing activities:
Deemed dividend on issuance of Series C preferred stock $ 3,143,039 $ --
Warrants attributable to Series C preferred stock 245,000 --
Warrants attributable to equity line financing 460,000 --
Warrants attributable to Sclavo acquisition rights 735,000 --
Conversion of Series C preferred stock to common stock 944,078 --
Common stock issued to acquire product rights 1,885,476 --
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See notes to consolidated financial statements
SCICLONE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 1997. Certain items in the financial statements have been reclassified to conform to current quarter presentation. The interim financial information reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The interim results are not necessarily indicative of results for subsequent interim periods or for the full year.
2. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share, if more dilutive, for all periods presented. In accordance with SFAS 128, basic net loss per share has been computed using the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share has not been presented as the result would be antidilutive given the Company's history of net losses.
3. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net loss or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. For the three-month periods ended September 30, 1998 and 1997, total comprehensive loss attributable to common shareholders amounted to $(4,153,633) and $(3,621,766), respectively. For the nine-month periods ended September 30, 1998 and 1997, total comprehensive loss attributable to common shareholders amounted to $(14,686,630) and $(9,836,547), respectively.
4. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that the Company report financial and descriptive information about its reportable operating segments. The Company is evaluating the impact, if any, on SFAS 131 disclosures, but does not believe the disclosures are material.
5. The following is a summary of available-for sale securities at September 30, 1998:
Available-for-Sale Securities
---------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
U.S. Government &
Agency obligations $ 993,028 $ 20,847 $ -- $1,013,875
Corporate obligations 3,542,447 40,669 (36,635) 3,546,481
---------- --------- ---------- ----------
$4,535,475 $ 61,516 $ (36,635) $4,560,356
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The amortized cost and estimated fair value of available-for-sale securities at September 30, 1998 by contractual maturity are shown below.
Estimated
Fair
Cost Value
---------- ----------
Due in one year or less $3,042,823 $3,032,388
Due after one year through three years 1,492,652 1,527,968
---------- ----------
$4,535,475 $4,560,356
========== ==========
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6. The following is a summary of inventories at September 30, 1998:
Raw materials $1,465,637
Finished goods 24,661
----------
$1,490,298
==========
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7. For the nine months ended September 30, 1998, one customer in China accounted for 49% of the Company's product sales. Such customer represents 67% of the accounts receivable balance at September 30, 1998. Such receivables are currently being paid on time. As of September 30, 1998, the Company had $36,000 as an allowance for bad debts.
8. In April 1998, the Company sold 661,157 shares of Series C preferred stock at $6.05 per share and received $3,712,000 in net proceeds from the offering. The preferred stock is convertible into common stock at any time over the next five years at prices based on the market price of the common stock during a pricing period preceding conversion. During the third quarter ended September 30, 1998, 91,049 shares of Series C preferred stock were converted into 467,969 shares of common stock. Through November 13, 1998, an additional 274,513 shares of Series C preferred stock were converted into 1,366,350 shares of common stock. In conjunction with the offering, the Company granted to the investors warrants to purchase 100,000 shares of common stock. These warrants are exercisable during the five-year period ending March 2003 at an exercise price of $5.67 per share. In the second quarter ended June 30, 1998, the Company recognized a deemed dividend in the amount of $3,143,000 in connection with the issuance of the Series C preferred stock. This amount increased the net loss and net loss per share attributable to common shareholders and was calculated as required by the SEC.
9. In September 1998, the Company closed an agreement with Sclavo S.p.A. ("Sclavo"), an international pharmaceutical company, to acquire Sclavo's marketing approval for ZADAXIN thymosin alpha 1 in Italy as an influenza vaccine adjuvant, a marketing application in Italy for use of ZADAXIN to treat non-small cell lung cancer, as well as all of Sclavo's development and marketing rights to ZADAXIN in Italy, Spain and Portugal. The purchase price consisted of $296,875 in cash, 375,000 shares of the Company's common stock, and warrants to purchase 375,000 shares of common stock at an exercise price of $4.125 per share. In connection with this agreement, the Company has estimated the value of these rights to be $1,401,000, which have been capitalized as other assets in the third quarter ended September 30, 1998.
10. In June 1998, the Company entered into an agreement with an institutional investor for an equity line which allows the Company to access up to $32 million through sales of its common stock over a two-year period, subject to certain limitations. The decision to draw any funds and the timing for any such draw is solely at the Company's discretion. The Company is not obligated to draw any minimum amount under the equity line. The agreement provides that the Company, at its option, can obtain up to $4,000,000 per quarter for two years through sales of its common stock. Should the Company elect to draw upon the equity line, any shares sold will be at a 3% discount to the average sale price of the Company's common stock over a specified period of time prior to the date of each sale. As a commitment fee to the investor, the Company issued a five-year warrant to purchase 200,000 shares of its common stock at an exercise price of $5.53 per share. Up to 300,000 additional warrants to purchase common stock at no less than $5.53 per share will be issued to the investor based upon the number of shares of common stock purchased by the investor each calendar year during the term of the financing. Draws under the equity line are subject to the satisfaction of certain conditions, including registration of the investor's resale of the shares, a minimum trading price per share, volume limitations, and limitations on the number of shares of the Company's common stock the investor may hold at any point in time. Unless the Company and the investor agree otherwise, the facility is not available when the Company's stock is trading at less than $1.50 per share. Further the amount available under the line is subject to a formula and the amount available in any quarter could be minimal. No assurances can be given that the Company will be able to obtain necessary funds under the equity line when and if it desires to do so.
11. In July 1998, the Company and Alpha 1 Biomedicals, Inc. ("A1B") closed an Asset Purchase Agreement pursuant to which the Company acquired A1B's worldwide rights to ZADAXIN and eliminated the Company's and its current and future sublicensee's royalty obligations to A1B with respect to future sales of thymosin alpha 1. This agreement was approved by A1B's stockholders at A1B's 1988 Annual Meeting of Stockholders in July 1998. In accordance with the agreement, the Company has issued to A1B 549,703 shares of common stock (444,115 shares issued in July 1998 and 105,588 shares issued in October 1998) and loaned to A1B $210,000 in exchange for the assets described above. The Company may be required to issue to A1B an additional 50,297 shares under the agreement. In connection with this agreement, the Company has estimated the value of these rights to be $708,000, which have been capitalized as other assets and has also recognized a special research and development charge of $708,000 during the third quarter ended September 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following material contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. Such forward-looking statements include those which management has
identified with an asterisk (*). Such forward-looking statements are subject to
risks and uncertainties, including those identified in Factors That May Affect
Future Operating Results elsewhere herein and in the Company's Annual Report on
Securities and Exchange Commission Form 10-K for the year ended December 31,
1997. These risks and uncertainties include (i) the Company's current reliance
on a single product, ZADAXIN(R) thymosin alpha 1, for its revenues, (ii) the
absence of regulatory approval for ZADAXIN in major pharmaceutical markets,
(iii) the expensive, time consuming and uncertain regulatory approval process,
(iv) risks associated with the manufacture and supply of ZADAXIN, (v)
competition from competing therapies, (vi) market acceptance of the Company's
products, (vii) uncertainties regarding the outcome of the Company's efforts to
develop and commercialize additional products, including CPX and (viii) the need
for additional funds and a strategic partner for the commencement of additional
trials for ZADAXIN and CPX, as well as other risks and uncertainties described
herein and in the Company's other reports filed with the Securities and Exchange
Commission.
The Company is a global biopharmaceutical company that acquires, develops and commercializes specialist-oriented drugs for treating chronic and life-threatening diseases such as hepatitis B, hepatitis C, cancer, immune system disorders and cystic fibrosis. Currently, the Company has two drugs in clinical development, ZADAXIN for hepatitis B, hepatitis C, cancer and immune system disorders, and CPX for cystic fibrosis. The Company also has other drug candidates in preclinical development. To date, the Company's principal focus has been the development and commercialization of ZADAXIN for hepatitis B and hepatitis C and the development of CPX for cystic fibrosis.
From commencement of operations through September 30, 1998, the Company incurred a cumulative net loss of approximately $101.4 million. The Company expects its operating expenses to increase over the next several years as it expands its research and development, clinical testing and marketing capabilities.* The Company's ability to achieve profitable operations is primarily dependent on increasing ZADAXIN sales in approved markets, securing regulatory approvals for ZADAXIN in additional countries and successfully launching ZADAXIN, if approved, in such countries. In addition, other factors may also impact the Company's ability to achieve a profitable level of operations such as spending associated with successful development of ZADAXIN and CPX in major pharmaceutical markets, acquiring rights to additional drugs, and entering into and extending agreements for product development and commercialization, where appropriate. There can be no assurance that the Company will be able to attain these objectives or that the Company will ever achieve a profitable level of operations.
The Company's operating results may fluctuate from period to period as a result of, among other things, market acceptance of ZADAXIN, the timing and costs associated with preclinical and clinical development of the Company's products, the regulatory approval process, and the acquisition of additional product rights. The Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock price. Setbacks in the launch, sale or distribution of ZADAXIN, preclinical and clinical development of the Company's products, the regulatory approval process or relationships with collaborative partners, and any shortfalls in revenue or earnings from levels expected by securities analysts, among other developments, have in the past had and could in the future have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period.
RESULTS OF OPERATIONS
Total revenue was approximately $1,006,000 and $2,461,000 for the three-month and nine-month periods ended September 30, 1998, respectively as compared to approximately $673,000 and $1,967,000 for the corresponding periods in 1997. For the nine months ended September 30, 1998, $2,361,000 of total revenue was derived from ZADAXIN product sales and $100,000 from a research grant from the U.S. Food and Drug Administration. For the three months ended September 30, 1998, all of the $1,006,000 total revenue was related to ZADAXIN product sales. Currently, ZADAXIN has been approved for marketing in Argentina, Italy, Kuwait, Myanmar, the People's Republic of China, Peru, the Philippines and Singapore. For the three months ended September 30, 1998, one customer in China accounted for 49% of the Company's product sales. Such customer represents 67% of the accounts receivable balance at September 30, 1998. The Company's accounts receivable collections in China are currently approximately 150 days and have been trending downward. At September 30, 1998, the Company had allowances for bad debts of $36,000. The Company has filed for approval to market ZADAXIN in several countries and anticipates additional filings in other countries.* As a result, the Company expects product revenue to continue to increase in 1998 and beyond, upon the commencement of the commercial launch of ZADAXIN in additional markets once regulatory approvals are secured.* The level of such product revenue increase, if any, is dependent upon increased ZADAXIN market penetration in the Company's existing approved markets, additional ZADAXIN marketing approvals and the successful launch of ZADAXIN in new markets. Although the Company remains optimistic regarding the prospects of ZADAXIN, there can be no assurance that the Company will ever achieve significant levels of product revenue, receive additional ZADAXIN market approvals, or achieve a profitable level of operations.
Cost of sales was approximately $253,000 and $681,000 for the three-month periods and nine-month periods ended September 30, 1998, respectively as compared to approximately $264,000 and $788,000 for the corresponding periods in 1997. The decrease is attributable to decreased payroll costs, professional services and travel expenses. The Company expects cost of sales to vary from quarter to quarter, dependent upon the level of product revenue, the absorption of fixed product-related costs, and any charges associated with excess or expiring finished product.
Research and development expenses were approximately $2,840,000 and $7,203,000 for the three-month periods and nine-month periods ended September 30, 1998, respectively as compared to approximately $2,384,000 and $6,469,000 for the corresponding periods in 1997. The increase in the three-month and nine-month periods are primarily attributable to the acquisition of additional rights to ZADAXIN and increased clinical trial expenses partially offset by decreased payroll costs, professional services and travel expenses. In July and September 1998, the Company completed the acquisition of worldwide rights to ZADAXIN by closing transactions with Alpha 1 Biomedicals, Inc. and Sclavo S.p.A., respectively, consisting of $1,885,000 related to the issuance of common stock to the two parties as well as $197,000 in cash. In connection with these agreements, the Company has estimated the value of these rights to be $1,374,000 which have been capitalized as other assets and has also recognized a one-time special research and development charge of $708,000 during the third quarter ended September 30, 1998. The Company started its CPX Phase 2 clinical trial in U.S. in September. The Company is pursuing a corporate partnering arrangement with a major pharmaceutical company for development in the U.S. and Europe of a combination therapy for hepatitis C including ZADAXIN plus interferon.* The initiation and continuation of these programs by the Company had and will continue to
have a significant effect on the Company's research and development expenses in the future and will require the Company to seek additional capital resources.* In general, the Company expects product research and development expenses to increase over the next several years and to vary quarter to quarter as the Company pursues its strategy of initiating additional clinical trials and testing, entering into one or more corporate partnering arrangements, acquiring product rights, and expanding regulatory activities.*
Marketing expenses were approximately $1,307,000 and $3,862,000 for the three-month periods and nine-month periods ended September 30, 1998, respectively as compared to approximately $1,017,000 and $2,997,000 for the corresponding periods in 1997. The increase relates to increased payroll costs, and expenses for travel and promotional materials associated with the expansion in the Company's existing markets offset by decreased conference and seminar costs. The Company expects marketing expenses to increase in the next several quarters and years as it anticipates expanding its commercialization and marketing efforts and pursuing other strategic relationships.*
General and administrative expenses were approximately $926,000 and $2,774,000 for the three-month periods and nine-month periods ended September 30, 1998, respectively as compared to approximately $884,000 and $2,650,000 for the corresponding periods in 1997. The increase is attributable to increased general office and travel expenses and fees for professional services, offset by decreased payroll costs. In the near term, the Company expects general and administrative expenses to vary quarter to quarter as the Company augments its general and administrative activities and resources to support increased expenditures on clinical trials and testing, and regulatory, pre-commercialization and marketing activities.*
Net interest and investment income was approximately $132,000 and $480,000 for the three-month periods and nine-month periods ended September 30, 1998, respectively as compared to approximately $359,000 and $1,205,000 for the corresponding periods in 1997. The decrease primarily resulted from decreased interest and investment income due to lower average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had approximately $6,919,000 in cash, cash equivalents and liquid short and long-term investments.
Net cash used by the Company in operating activities amounted to approximately $11,766,000 for the nine-month period ended September 30, 1998. Net cash used in operating activities in the 1998 period is less than the Company's net loss attributable to common shareholders for such period due to non-cash charges associated with depreciation and amortization, a deemed dividend on issuance of preferred stock and acquisition of product rights as well as decreases in inventory and increases in amount owed to third parties for clinical trials and professional fees. These were partially offset by increases in account receivable, prepayments of certain future expenses and payments to employees for compensation and benefits. Net cash used by the Company in operating activities amounted to approximately $10,572,000 for the nine-month period ended September 30, 1997. Net cash used in operating activities in the 1997 period is greater than the Company's net loss for such period primarily due to increases in accounts receivable associated with sales from the Company's launch of ZADAXIN in its approved markets and increases in payments to third parties for goods and services. These uses of cash were offset by non-cash charges
associated with depreciation and amortization, decreases in prepayments of certain future periods expenses, and increases in amounts owed to third parties for clinical trials.
Net cash provided by investing activities amounted to approximately $4,499,000 for the nine-month period ended September 30, 1998 related to the net sale of approximately $4,576,000 of marketable securities offset by the purchase of approximately $77,000 in equipment and furniture. Net cash provided by investing activities amounted to approximately $18,143,000 for the nine-month period ended September 30, 1997 related to the net sale of approximately $18,347,000 of marketable securities offset by the purchase of $203,000 in equipment and furniture.
Net cash provided by financing activities for the nine-month period ending September 30, 1998 amounted to approximately $6,006,000, consisting of the following: a partial repayment of $750,000 on a note receivable from the Company's President and Chief Executive Officer; approximately $3,957,000 in net proceeds received from the issuance of Series C preferred stock and warrants; approximately $342,000 in deemed net proceeds from the issuance of warrants under the Company's equity line; $735,000 indeemed net proceeds from the issuance of warrants under the Sclavo agreement; and $222,000 in net proceeds from issuance of common stock under the Company's stock option plan and employee stock purchase plan. Net cash provided by financing activities for the nine-month period ending September 30, 1997 primarily consisted of approximately $1,099,000 in proceeds received from the issuance of common stock from the exercise of outstanding warrants and under the Company's stock option plan, offset by repurchases of the Company's common stock under the Company's approved stock repurchase plan of approximately $4,267,000 and amounts loaned to Mr. Thomas E. Moore, a former officer, of approximately $5,944,000. In July 1997, the Company loaned Thomas E. Moore, former Chairman, Chief Executive Officer and one of the founders of the Company, $5,944,000 secured by approximately 1.9 million shares of SciClone common stock owned by Mr. Moore. In connection with this transaction, Mr. Moore resigned from the Company. The loan carries interest at 7% and is payable on demand. During the period Mr. Moore's loan is outstanding and immediately prior to the closing of any offering of the Company's common stock, the Company may convert the loan in a non-cash exchange into Mr. Moore's SciClone common stock by retiring his common stock at a fixed discount rate from the offering price. To date, the Company has not retired any of Mr. Moore's SciClone common stock. This loan has been classified as an offset to shareholders' equity. Because the market value of this underlying collateral is currently below the face value of the note, there is the potential that if this value is viewed as more than temporary, the book value of the note would have to be written down through a non-cash charge to operations to the underlying value of the collateral. As of September 30, 1998, the underlying value of the collateral was approximately $3,407,000, resulting in a potential impairment of approximately $2,537,000. Under all circumstances, including any potential impairment, Mr. Moore is obligated to repay the entire balance of the loan plus accrued interest. The Company is monitoring this matter and will review it thoroughly as of the fiscal year-end and may be required to make such an adjustment for the quarter ended December 31, 1998.
Management believes its existing capital resources and interest on funds available are adequate to maintain its current and planned operations at least through June 1999.* In April 1998, the Company concluded an offering of Series C preferred stock with net proceeds of $3,712,000. In June 1998, the Company entered into an agreement with an institutional investor for an equity line, which allows the Company to access up to $32 million through sales of its common stock over a two-year period, subject to certain limitations, including registration of the investor's resale of the shares, minimum trading price per share, volume limitations and limitations on the number of shares of the Company's common stock the investor may hold at any point in time. Unless the Company and the investor agree otherwise, the facility is not available when the Company's stock is
trading at less than $1.50 per share. Further the amount available under the line is subject to a formula and the amount available in any quarter could be minimal. No assurances can be given that the Company will be able to obtain funds from the equity line when and if it desires to do so. The Company is pursuing corporate partnering and other opportunities to increase its capital resources.* If one or more of such other opportunities occurred, the Company would consider accelerating drug development activities, including clinical trials.* However, the Company's capital requirements may change depending upon numerous factors, including the level of ZADAXIN product sales, the availability of complementary products, technologies and businesses, the initiation of preclinical and clinical trials and testing, the timing of regulatory approvals, developments in relationships with existing or future collaborative partners and the status of competitive products. If the Company cannot eventually generate sufficient funds from operations or its equity line, it will need to raise additional private financing in the near future. There can be no assurance that such financing will be available on acceptable terms and on a timely basis, if at all.
IMPACT OF THE YEAR 2000
As is true for most companies, the Year 2000 computer issue creates a risk for the Company. If systems do not correctly recognize date information when the year changes to 2000, there could be an adverse impact on the Company's operations. The risk for the Company exists in the following areas: systems used by the Company to run its business and systems used by the Company's vendors. The Company is currently evaluating its exposure in both of these areas.
The Company has reviewed its current systems and has been evaluating whether it is appropriate to replace or upgrade systems that are known to be Year 2000 non-compliant. For those areas which have been identified as Year 2000 non-compliant, the cost to upgrade or replace is not expected to be material to the Company's operating results.
The Company is in the process of contacting its critical vendors to determine that the vendors' operations and the products and services they provide are Year 2000 compliant. To varying degrees, the Company is dependent upon a large number of third parties that provide information, goods and services to the Company. These include financial institutions, suppliers, vendors, research partners and governmental entities. If significant numbers of these third parties experience failures in their computer systems or equipment due to Year 2000 non-compliance, it could affect the Company's ability to process transactions, manufacture products or engage in similar normal business activities. While some of these risks are outside the control of the Company, the Company has instituted programs, including internal records review and use of external questionnaires to identify key third parties, assess their level of Year 2000 compliance, update contracts and address any non-compliance issues.
The total costs related to Year 2000 compliance cannot be known precisely at this time but it is not expected to be material to the Company's financial position, results of operations or cash flows.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Dependence on ZADAXIN and CPX. The Company's principal drug development efforts are currently focused primarily on ZADAXIN and CPX. Clinical trials of ZADAXIN sponsored by the Company and/or other parties are currently in progress or planned and
favorable results from such trials will be necessary to gain regulatory approval in major pharmaceutical markets. Sales of ZADAXIN commenced in 1997. While ZADAXIN has been approved for commercial sale for treatment of hepatitis B in the People's Republic of China, Kuwait, Myanmar, Peru, the Philippines and Singapore and for hepatitis C in the Philippines, no assurance can be given that ZADAXIN approvals will be obtained in additional countries or for the treatment of additional indications, such as hepatitis C or cancer, in a timely fashion or at all. The Company's launch of ZADAXIN in the People's Republic of China, the Philippines and Singapore is the first commercial introduction of ZADAXIN by the Company, and no assurance can be given that commercialization of ZADAXIN will prove successful. The Company has not yet launched ZADAXIN in Argentina, Italy, Kuwait, Myanmar, or Peru and no assurance can be given that future launches of ZADAXIN will prove successful in these countries or in any additional countries. Future sales of ZADAXIN will depend on market acceptance and successful distribution. In particular, although the People's Republic of China has the highest hepatitis B prevalence rate in the world, the low average income and poorly developed distribution infrastructure present ongoing challenges to successful commercialization of ZADAXIN in that market. Because the Company currently relies on ZADAXIN as its sole source of revenue, the failure to demonstrate the drug's efficacy in future clinical trials, obtain additional marketing approvals or commercialize the drug successfully would have a material adverse effect on the Company.
The Company may experience delays and encounter difficulties in clinical trials of CPX. In addition, there can be no assurance that any clinical trial will provide statistically significant evidence of the efficacy of CPX in treating cystic fibrosis ("CF"). A failure to demonstrate the safety and efficacy of CPX in a CF clinical trial, obtain regulatory approval of CPX for CF or successfully commercialize CPX could have a material adverse effect on the Company.
No History of Significant Revenues; Continuing Operating Losses. The Company has only recently generated revenues from the commercialization of its lead product, ZADAXIN, and there is substantial uncertainty regarding the timing and amount of any future revenues and whether such future revenues will be material. The Company cannot predict when or if marketing approvals for CPX will be obtained or additional marketing approvals for ZADAXIN will be obtained. Even if such approvals are obtained, there can be no assurance that ZADAXIN and CPX will be commercialized successfully. The Company has experienced significant operating losses since its inception and has a substantial accumulated deficit. The Company expects its operating expenses to increase over the next several years as it expands its development, clinical testing and marketing capabilities. The Company's ability to achieve a profitable level of operations is dependent in large part on successful expansion of the market for ZADAXIN in Asia, Latin America and the Middle East, obtaining additional regulatory approvals for ZADAXIN and/or future products, entering into a corporate partnering arrangement for development in the U.S. and Europe of a combination therapy for hepatitis C including ZADAXIN plus interferon, entering into other agreements for product development and commercialization, where appropriate, and continuing to expand from development into successful marketing. There can be no assurance that the Company will ever achieve a profitable level of operations.
Future Capital Needs; Uncertainty of Additional Financing. Since inception, the Company has financed its operations primarily through sales of equity securities. The Company will need to obtain additional financing through sales of equity securities to support its long-term product development and commercialization programs. The Company
believes its existing capital resources and interest on funds available are adequate to maintain its current and planned operations at least through June 1999.* The Company is considering corporate partnering, a private placement of equity securities, the sale of equity securities under its equity line and other opportunities to increase its capital resources. However, the Company's future capital requirements will depend on many factors, including the level of ZADAXIN product sales, the availability of complementary products, technologies and businesses, the initiation of preclinical and clinical trials and testing, the timing and cost of regulatory approvals, patent costs, competing technological and market developments, the nature of existing and future collaborative relationships, and the Company's ability to establish development, sales, manufacturing and marketing arrangements. If additional funds are raised by the Company through the issuance of equity securities or securities convertible into or exercisable for equity securities, the percentage ownership of the then current shareholders of the Company will be reduced. The Company may issue a series of Preferred Stock with rights, preferences and privileges senior to those of the Company's Common Stock. There can be no assurance that such financing will be available on acceptable terms or a timely basis, if at all. The unavailability or timing of financing could prevent or delay the Company's long-term product development and commercialization programs and may require curtailment of operations of the Company. The Company has negotiated an equity line financing (see note 10 to financial statements). Unless the Company and the investor agree otherwise, the facility is not available when the Company's stock is trading at less than $1.50 per share. Further the amount available under the line is subject to a formula and the amount available in any quarter could be minimal.
Potential Impairment of Note Receivable from Former Chairman/CEO. On July 23, 1997, the Company loaned to Thomas E. Moore, its former Chairman/CEO, $5,944,000 in exchange for a promise to repay the loan on demand and the pledge of 1,882,500 shares of SciClone Common Stock owned by Mr. Moore. Because the market value of this underlying collateral is currently below the face value of the note, there is the potential that if this value is viewed as more than temporary, the book value of the note would have to be written down through a non-cash charge to operations to the underlying value of the collateral. As of September 30, 1998, the underlying value of the collateral was approximately $3,407,000, resulting in a potential impairment of approximately $2,537,000. Under all circumstances, including any potential impairment, Mr. Moore is obligated to repay the entire balance of the loan plus accrued interest. The Company is monitoring this matter and will review it thoroughly as of the fiscal year-end and may be required to make such an adjustment for the quarter ended December 31, 1998.
Dilution; Shares eligible for Future Sale. Pursuant to the equity line, the Company may issue to an institutional investor up to $4.0 million of Common Stock during its each of eight consecutive three-month investment periods (or $32 million in the aggregate) at a price equal to 97% of the lowest reported sale price during the four days immediately preceding the date on which the notice of purchase delivered by the investor to the Company. Issuances, if any, of Common Stock pursuant to the equity line would have a dilutive effect on existing holders of Common Stock. In connection with the equity line, the Company also issued to the institutional investor the Warrant to purchase 200,000 shares of Common Stock at $5.53 per share and may issue warrants to purchase up to an additional 300,000 shares of Common Stock at a price equal to 150% of weighted average purchase price of the Common Stock purchased during the year with respect to which the additional warrant is issued. The resale by the investor of the Common Stock that it acquires could depress the market price of the Common Stock. Moreover, as all the shares to be issued pursuant to the equity line as well as the shares issuable upon exercise of the warrant and the additional
warrants, if any, will be available for immediate resale, the prospects of such sales could further adversely affect the market price for the Common Stock. In April 1998, the Company issued shares of Series C Preferred Stock (the "Series C Shares") in a private placement with proceeds of $4,000,000 (before deducting offering expenses). Under certain conditions each Series C Share may convert into substantially more than one share of the Company's Common Stock. If such events were to occur, the conversion of the Series C Shares would have a dilutive effect on the common shareholders.
Dependence on Third Parties. The Company's strategy contemplates that it will enter into various collaborative arrangements with other entities. To date, the Company has acquired rights to ZADAXIN, CPX and certain other drugs but is only actively pursuing clinical development of ZADAXIN and CPX. Failure to license or otherwise acquire rights to additional drugs would result in a shortage of products for development. In addition, the Company has licensed exclusive rights to develop and market ZADAXIN in Japan to Schering-Plough K.K. ("SPKK"), the Japanese subsidiary of Schering-Plough Corporation. SPKK has a substantial commitment to alpha interferon, which is an approved therapy for hepatitis B and hepatitis C in Japan. There can be no assurance that the relationship will prove successful or that the Company will be able to negotiate additional arrangements in the future, including a corporate partnering arrangement for development in the U.S. and Europe of a combination therapy for hepatitis C including ZADAXIN plus interferon. The amount and timing of resources that collaborators devote to their activities with the Company will not be within the control of the Company and may be affected by financial difficulties or other factors affecting these third parties. There can be no assurance that such parties will perform their obligations as expected. Moreover, the Company's ability to obtain regulatory approval in one country may be delayed or adversely affected by the timing of regulatory activities and approvals in one or more other countries, particularly if the Company does not participate in the regulatory approval process in such other countries.
Foreign Sales and Operations. The Company's financial condition in the near term will be highly dependent on ZADAXIN sales in foreign jurisdictions, where sales and operations are subject to inherent risks, including difficulties and delays in obtaining pricing approvals and reimbursement, unexpected changes in regulatory requirements, tariffs and other barriers, political instability, difficulties in staffing and managing foreign operations, longer payment cycles, greater difficulty in accounts receivable collection, currency fluctuations and potential adverse tax consequences. Certain foreign countries regulate pricing of pharmaceuticals and such regulation may result in prices significantly below those that would prevail in a free market. The majority of the Company's current sales are to customers in the People's Republic of China.
Patents and Proprietary Rights. The U.S. and most European composition of matter patents for thymosin alpha 1 have expired. The Company will in the future have only limited composition of matter patents for thymosin alpha 1 or other products and this could adversely affect the Company's proprietary rights. However, the Company owns or has exclusive licenses for use and/or process patents or patent applications in the U.S., Europe, Japan and other jurisdictions for thymosin alpha 1, and for CPX in the U.S. and will seek to protect such products from competition through such patent protection and through other means. The Company's success is significantly dependent on its ability to obtain patent protection for its products and technologies and to preserve its trade secrets and operate without infringing on the proprietary rights of third parties. No assurance can be given that the Company's pending patent applications will result in the issuance of patents or that any patents will provide competitive advantages or will not be invalidated or circumvented by its
competitors. Moreover, no assurance can be given that patents are not issued to, or patent applications have not been filed by, other companies which would have an adverse effect on the Company's ability to use, manufacture or market its products or maintain its competitive position with respect to its products. Numerous patents and patent applications relating to thymosin alpha 1 are held under exclusive license and the breach by the Company of the terms of such license could result in the loss of the Company's rights to such patents and patent applications. Other companies obtaining patents claiming products or processes useful to the Company may bring infringement actions against the Company and such litigation is typically costly and time-consuming. As a result, the Company may be required to obtain licenses from others or not be able to use, manufacture or market its products. Such licenses may not be available on commercially reasonable terms, if at all.
The patent positions of biotechnology firms generally are highly uncertain and involve complex legal and factual questions. No consistent policy has emerged regarding the validity and scope of claims in biotechnology patents, and courts have issued varying interpretations in the recent past, and legal standards concerning validity, scope and interpretations of claims in biotechnology patents may continue to evolve. Even issued patents may later be modified or revoked by the U.S. Patent and Trademark Office, the European Patent Office or the courts in proceedings instituted by third parties. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claims in another country and claim interpretation and infringement laws vary among countries, so the extent of any patent protection is uncertain and may vary in different countries.
Pharmaceuticals are not patentable in certain countries in SciClone's ZADAXIN territory, or have only recently become patentable, and enforcement of intellectual property rights in many countries in such territory has been limited or non-existent. Future enforcement of patents and proprietary rights in many countries in SciClone's ZADAXIN territory can be expected to be problematic or unpredictable. There can be no assurance that any patents issued or licensed to the Company will provide it with competitive advantages or will not be challenged by others. No assurance can be given that holders of patents licensed to the Company will file, prosecute, extend or maintain their patents in countries where the Company has rights. Furthermore, there can be no assurance that others will not independently develop similar products or will not design around patents issued or licensed to the Company.
Government Regulation and Product Approvals. The research, preclinical and clinical development, manufacturing, marketing and sales of pharmaceuticals, including ZADAXIN, CPX and the Company's other drug candidates, are subject to extensive regulation by governmental authorities. Products developed by the Company cannot be marketed commercially in any jurisdiction in which they have not been approved. The process of obtaining regulatory approvals is lengthy and requires the expenditure of substantial resources. In some countries where the Company contemplates marketing ZADAXIN, the regulatory approval process for drugs not previously approved in countries that have established clinical trial review procedures is uncertain and this uncertainty may result in delays in granting regulatory approvals. The Company is currently sponsoring clinical trials and pursuing regulatory approvals of ZADAXIN in a number of countries and of CPX in the U.S., but there can be no assurance that the Company will be able to complete such trials, that such trials, if completed, will fulfill regulatory approval criteria or that the Company will ultimately obtain approvals in such countries. Adverse results in the Company's development programs also could result in the placement of restrictions on the
use of ZADAXIN and CPX. The marketing approval for ZADAXIN in Singapore requires a patient surveillance program to continue study of the drug's safety and efficacy. Adverse results in such program could result in the placement of restrictions on the use of ZADAXIN or revocation of the approval in Singapore. Failure to comply with the applicable U.S. or foreign regulatory requirements can, among other things, result in Warning Letters, fines, suspensions of regulatory approvals, product recalls or seizures, operating restrictions, injunctions and criminal prosecutions. Further, additional government regulation may be established or imposed which could prevent or delay regulatory approval of ZADAXIN, CPX or any future products of the Company.
Manufacturing. The Company has entered into contract manufacturing and supply agreements to source ZADAXIN and CPX. The Company has experienced delays of supply of ZADAXIN bulk drug in the past and could do so again in the future. To be successful, the Company's products must be manufactured in commercial quantities in compliance with regulatory requirements and at an acceptable cost. While the Company believes it has and will be able in the future to establish manufacturing relationships with experienced suppliers capable of meeting the Company's needs, there can be no assurance that the Company will establish long term manufacturing relationships with suppliers or that these suppliers will prove satisfactory. The Company currently has vialing and packaging supply agreements in effect and has a sufficient supply of finished ZADAXIN for the near term. The Company has recently changed and upgraded its manufacturing source of finished ZADAXIN for its international markets, excluding Japan. In certain countries, this change may require additional regulatory approvals. If regulatory approvals of such manufacturing change, if required, are not obtained in a timely fashion, new ZADAXIN marketing approvals may be delayed or sales may be interrupted until the manufacturing change is approved. Production interruptions, if they occur, could significantly delay clinical development of potential products, reduce third party or clinical researcher interest and support of proposed clinical trials. Such interruptions could also delay commercialization of the Company's products and impair their competitive position, which would have a material adverse effect on the business and financial condition of the Company.
Marketing and Sales. The Company has established distribution arrangements with local pharmaceutical distribution companies covering countries in Asia, Latin America and the Middle East. However, no assurance can be given that any such distribution arrangements will remain in place or prove successful.
Technological Change and Competition. Rapid technological development may result in the Company's products becoming obsolete before they are marketed or before the Company recovers a significant portion of the related development and commercialization expenses. Competition in the pharmaceutical field is intense and the Company expects that competition will increase. The Company's competitors include major pharmaceutical companies, biotechnology firms and universities and other research institutions, both in the U.S. and abroad, that are actively engaged in research and development of products in the therapeutic areas being pursued by the Company. Many of these companies and institutions have substantially greater financial, technical, manufacturing, marketing and human resource capabilities than the Company and extensive experience in undertaking clinical testing and obtaining regulatory approvals necessary to market drugs. Principal competitive factors in the pharmaceutical field include efficacy, safety, price and therapeutic regimen. Where comparable products are marketed by other companies price is also a competitive factor.
Uncertainty of Third Party Reimbursement; Resources of Patient Populations. The Company's ability to successfully commercialize its products may depend in part on the extent to which reimbursement for the cost of such products will be available from government health administration authorities, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of new therapeutic products and there can be no assurance that third party reimbursement will be available for therapeutic products the Company might develop. In many of the foreign countries in which the Company intends to operate, reimbursement of ZADAXIN under government or private health insurance programs will not be available. In the U.S., health care reform is an area of increasing national attention and a priority of many governmental officials. Certain reform proposals, if adopted, could impose limitations on the prices the Company will be able to charge in the U.S. for its products or the amount of reimbursement for the Company's products from governmental agencies or third party payors. In many countries where the Company has marketing rights for ZADAXIN, government resources and per capita income levels may be so low that the Company's products will be prohibitively expensive for a large percentage of the population. In such countries, there can be no assurance that the Company will be successful in marketing its products on economically favorable terms, if at all.
Dependence on Qualified Personnel and Key Individuals. Because of the specialized scientific and international nature of the Company's business, the Company is highly dependent upon its ability to continue to attract and retain qualified management, scientific and technical personnel. There is intense competition for qualified personnel in the areas of the Company's activities, and there can be no assurance that the Company will be able to continue to attract and retain the qualified personnel necessary for the development of its business. In addition, many key responsibilities within the Company have been assigned to a relatively small number of individuals. Loss of the services of any of these individuals unless they were promptly replaced could be significantly detrimental to the Company's development. The Company does not maintain key person life insurance on the lives of any of its key personnel.
Product Liability; Absence of Insurance. The Company's business will expose it to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products, and there can be no assurance that product liability claims will not be asserted against the Company. Product liability insurance for the pharmaceutical products, and there can be no assurance that product liability claims will not be asserted against the Company. Product liability insurance for the pharmaceutical industry generally is expensive to the extent that it is available at all. The Company has product liability insurance coverage for clinical trials and commercial sales. However, there can be no assurance that a product liability claim would not adversely affect the business or financial condition of the Company.
Preferred Stock. The Company's Board of Directors has the authority to issue additional series of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, without any further vote or action by the Company's shareholders. The rights of the holders of the Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On April 1, 1998, the Company issued and sold 661,157 shares of Series C Convertible Preferred Stock ("Preferred Stock") at $6.05 per share to three institutional investors, and received $3,712,000 in net proceeds from the offering. The Preferred Stock is convertible into Common Stock at any time over the next five years at prices based on the market price of the Common Stock during a pricing period preceding conversion. During the third quarter ended September 30, 1998, 91,049 shares of Series C preferred stock were converted into 467,969 shares of common stock. Through November 13, 1998, an additional 274,513 shares of Series C preferred stock were converted into 1,366,350 shares of common stock. In conjunction with the offering, the Company granted to the investors and the Company's placement agent warrants to purchase a total of 150,000 shares of common stock. These warrants are exercisable during the five-year period ending March 2003 at an exercise price of $5.67 per share. Such securities were not registered under the Securities Act of 1933, as amended (the "Act") in reliance upon the exemptions provided by Section 4(2) of the Act and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering.
On July 28, 1998, the Company issued 414,115 shares of common stock valued at $3.19 per share to Alpha 1 Biomedicals, Inc. ("A1B") for an Asset Purchase Agreement pursuant to which the Company acquired A1B's worldwide rights to ZADAXIN and eliminated the Company's and its current and future sublicensee's royalty obligations to A1B with respect to future sales of thymosin alpha 1. On October 28, 1998, the Company issued an additional 105,888 shares of common stock valued at $1.28 per share to A1B in connection with this agreement.
On September 8, 1998, the Company issued 375,000 shares of common stock valued at $1.25 per share and paid $196,875 in cash to Sclavo S.p.A. ("Sclavo") to acquire its marketing approval for ZADAXIN in Italy as an influenza vaccine adjuvant, a marketing application for use of ZADAXIN to treat non-small cell lung cancer, as well as all of Sclavo's development and marketing rights to ZADAXIN in Italy, Spain and Portugal. In conjunction with the agreement, the Company also granted Sclavo warrants to purchase 375,000 shares of common stock. These warrants are exercisable during the five-year period ending June 29, 2003 at an exercise price of $4.125 per share.
Such securities were not registered under the Act in reliance upon the exemptions provided by Section 4(2) of the Act and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).1 Restated Articles of Incorporation (incorporated by
reference from the Company's Registration Statement on Form
S-1 (No. 33-45446), declared effective by the Commission on
March 17, 1992).
3(i).2 Certificate of Amendment of Restated Articles of
Incorporation (incorporated by reference from the Company's
Registration Statement on Form S-8 (No. 33-66832) filed with
the Commission on August 3, 1993).
3(i).3 Certificate of Determination (incorporated by reference from
the Company's Current Report on Form 8-K filed on October
14, 1997).
3(i).4 Certificate of Determination Regarding the terms of the
Series C Preferred Stock. (incorporated by reference from
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
3(ii).1 Bylaws (incorporated by reference from the Company's
Registration Statement on Form S-1 (No. 33-45446), declared
effective by the Commission on March 17, 1992).
3(ii).2 Certificate of Amendment of Bylaws (incorporated by
reference from the Company's Registration Statement on Form
S-8 (No. 33-66832) filed with the Commission on August 3,
1993).
4.2 Rights Agreement, dated as of July 25, 1997,between SciClone
and ChaseMellon Shareholder Services, LLC. (incorporated by
reference to the Company's Current Report on Form 8-K filed
on October 14, 1997).
4.3 Preferred Stock Investment Agreement dated as of March 27,
1998 by and among Registrant, Halifax Fund, L.P., Themis
Partners L.P. and Heracles Fund. (incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.4 Registration Rights Agreement dated April 1, 1998 by and
among Registrant, Halifax Fund, L.P., Themis Partners L.P.
and Heracles Fund. (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.28 Acquisition Agreement between the Company and Sclavo S.p.A.
dated April 20,1998.
10.29 First Amendment to Acquisition Agreement between the
Company and Sclavo S.p.A., dated April 20, 1998.
10.30 Stock Purchase Warrant dated September 3, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
|
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SCICLONE PHARMACEUTICALS, INC.
(Registrant)
Date: November 16, 1998 /s/ Donald R. Sellers
----------------------------------------
Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 /s/ Diane Lee
----------------------------------------
Diane Lee
Director, Corporate Finance and
Administration
(Principal Financial & Accounting Officer)
|
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3(i).1 Restated Articles of Incorporation (incorporated by
reference from the Company's Registration Statement on Form
S-1 (No. 33-45446), declared effective by the Commission on
March 17, 1992).
3(i).2 Certificate of Amendment of Restated Articles of
Incorporation (incorporated by reference from the Company's
Registration Statement on Form S-8 (No. 33-66832) filed with
the Commission on August 3, 1993).
3(i).3 Certificate of Determination (incorporated by reference from
the Company's Current Report on Form 8-K filed on October
14, 1997).
3(i).4 Certificate of Determination Regarding the terms of the
Series C Preferred Stock (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
3(ii).1 Bylaws (incorporated by reference from the Company's
Registration Statement on Form S-1 (No. 33-45446), declared
effective by the Commission on March 17, 1992).
3(ii).2 Certificate of Amendment of Bylaws (incorporated by
reference from the Company's Registration Statement on Form
S-8 (No. 33-66832) filed with the Commission on August 3,
1993).
4.2 Rights Agreement, dated as of July 25, 1997,between SciClone
and ChaseMellon Shareholder Services, LLC. (incorporated by
reference to the Company's Current Report on Form 8-K filed
on October 14, 1997).
4.3 Preferred Stock Investment Agreement dated as of March 27,
1998 by and among Registrant, Halifax Fund, L.P., Themis
Partners L.P. and Heracles Fund. (incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.4 Registration Rights Agreement dated April 1, 1998 by and among
Registrant, Halifax Fund, L.P., Themis Partners L.P. and
Heracles Fund. (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.28 Acquisition Agreement between the Company and Sclavo S.p.A.
dated April 20,1998.
10.29 First Amendment to Acquisition Agreement between the Company and
Sclavo S.p.A., dated April 20, 1998.
10.30 Stock Purchase Warrant dated September 3, 1998.
27 Financial Data Schedule
|
EXHIBIT 10.28
ACQUISITION AGREEMENT
Between
SCICLONE PHARMACEUTICALS, INC.
and
SCLAVO S.P.A.
ACQUISITION AGREEMENT
This Agreement is dated as of _____________, 1998 (the "Effective Date"), and is made between SciClone Pharmaceuticals, Inc., a California corporation, having its registered office at 901 Mariner's Island Blvd., San Mateo, CA 94404 ("SciClone"), and Sclavo S.p.A., an Italian company, with a registered office located at Via Florentina, 1, 53100 Siena, Italy ("Sclavo"). SciClone and Sclavo are hereinafter collectively called the "Parties", or individually called a "Party".
RECITALS
A. SciClone Pharmaceuticals International Ltd. ("SPIL"), is a wholly owned subsidiary of SciClone, with a registered office at Room 3705, Windsor House, 311 Gloucester Road, Causeway Bay, Hong Kong. SPIL and Sclavo entered into a Manufacturing Services Agreement dated July 27, 1993 (the "Manufacturing Agreement").
B. SciClone and Sclavo entered into a License Agreement dated April 21, 1997 (the "License Agreement"), pursuant to which SciClone granted certain license rights to Sclavo with respect to Thymosin alpha 1 ("TA-1") in the Territory (hereinafter defined).
C. The Parties have determined that it is mutually desirable for SciClone to purchase and acquire from Sclavo all of Sclavo's rights with respect to (i) the License Agreement and the Manufacturing Agreement and to terminate said agreements, and (ii) the Licensed Products (hereinafter defined), in accordance with the terms of this Agreement. The Parties have also determined it is mutually desirable for the Parties to enter into a distributorship agreement, pursuant to which Sclavo would be granted certain distribution rights in Italy for the Licensed Products.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants set forth, SciClone and Sclavo agree as follows:
ARTICLE I
Definitions
The following terms, as used in this Agreement, shall have the meanings set forth in this Article:
"Adverse Event" shall mean any event that is reported to the Commission, the FDA, a Notified Body, or a Competent Authority with respect to the Licensed Products.
"Affiliate" shall mean, with respect to a Party to this Agreement, either a "societa collegata" and a "societa controllata" under Italian laws, as well as any natural person having control of that Party under Italian law. "Affiliate shall also mean (i) any entity directly or
indirectly controlling, controlled by or under common control with another entity, (ii) any person or entity owning or controlling fifty percent (50%) or more of the outstanding voting securities of an entity, or (iii) any officer, director or partner of an entity. "Control" shall mean the possession of the power to direct or cause the direction of the management and the policies of an entity, whether through the ownership of a majority of the outstanding voting securities or by contract or otherwise.
"AIC Purchase and Sale Agreement" means the purchase and sale agreement between Sclavo and SciClone, with respect to the AIC governmental approvals, as referenced on Schedule 1 attached hereto, which agreement is to be submitted to the Ministry of Health of Italy, and pursuant to which agreement a specified portion of the Cash Price is to be paid by SciClone to Sclavo.
"Applicable Laws" shall mean all applicable laws, rules, regulations, standards or guidelines established within the Licensed Territory that may apply to the Licensed Products or the performance of Sclavo's past or present obligations with respect to the Licensed Products. Any reference in this Agreement to any provision of Applicable Laws shall be construed as a reference to that provision as amended, re-enacted or extended at the relevant time.
"Approvals" shall mean the Specified Approvals, together with any and all other existing authorizations, permits, licenses, including sales and manufacturing licenses, AIC (e.g., "Autorizzazione all'immissione in commercio"), registrations, free sale certificates, marketing authorization, reservations, also in the form of negative approvals ("silenzio assenso"), and in general all similar authorization measures or governmental approvals, from any Competent Authority in the Licensed Territory necessary for the development, manufacturing, testing and/or marketing (and ancillary activities) of the Licensed Products and to which Sclavo has rights.
"Cash Price" shall mean one million dollars in currency of the United States of America (US$1,000,000), as further defined in Section 5.1 hereof.
"Clinical Trials" shall mean all agreements, data, filings, protocols, Approvals and Pending Applications applicable to any clinical study (past, present or planned) for the Licensed Products in the Territory, to which Sclavo has rights.
"Closing Date" is defined in Section 6.1(a) hereof.
"Closing Items" are defined in Section 6.2 hereof.
"Commission" shall mean the Commission of the European Community.
"Competent Authority" shall mean any regulatory or administrative body competent to grant Approvals as defined above with regard to the Licensed Products.
"Control Person" is defined in Section 5.3(a).
"Damages" shall include any loss, damage, injury, decline in value, lost opportunity, liability, claim, demand, settlement, judgment, award, fine, penalty, tax, fee (including reasonable attorneys' fees), charge, costs (including reasonable costs of investigation) and reasonable expenses of any nature.
"Effective Date" shall mean the date specified on the first page of this Agreement.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"FDA" shall mean the United States Food and Drug Administration.
"Improvements" shall mean any and all process or application improvements of TA-1, developed by Sclavo or to which Sclavo has any rights. The term also includes improvements to which Sclavo has rights and obtained with commercial products which contain, in addition to a Licensed Product, other therapeutically active ingredients or which involve a medical or diagnostic device or medical or diagnostic process in addition to a Licensed Product, provided, however, that the terms "diagnostic device or medical or diagnostic process" for the purposes of this definition shall be deemed to include only such devices or processes using TA-1 and shall not include such devices or processes as antibodies against TA-1, such as radioimmunoassays.
"Inventions" shall mean any inventions and/or copyrightable works applicable to the Licensed Products which are owned by Sclavo or in which Sclavo has any ownership or license rights, including all patents and patent applications for such inventions and all copyrights and copyright applications for said works.
"Know-How" shall mean all know-how, technology, confidential information, data, procedures, documents and trade secrets belonging to Sclavo or SciClone concerning the development, manufacture, testing and/or commercial exploitation of the Licensed Products, including all correspondence with respect to the Licensed Products between Sclavo and sublicensees or potential sublicensees of the Licensed Products in the Territory.
"License Agreement" shall mean the License Agreement entered into between SciClone and Sclavo, dated April 21, 1997, pursuant to which SciClone granted certain license rights to Sclavo in the Territory for the Licensed Products.
"Licensed Product" or "Licensed Products" shall mean TA-1 (including bulk and/or finished product) and any and all Improvements.
"Licensed Territory" shall mean the countries of Italy, Spain and Portugal.
"Manufacturing Agreement" shall mean the Manufacturing Services Agreement entered into between SPIL and Sclavo, dated July 27, 1993.
"Manufacturing Technology" shall mean all trade secrets and other proprietary rights, technical information, designs, studies, data, reports, financial and cost information, regulatory expertise, correspondence, manufacturing processes, procedures, formulae, discoveries, technology, patents and Know-How, both oral and written, which are necessary or useful for the manufacturing of Licensed Products and which are owned by SciClone or Sclavo or to which SciClone or Sclavo has rights, relating to the formulation, compounding, synthesis, cleavage, quality control, manufacture and testing of the Licensed Products.
"Materials" shall mean all materials and documents created by SciClone and/or Sclavo during the period of operation of the License Agreement or the Manufacturing Agreement relating to the Licensed Products, including without limitation, software material, the Translated Materials, equipment, labels, bulk material, finished material, ampoules, vials, supplies, literature, packaging, and any other items (collectively hereinafter called the "Materials") and in the possession of Sclavo or to which Sclavo has rights as of the Effective Date.
"Notified Body" shall mean any standards, testing or certification body appointed by a Member State of the European Union and notified to the Commission as competent to access Licensed Products.
"Party" or "Parties" shall mean Sclavo and SciClone.
"Pending Applications" shall mean any and all pending or planned applications or filings for regulatory approvals applicable to the Licensed Products in the Territory, including without limitation, applications or filings for marketing approvals, clinical trials, manufacturing approvals or other regulatory submissions with any governmental agency in the Territory, to which Sclavo has rights.
"Permitted Nominee" is defined in Section 5.1(b).
"Person" shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.
"Records" shall mean complete and accurate records belonging to Sclavo or to which Sclavo has access, of the production and distribution of each batch of Licensed Products under either the License Agreement and/or the Manufacturing Agreement, showing date of production and control, name and address of first purchaser and the Licensed Product serial number and lot number.
"Registration" is defined in Section 5.2(a).
"Restricted Information" shall mean all information which has been disclosed to Sclavo by SciClone (or SciClone's Affiliates) or by SciClone to Sclavo in connection with any
agreement entered into by the Parties or their Affiliates, whether orally or in writing, and all Know-How and Manufacturing Technology.
"SciClone" shall mean SciClone Pharmaceuticals, Inc., a California corporation.
"Sclavo" shall mean Sclavo S.p.A., an Italian company.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.
"SEC" shall mean the United States Securities and Exchange Commission.
"Shares" shall mean the shares of common stock of SciClone Pharmaceuticals, Inc., to be issued to Sclavo (or a Permitted Nominee) as specified and determined pursuant to Section 5.1 hereof.
"Specified Approvals" are those certain specified Approvals listed on Schedule 1 attached hereto which are to be transferred to or obtained by the SRL Subsidiary prior to the Closing Date.
"SPIL" is defined in Recital A hereof.
"SRL and Transfer Agreement" shall mean the agreement signed
by Sclavo, SciClone, Donald R. Sellers and the SRL Subsidiary, pursuant to which
(i) certain specified Approvals are to be transferred to or obtained by the SRL
Subsidiary prior to the Closing Date, and (ii) ownership of the SRL Subsidiary
is to be transferred to Sclavo if the closing of this Agreement does not occur.
"SRL Subsidiary" is defined in Section 5.5 hereof.
"TA-1" shall mean Thymosin alpha 1, consisting of the sequence
of amino acids commonly ascribed to that peptide in the existing scientific
literature and as described in Exhibit C attached hereto.
"Territory" shall mean Italy, Spain and Portugal.
"Trademark" shall mean Sclavo's trademark "Timosina" and any other trademark used in the past by Sclavo with respect to the Licensed Product.
"Transferred Items" shall mean all rights of Sclavo relating to the Licensed Products, including without limitation, the Inventions (including copyrights on Translated Materials and Clinical Trials) Clinical Trials, Materials, Trademarks, Approvals, Pending Applications, Improvements, Translated Materials, Know-How, Manufacturing Technology, Records and Restricted Information (collectively called the "Transferred Items").
"Translated Materials" shall mean any Sclavo material which Sclavo must have translated into a language other than English to meet Applicable Laws, with respect to the Licensed Product.
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties by Sclavo. In order to induce SciClone to enter into and perform this Agreement, Sclavo hereby makes the representations and warranties set forth in Exhibit A attached hereto, subject to the exceptions set forth on the Schedule of Exceptions attached hereto as Exhibit A-1.
2.2 Representations and Warranties by SciClone. In order to induce Sclavo to enter into and perform this Agreement, SciClone hereby makes the representations and warranties set forth in Exhibit B attached hereto, subject to the exceptions set forth on the Schedule of Exceptions attached hereto as Exhibit B-1.
ARTICLE III
Implementation Schedule
3.1 Effective Date.
(a) Upon both Parties signing and delivering this Agreement,
this Agreement shall be effective and binding on both Parties; and within two
(2) business days thereafter, SciClone shall deliver to Sclavo (or a Permitted
Nominee, at the election of Sclavo) US$100,000 by wire transfer as a portion of
the Cash Price payable pursuant to Section 5.1 hereof.
(b) Immediately after the Effective Date, both parties shall prepare and submit to the appropriate authorities all paperwork necessary to achieve the Closing Items in Section 6.2.
3.2 Closing. Upon both Parties completing the Closing Items as specified in Section 6.2 hereof on the Closing Date, (i) SciClone shall deliver to Sclavo (or a Permitted Nominee, at the election of Sclavo) US$900,000 (subject to the credit, if any, for any sum paid or payable by SciClone pursuant to the AIC Purchase and Sale Agreement) by wire transfer as the remaining portion of the Cash Price payable pursuant to Section 5.1 hereof, and (ii) SciClone shall issue and deliver to Sclavo (or a Permitted Nominee, at the election of Sclavo) the Shares as specified in Section 5.1 hereof.
ARTICLE IV
Obligations of Sclavo
4.1 Sclavo's Obligations on Effective Date. Upon the Effective Date, Sclavo agrees that:
(a) Sclavo shall cease to use, manufacture, test, promote, market, advertise or conduct research with regard to the Licensed Products, and Sclavo shall cease to use the Trademark, the rights under the License Agreement and/or the Manufacturing Agreement. Sclavo hereby agrees that the License Agreement and the Manufacturing Agreement are hereby terminated.
(b) Sclavo shall furnish to ISF S.p.A. a written consent, in the form attached hereto as Exhibit D, for ISF to enter into and perform any manufacturing services or agreement with SciClone as SciClone and ISF may mutually approve for the Licensed Products. Additionally, Sclavo shall cooperate with SciClone and ISF, and Sclavo shall sign and deliver all papers, as may be needed to promptly and efficiently transfer all manufacturing and export approvals for the Licensed Products to SciClone and/or ISF, as reasonably and timely requested by SciClone.
(c) The reference to SciClone in Sections 4.1(b), 4.2, 4.3, 4.4, 4.5 4.6, and 6.2 shall mean SciClone and/or an Affiliate of SciClone for which SciClone has given a timely written notice to Sclavo that SciClone has designated an Affiliate to be so referenced and included, and as is permitted by the Applicable Laws. For avoidance of doubt, and as an example of the foregoing, SciClone shall have the right to designate an Affiliate (e.g., SPIL) to be the transferee of one or more of the Transferred Items, if the Affiliate is permitted to be the transferee by Applicable Law. In order to facilitate Sclavo's prompt preparation of the appropriate papers to accomplish the transfers of the Transferred Items, SciClone (rather than an Affiliate) shall be the transferee unless an express designation for a particular Affiliate is given to Sclavo in advance of Sclavo's preparation of the transfer papers.
4.2 Sclavo's Obligations Prior to the Closing Date. Between the Effective Date and the Closing Date, Sclavo agrees that:
(a) Sclavo shall transfer to the SRL Subsidiary the Specified Approvals as soon as feasible after the Effective Date.
(b) Sclavo shall cooperate and sign any and all papers as may be necessary to allow SciClone (or the SRL Subsidiary, as to the Specified Approvals) to obtain (by transfer from Sclavo or by new grant from the appropriate party), all of the Transferred Items (which includes the Pending Applications and the Approvals) necessary or advisable for the Licensed Products, including without limitation, signing papers applicable to any past or pending Clinical Trials. Without limiting the generality of the foregoing, to the extent that SciClone needs to apply for a new AIC with respect to the Specified Approvals (rather than Sclavo transferring the
existing AIC), then Sclavo shall sign and file any papers that may assist SciClone to obtain said new AIC.
(c) Sclavo shall return to SciClone at a location specified by SciClone, or account for in the case of material consumed or provided to a third party, all of the Materials.
(d) Sclavo shall provide to SciClone all reasonable cooperation with respect to the Licensed Products (including, but without limitation, access to documents, personnel and premises) to enable SciClone to comply with all requirements imposed on SciClone by the FDA, a Competent Authority or a Notified Body.
(e) Sclavo shall authorize SciClone to deal, with regard to the Licensed Products, with Sclavo's clients, with parties and persons identified in the Records, and in general with third parties, at SciClone's sole discretion, to the extent deemed necessary or advisable in the discretion of SciClone, provided, that except for the authority granted herein, SciClone shall not hold itself out (or permit any person to hold itself out) as being authorized to bind Sclavo in any way, nor to do any act, with regard to Sclavo's clients which may adversely affect Sclavo.
(f) Sclavo shall give to SciClone the right and access, from the Effective Date until two years after the Closing Date, to inspect any and all matters with respect to the Licensed Products as may be reasonable and appropriate to enable SciClone to confirm and verify the validity and accuracy of Sclavo's representations and warranties, and Sclavo's performance of obligations, as specified in this Agreement.
4.3 Adverse Event. Prior to the Effective Date, Sclavo has furnished to SciClone a written report as to any and all Adverse Events known to Sclavo, as summarized in Exhibit A at item 12. For the period of five (5) years immediately following the Effective Date, Sclavo shall immediately report in writing to SciClone any Adverse Event that comes to the attention of Sclavo, so that SciClone can comply with all Applicable Laws.
4.4 Non-Competition. For the period of three (3) years immediately following the Effective Date, Sclavo and its Affiliates shall not, directly or indirectly, engage in any competition with the Licensed Products, by way of any TA-1 material or product or by way of any derivative, analog, or subsequent generation of TA-1. In the event that Sclavo enters into a distributorship agreement with SciClone pursuant to Section 5.6 hereof, this Section 4.4 shall not preclude Sclavo from performing those activities as contemplated by said agreement.
4.5 Prorations of Expenses.
(a) In consideration of the Cash Price and the Shares to be received by Sclavo pursuant to this Agreement, Sclavo shall be responsible for and shall pay for all expenses with respect to all of the Transferred Items arising or accrued up to the Effective Date. Sclavo shall pay all transfer fees, filing fees and other governmental charges required for Sclavo to transfer to SciClone and/or to the SRL Subsidiary the Transferred Items or needed to complete said transfers, or needed to complete the transfers or enable the SRL Subsidiary to obtain the Specified Approvals.
(b) SciClone shall be responsible for and shall pay for only
those obligations which SciClone expressly creates or expressly assumes with
respect to the Licensed Products and the Transferred Items, and SciClone shall
not otherwise be responsible for any obligations or liabilities created by
Sclavo, including without limitation, any products liability for products made
or sold by Sclavo, or for any other liabilities or obligations resulting from
Sclavo's past activities. SciClone shall bear and pay the costs to form and
operate the SRL Subsidiary. SciClone shall bear and pay the transportation and
freight charges for Sclavo to deliver to SciClone the Materials as specified in
Section 4.2(c) hereof.
(c) Sclavo shall be responsible for and shall pay for all of Sclavo's obligations and expenses arising or accrued with respect to the License Agreement and the Manufacturing Agreement up to the Effective Date. SciClone and Sclavo hereby agree that neither Party shall have any other obligation of any nature whatsoever with respect to the other Party or to the other Party's Affiliates with respect to the License Agreement and/or the Manufacturing Agreement after the Effective Date, unless such agreements are revived pursuant to Section 10.3 herein, and except for any indemnity claim arising and permitted thereunder, due to a third party's claim.
4.6 Clinical Trials. From the Effective Date and continuing to the
Closing Date, (i) Sclavo shall use good faith and diligent efforts to maintain
until the Closing Date the current status of the Clinical Trials described in
Section 10 of Exhibit A attached hereto, and (ii) Sclavo shall use good faith
and diligent efforts to satisfy or otherwise resolve all outstanding obligations
of Sclavo with respect to the Clinical Trials. SciClone shall have no
responsibility for payment of any costs or other obligations arising prior to
the Effective Date with respect to the Clinical Trials. The parties will use
their best efforts to come to a mutual agreement with respect to the allocation
of any Clinical Trial expenses which are fairly applicable and allocable to time
periods both before and after the Effective Date.
4.7 Verification; Refund of Consideration. From the Effective Date and continuing to the Closing Date, Sclavo shall cooperate and assist with respect to providing appropriate and satisfactory verification to SciClone showing (i) that all of Sclavo's representations and warranties are and remain true and accurate, and (ii) that Sclavo will be able to effectively transfer all of the Specified Approvals, and (iii) that SciClone's registration to sell, market, test and develop TA-1 in Italy will be unencumbered and unrestricted by any prior rights held by other parties granted by Sclavo without SciClone's consent (collectively called the "Verifications"). If the Verifications are not provided to SciClone's reasonable satisfaction and the Closing Items are not completed, such that this Agreement is terminated, then Sclavo shall refund to SciClone (i) the US$100,000 paid pursuant to Section 3.1(a) hereof, and (ii) the 200 million lire paid pursuant to the AIC Purchase and Sale Agreement, and (iii) any other part of the Cash Price or Shares given by SciClone to Sclavo pursuant to this Agreement.
4.8 Sclavo Affiliates. The reference to Sclavo in the following sections shall mean both Sclavo and Sclavo's Affiliates, to the extent applicable: Sections 4.1, 4.2, 4.4, 4.5, 4.6, 4.7, 7.1, 8.1, 10.2 and Exhibit A. To the extent applicable, Sclavo shall cause its Affiliates to abide by said sections and to perform in accordance with said sections.
ARTICLE V
Obligations of SciClone
5.1 Purchase Price.
(a) SciClone shall pay to Sclavo for the acquisition of all
the rights and titles under this Agreement a global consideration consisting of
(i) an amount of US$1,000,000 in cash (the "Cash Price"), and (ii) a number of
shares of SciClone Pharmaceuticals, Inc. Common Stock equivalent to a value of
US$1,500,000 (the "Shares"). The number of the Shares shall be equal to
US$1,500,000 divided by the average closing sale price per share of SciClone
Pharmaceuticals Inc. common stock as reported on the Nasdaq National Market for
the twenty (20) trading days immediately preceding the date that is three (3)
trading days prior to the Closing Date.
(b) The payment of some or all of the Cash Price and/or the issuance of some or all of the Shares may be made to a nominee of Sclavo, upon the written election of Sclavo delivered to SciClone prior to the date the payment or issuance is otherwise due, so long as (i) it is legally permissible to do so, and (ii) SciClone does not thereby incur or suffer any adverse tax consequences or additional expenses, obligations, liabilities, risks or other detriments. Such a nominee shall be referred to as a "Permitted Nominee." References to Sclavo in this Agreement at Sections 3.1, 3.2, 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 shall also be deemed to include any such Permitted Nominee when applicable.
5.2 Share Registration.
(a) Promptly following the issuance and delivery of the shares to Sclavo (or a Permitted Nominee), SciClone shall register the sale of said Shares by Sclavo (or a Permitted Nominee) (which for purposes of this Section 5.2 shall mean and include any and all other persons or entities who or which may hold any of the Shares by permitted private transfer from Sclavo) on Form S-3 (the "Registration") in accordance with applicable rules of the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or any similar United States federal statute and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time of the registration, and on all of the terms and conditions of this Section 5.2. SciClone shall keep the Registration in effect for a period of one year from the date of the issuance of the Shares to Sclavo so that Sclavo is able to resell all of the Shares it holds without volume restriction on the public market in the United States pursuant to the Registration and/or pursuant to SEC Rule 144 pursuant to the Securities Act.
(b) SciClone shall bear all Registration Expenses incurred in connection with the Registration. "Registration Expenses" shall mean and include all expenses, except as otherwise stated below, incurred by SciClone in registering the Shares and maintaining the Registration in effect for the required period, including, without limitation, any and all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for SciClone, reasonable fees and disbursements of one special counsel for Sclavo, if any (with a maximum limit of $5,000), and the expense of any special audits incident to or required by the Registration.
(c) In connection with the Registration, SciClone shall:
(i) Prepare and file with the SEC a Registration Statement on Form S-3 with respect to the Shares and use its reasonable best efforts to cause such Registration Statement to become and remain effective as provided in this Section 5.2;
(ii) Keep Sclavo advised in writing as to the initiation of the Registration and to the completion and effectiveness thereof; and
(iii) Furnish to Sclavo such reasonable number of copies of the Registration Statement, preliminary prospectus, final prospectus and such other documents as Sclavo may reasonably request in order to facilitate the sale of the Shares.
(d) Sclavo shall furnish to SciClone such information regarding Sclavo, the Shares held by Sclavo and the distribution proposed by Sclavo as SciClone may request in writing and only as shall be necessary to enable SciClone to comply with the provisions hereof in connection with the Registration.
(e) With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Shares to the public without registration, SciClone agrees to use its reasonable best efforts to:
(i) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, for at least the next two years after the Effective Date;
(ii) File with the SEC in a timely manner all reports and other documents required of SciClone under the Securities Act and the Exchange Act; and
(iii) Furnish to Sclavo forthwith upon request a written statement by SciClone as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of SciClone, and such other reports and documents of SciClone and other information in the possession of or reasonably obtainable by SciClone as Sclavo may reasonably request in availing itself of any rule or regulation of the SEC allowing Sclavo to sell any of the Shares without registration.
5.3 Indemnification Regarding Share Registration.
(a) SciClone agrees to indemnify and hold harmless Sclavo, its officers, directors, agents and employees and each Person, if any, who control any such Person within the meaning of either Section 15 of the Securities Act, or Section 20 of the Exchange Act (a "Control Person"), against all Damages caused by, arising out of, or based upon (i) any failure of SciClone to comply with any and all securities laws, rules or regulations, (ii) any breach by SciClone of its obligations under this Agreement, or (iii) any untrue or alleged untrue statement of material fact contained in the Registration Statement, any related prospectus or preliminary prospectus or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as any such untrue statement or omission was caused by or contained in any information furnished in writing to SciClone by Sclavo expressly for use therein or by Sclavo's failure to deliver a copy of a current prospectus (as amended or supplemented) after SciClone has furnished Sclavo with a sufficient number of copies for such purpose.
(b) Sclavo agrees to indemnify SciClone, its directors and officers and each Control Person of SciClone against all Damages resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement any related prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by Sclavo expressly for use therein.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified Person's reasonable judgment a conflict of interest between such indemnified Person and indemnifying party exists with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person. If such defense is assumed, the indemnifying party will not be subject to any liability for any consent to the entry of any judgment or any settlement made by the indemnified Person without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel (other than local counsel, as necessary) with respect to such claim for all indemnified Persons, unless in the reasonable judgment of any indemnified Person a conflict of interest exists between such indemnified Person and any other indemnified Person with respect to such claim. The indemnifying party shall not, without the prior written consent of the indemnified Person, effect any settlement or compromise of any pending or threatened proceeding in respect of which such indemnified Person is or could have been a party, and indemnity could have been sought hereunder by such indemnified Person, unless such settlement (i) includes an unconditional written release of such indemnified Person, in form and substance reasonably satisfactory to such indemnified Person, from all liability on the claims that are the subject matter of such settlement, (ii) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any indemnified Person, and (iii) the sole relief provided consists of monetary damages that are paid in full by the indemnifying party.
(d) Contribution.
(i) To the extent that the indemnification provided for in this Section 5.3 is for any reason unavailable to, or insufficient to hold harmless, an indemnified Person in respect of any losses, claims, damages or liabilities, then the indemnifying party, in lieu of indemnifying such indemnified person hereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of indemnifying party on the one hand and the indemnified Person on the other hand in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative fault of the indemnifying party and the indemnified Person shall be determined by reference to, among other things, whether the untrue statement or a material fact or the omission or alleged omission to state a material fact relates to information supplied by SciClone on the one hand or Sclavo on the other, their relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances.
(ii) The parties agree that it would not be just and equitable if contribution pursuant to this Section 5.3 were determined by any method of allocation that does not take account of the equitable considerations referred to in paragraph 5.3(d)(i). The amount paid or payable by an indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph 5.3(d)(i) shall include all reasonable legal or other expenses actually incurred by such indemnified Person in connection with investigating and defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(iii) The indemnity and contribution agreements contained in this Section 5.3 are in addition to any liability that an indemnifying party otherwise may have to the indemnified Person.
(e) The indemnification provided for under this Section 5.3 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling person of such indemnified Person and will survive the sale or transfer of the Shares.
5.4 Share Resale Restriction. Sclavo agrees that during each of the first nine calendar months following the Registration effective date, Sclavo will not sell more than one-ninth (1/9) of the original number of Shares issued to Sclavo; provided, however, during the first month of such nine months, Sclavo may sell up to one-ninth (1/9) multiplied by the number of full months which have elapsed between the Effective Date of this Agreement and the effective date of the Registration. As an example of the foregoing, if 45 days have so elapsed, then one-ninth (1/9) may be sold, but if 70 days have elapsed, then two-ninths (2/9) may be sold. Sclavo agrees that the resale of the Shares shall be made exclusively through such reputable broker(s) each of which must be pre-approved in writing by SciClone, which approval will not be withheld or delayed unreasonably.
5.5 SRL Subsidiary. As soon as is reasonably feasible, and prior to the Closing Date, SciClone shall establish an SRL Italian private company (the "SRL Subsidiary"), to be named "SciClone Pharmaceuticals Italy S.r.l." to be owned 98% by SciClone and 2% by Donald Sellers (an individual). The SRL Subsidiary shall be the transferee of the Specified Approvals, and any other of the Transferred Items to be transferred to the SRL Subsidiary pursuant to Section 4.1(c) hereof. SciClone, Sclavo and the SRL Subsidiary shall sign and abide by the SRL and Transfer Agreement and the AIC Purchase and Sale Agreement, pursuant to which agreements the Specified Approvals are to be transferred from Sclavo to the SRL Subsidiary prior to the Closing Date.
5.6 Non-Exclusive Distributor. SciClone shall offer to Sclavo the opportunity for Sclavo to be one of three non-exclusive, third party distributors in Italy for the Licensed Product, on terms and conditions which are not less favorable to Sclavo than the terms given by SciClone to any other non-exclusive, third party, comparable distributor appointed by SciClone in Italy
for the Licensed Products. Promptly after SciClone appoints its first third party distributor in Italy for the Licensed Product, SciClone shall give Sclavo written notice thereof and of the terms of said appointment, and SciClone shall offer the same terms to Sclavo. If Sclavo does not accept such offer within ninety (90) days after Sclavo receives the offer, then SciClone shall have no further obligations pursuant to this Section 5.6.
5.7 Continuation of Warranties. SciClone hereby covenants to take all actions necessary to cause the warranties set forth in Section 5 and 6 of Exhibit B attached hereto to also be true and effective as of the Closing Date.
ARTICLE VI
Closing Date and Items
6.1 Closing Date. The "Closing Date" is the date to be specified by
SciClone which shall be within five (5) business days following the date when
all of the Closing Items specified in Section 6.2 have been completed. The
parties shall use their reasonable best efforts to complete the Closing Items
within ninety (90) days after the Effective Date. At the Closing Date, SciClone
shall deliver the remainder of the Cash Price and the Shares as specified in
Section 3.2 hereof.
6.2 Closing Items. The "Closing Items" are the following:
(a) Sclavo shall furnish to SciClone written evidence to the reasonable satisfaction of SciClone that Sclavo has completed and performed all of Sclavo's obligations as set forth in Section 4.2 hereof, other than that part of the obligation in Section 4.1(f) hereof which continues after the Closing Date.
(b) Sclavo and/or SciClone shall have obtained all third party approvals (including governmental approvals) as may be necessary for the effective transfer from Sclavo to SciClone (or the SRL Subsidiary, as to the Specified Approvals) of all items constituting the Transferred Items, and the Transferred Items (including the Specified Approvals) shall have been so transferred to, or otherwise obtained for, SciClone or its Affiliates or the SRL Subsidiary. Without limiting the generality of the foregoing, the Specified Approvals for the Licensed Products shall have been transferred to the SRL Subsidiary, and SciClone or the SRL Subsidiary shall have received all rights of Sclavo in respect of the necessary AIC approvals and other approvals for the Licensed Products in the Licensed Territory, and SciClone or the SRL Subsidiary shall have received all other Transferred Items (including the Specified Approvals.
(c) All of Sclavo's representations and warranties set forth in Exhibit A attached hereto shall have remained accurate, true and correct as of the Closing Date, and Sclavo shall have delivered to SciClone an officer's certificate warranting the same in the form of Exhibit E attached hereto.
(d) Any of the Specified Approvals which are subject to the SRL and Transfer Agreement and/or the AIC Purchase and Sale Agreement shall be transferred to the SRL
Subsidiary, pursuant to the SRL and Transfer Agreement and/or the AIC Purchase and Sale Agreement, without any remaining conditions or restrictions.
(e) Each of Sclavo and SciClone shall have complied fully with all obligations which the party is to perform prior to the Closing Date, and Sclavo and SciClone shall furnish to each other written evidence of said compliance to the reasonable satisfaction of each other.
ARTICLE VII
Confidentiality and Press Release
7.1 After the Effective Date, Sclavo shall keep all Restricted Information disclosed to it by SciClone (or SciClone's Affiliates) strictly confidential, refrain from using any such Restricted Information for any purpose other than the performance of the obligations under this Agreement, and return to SciClone any materials falling within such Restricted Information. Any such Restricted Information may be used by Sclavo for any purpose, or disclosed by Sclavo to any other person, only to the extent that:
(a) it is at the date hereof, or hereafter becomes, public knowledge through no fault of Sclavo (provided that in doing so Sclavo shall not disclose any Restricted Information which is not public knowledge); or
(b) it can be shown by Sclavo, to the reasonable satisfaction of SciClone, to have been known to Sclavo prior to it being disclosed by SciClone to Sclavo or prior to it being developed or obtained by Sclavo in connection with the Licensed Products.
7.2 After the Effective Date, SciClone shall keep strictly confidential any Restricted Information of Sclavo which Sclavo has disclosed to SciClone, if any, which is not related to the Licensed Products; and SciClone shall refrain from using any such confidential information. This provision shall cease to be applicable as to any information that:
(a) is at the date hereof, or hereafter becomes, public knowledge through no fault of SciClone; or
(b) can be shown by SciClone, to the reasonable satisfaction of Sclavo, to have been known to SciClone prior to it being disclosed by Sclavo to SciClone.
7.3 SciClone will submit to Sclavo a draft of any proposed U.S. press release, and Sclavo will submit to SciClone a draft of any proposed press release in the European Union countries, regarding this Agreement or the subject matter hereof, or any right, obligation or development thereunder. Such press releases will be subject to prior review by the other party, and the other party's suggested revisions will be sent to the releasing party by facsimile within three days of receipt by the other party of the draft press release. The suggested revisions will be considered, and will not be unreasonably rejected, withheld or delayed. Any SciClone press release in a European Union country and any Sclavo press release in the U.S. shall require the written consent of the other party prior to issue of such press release, and such consent shall not be unreasonably withheld or delayed.
ARTICLE VIII
Indemnity
8.1 Indemnity by Sclavo. Sclavo shall indemnify and defend SciClone for, and hold SciClone harmless from, any damage, loss and liability in general, including attorney's fees and expenses, which SciClone and/or its officers, directors, agents, employees or assignees may incur
(i) for any products liability claims arising from acts or omissions by Sclavo occurring up to the Effective Date of this Agreement with respect to the Licensed Products, or (ii) for any breach or default by Sclavo of any contract, commitment or understanding (e.g., co-marketing understandings) between Sclavo and third parties with respect to the Licensed Products, or (iii) for any breach by Sclavo of any of its covenants, representations or warranties contained in this Agreement.
8.2 Procedure. In the event of any indemnity claim under Section 8.1 hereof, SciClone shall give written notice thereof to Sclavo, and Sclavo shall be given a reasonable opportunity to remedy, satisfy and/or protest such claim. Pending a resolution of any such indemnity claim, SciClone shall be entitled to postpone any remaining payments to Sclavo in the amount of such claim. In the event of any indemnity claim under Section 8.1 hereof, SciClone may pursue any remedy available in law or equity through the arbitration procedure specified in Article IX hereof.
ARTICLE IX
Arbitration
9.1 Arbitration. Any and all disputes arising out of this Agreement, including those concerning its validity, interpretation, performance, termination or collection of an indemnity claim, shall be referred to binding arbitration according to the rules of conciliation and arbitration of the International Chamber of Commerce, which the Parties hereby declare to accept. The arbitrators shall make decisions according to English law. The arbitration will be conducted in the English language. The place of arbitration will be in London, England. The arbitrators shall have the discretion and authority to require the losing party to reimburse the prevailing party some or all of the prevailing party's expenses (including attorney's fees) incurred in connection with the arbitration proceeding.
ARTICLE X
Termination
10.1 Default. In the event a Party defaults in the performance of its obligations under this Agreement, or in the event a Party is in breach or default of its representations and warranties contained in this Agreement, and said default is not cured within thirty (30) days after written notice of thereof is delivered to the defaulting Party, then the non-defaulting Party may thereafter, either before or after the Closing Date, (i) terminate this Agreement and/or terminate all future performance obligations under this Agreement, by delivering written notice of such termination to the defaulting Party, and/or (ii) pursue any other remedies available at law or equity, including without limitation the collection of damages caused by said default, through the arbitration procedure specified in Article IX hereof.
10.2 Inability to Transfer. In the event that Sclavo, despite its best efforts, is unable to transfer to SciClone (or its Affiliates), or otherwise enable SciClone or its Affiliates to obtain, within six (6) months following the Effective Date all of the Transferred Items (other than those items which SciClone concludes are not essential) due to some governmental or legal impediment or other force majeure which is beyond the control of Sclavo, then Sclavo and SciClone shall meet promptly in order to evaluate and determine if Sclavo will be able to complete the transfer of, or otherwise enable SciClone or its Affiliates to obtain, the Transferred Items within a reasonable period of time. If the Parties conclude in good faith that Sclavo will not be able to complete the transfer of, or otherwise enable SciClone or its Affiliates to obtain, the Transferred Items within a reasonable period of time, then either Sclavo or SciClone shall have the right to terminate this Agreement by delivering a written notice of termination to the other Party.
10.3 Effect of Termination. Upon any termination of this Agreement, (i)
the terminated License Agreement and Manufacturing Agreement shall be revived
automatically and shall remain in effect, (ii) Sclavo and SciClone shall
cooperate to reestablish their good working relationship and to perform under
the License Agreement and the Manufacturing Services Agreement, (iii) Sclavo
shall make the refunds as specified in Section 4.7 hereof, (iv) all other rights
and obligations of the Parties pursuant to this Agreement shall terminate, and
(v) a non-defaulting Party may pursue any available remedies against a
defaulting Party as specified in Section 10.1 hereof.
ARTICLE XI
General Provisions
11.1 No Assignment By Sclavo. This Agreement is personal to Sclavo. Sclavo shall not assign this Agreement, in whole or in part, directly, by operation of law or otherwise, except with the prior written consent of SciClone, or except as is expressly permitted hereby. No assignment by Sclavo with or without SciClone's consent will relieve Sclavo from any of Sclavo's obligations under this Agreement.
11.2 Assignment By SciClone. SciClone may assign its rights to receive any benefits and/or to make any payments under this Agreement to any of its Affiliates. Any such assignment by SciClone will not relieve SciClone from any of its obligations under this Agreement.
11.3 Entirety. This Agreement contains the entire agreement, and supersedes any and all prior agreements, between the Parties relative to its subject. In the event that there is any inconsistency between the terms of this Agreement and the terms of the AIC Purchase and Sale Agreement or the SRL and Transfer Agreement, then the terms of this Agreement shall prevail. This Agreement shall not be amended or rescinded except by a writing signed by both of the Parties.
11.4 Survival. If any provision of this Agreement is held by any court or other competent authority to be void or unenforceable in whole or part, the remainder of this Agreement shall continue to be valid and enforceable.
11.5 Waiver. Any waiver by either Party of the breach of any term or condition of this Agreement will not be considered as a waiver of any subsequent breach of the same or any other term or condition hereof. Any waiver must be in writing.
11.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Signatures may be transmitted by facsimile, and once the Parties have transmitted their signatures, this Agreement shall be binding and effective.
11.7 Writing. Any reference in this Agreement to "writing" includes a reference to a typed or handwritten document, and to telex, cable or facsimile transmission.
11.8 Headings. The headings in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
11.9 Notice. Any notice or other information required or authorized by this Agreement to be given by either Party to the other Party may be given by hand or sent by telex or telecopier facsimile to the other Party at the principal place of business address set forth below, or to such other principal place of business address as is notified by one Party to the other Party from time to time:
SciClone Pharmaceuticals, Inc. 901 Mariner's Island Blvd.
San Mateo, CA 94404
Attention: President
Fax: 650/358-3469
Sclavo S.p.A.
Via Florentina 1
53100 Siena, Italy
Attention: President
Fax: 011/39/000-00-0000
Any notice or other information sent as specified above by telex or telecopier facsimile transmission shall be deemed to have been duly sent on the date of actual transmission. Any notice or other information sent as specified above by any other means shall be deemed to have been duly sent on the date of actual receipt at the Party's address as specified above.
11.10 Currency. All payment amounts referenced in this Agreement are to be made in dollar currency of the United States of America. In this regard, any credit pursuant to Section 3.2 hereof applicable to payments made pursuant to the AIC Purchase and Sale Agreement shall be calculated by converting any lire paid pursuant to the AIC Purchase and Sale Agreement into
U.S. dollars, based upon the official exchange rate reported by the Wall Street Journal on the business day immediately preceding the date of any such payment made pursuant to the AIC Purchase and Sale Agreement.
11.11 Survival. Each representation, warranty, covenant and agreement of the Parties contained in this Agreement shall survive after the Final Closing Date.
IN WITNESS WHEREOF, the Parties by their authorized representatives have executed this Agreement as of the date and year first above written.
SCLAVO S.p.A.
By:____________________________________
Title:_________________________________
SCICLONE PHARMACEUTICALS, INC.
By:____________________________________
Title:_________________________________
The undersigned (SPIL) hereby consents to and agrees to the termination of the Manufacturing Agreement as specified in the foregoing Agreement at Section 4.1(a).
SCICLONE PHARMACEUTICALS INTERNATIONAL LTD.
By:____________________________________
Title:_________________________________
EXHIBIT A
Sclavo Representations and Warranties
Subject only to the exceptions specified in Exhibit A-1 attached hereto, Sclavo hereby represents and warrants to SciClone as follows:
1. Organization. Sclavo is a corporation duly organized, validly existing and in good standing under the laws of Italy.
2. Authorization. This Agreement has been duly and validly authorized, executed and delivered by Sclavo, and this Agreement constitutes the valid and binding agreement of Sclavo, enforceable against Sclavo in accordance with its terms. Sclavo has all requisite corporate power and authority to execute, deliver and perform this Agreement. All necessary corporate action on the part of Sclavo has been taken to authorize the execution, delivery and performance of this Agreement.
3. Right to Transfer. Sclavo has the right and power to transfer to SciClone all of the Approvals, Pending Applications, Inventions, Clinical Trials, Improvements, Manufacturing Technology, Records, Restricted Information, Materials, Know-How, Trademark, Translated Materials, and other Transferred Items which are to be transferred pursuant to this Agreement, without the need to obtain the approval from any third party (including any governmental agency), other than such approvals as Sclavo shall obtain prior to the Closing Date.
4. No Conflicts. The execution, delivery and performance of this Agreement by Sclavo will not result in a breach of, or be in conflict with, any other agreement, authorization, document, governmental permit, approval, law or rule applicable to Sclavo or to the Transferred Items which are to be transferred from Sclavo to SciClone pursuant to this Agreement.
5. Current Compliance. With respect to each of the Transferred Items being transferred from Sclavo to SciClone as set forth in Section 4.2 of this Agreement, Sclavo currently is in full compliance with all of Sclavo's obligations with respect to said Transferred Items; there are no existing or pending breaches or defaults by Sclavo, or to the best of the knowledge of Sclavo, any third party with respect to the Transferred Items; neither Sclavo, to the best of the knowledge of Sclavo, nor any third party, (including any governmental agency), has given any notice of termination or default, or intention to declare any termination or default, of any of the Transferred Items; and all of the Transferred Items remain in full force and effect.
6. Title. Sclavo has all right, title and ownership interests in and to all of the Transferred Items, and Sclavo is transferring to SciClone good, valid and effective title to all rights and interests in the Transferred Items not later than the Closing Date.
7. Manufacturing, Marketing and Distribution Arrangements. Sclavo has not entered into any agreement, arrangement or other understanding with any third party with respect to any manufacturing, testing, storage, marketing, distribution, supply, sublicensing, co-marketing, co-promotion, use, or other activities with respect to the Licensed Product, either
oral or written, other than such agreements which have already been performed, completed and terminated, and other than such agreements which are specifically identified on Exhibit A-1 attached hereto.
8. Materials. Sclavo does not own or have possession or control over any items used in connection with the development, manufacturing, testing and/or marketing of Licensed Products other than the Materials and the other Transferred Items which are being transferred from Sclavo to SciClone pursuant to this Agreement.
9. Third Parties. Sclavo previously granted rights to Sigma Tau Industrie Farmaceutiche Riunite S.p.A., in AIC No.028640, but Sclavo warrants and represents that all such rights passed back to Sclavo as of May 31, 1992, and as set out in the February 19, 1998 letter, attached as Exhibit F. Sclavo previously granted license rights to Ellem Industria Farmaceuticha S.r.l., now Pierre Fabre, for TA-1 in Italy, but Sclavo warrants and represents that all such rights have since expired or passed back to Sclavo. Except as set forth in the preceding two sentences, Sclavo has not assigned, transferred, sublicensed, or otherwise conveyed any rights with respect to any of the Transferred Items or the Licensed Products to any third party, and no third party has asserted or threatened to assert any claims with respect to any of the Transferred Items or the Licensed Products. Sclavo has no information indicating that there will be any problems or delays in the effective transfer from Sclavo to SciClone of all of the Transferred Items.
10. Clinical Trial Agreements. Listed below is the identity of each and every one of the clinical trial agreements or clinical trials which Sclavo has sponsored, conducted, funded or provided TA-1 material for, in the past or now has with respect to the Licensed Products:
A Randomized Controlled Trial of Thymosin-Alpha 1, Versus Interferon Alpha Treatment in Patients with Hepatitis B and Antigen Antibody and Hepatitis B, Virus DNA - Positive Chronic Hepatitis B
All obligations to be performed by Sclavo pursuant to said clinical trial agreements have been performed and completed, excepting only as otherwise set forth on Exhibit A-1 attached hereto. All obligations of the other parties to said clinical trial agreements have been performed and completed, excepting only as otherwise set forth on Exhibit A-1 attached hereto.
11. Pending Agreements. There are no agreements of any nature whatsoever, oral or written, entered into by Sclavo with respect to the Licensed Products which remain in effect as of the Effective Date, other than this Agreement and the following listed agreement(s):
a. Clinical Trial Agreement(s) set forth in Section 10..
12. Adverse Event. Sclavo does not have any information concerning any Adverse Event with respect to the Licensed Product.
13. Approvals. Listed below is the identity of each and every one of the Approvals which Sclavo has had in the past or now has with respect to the Licensed Products:
a. AIC #028364014 for 2mg injectable lyophilised vial in excipient normal purified human albumin
b. AIC #028364026 for 1.6mg in excipient mannitol
SciClone reserves the right to add to this list of Approvals, should any additional ones come to light during its due diligence between the Effective Date and Closing Date.
14. Pending Applications. Listed below is the identity of each and every one of the Pending Applications with respect to the Licensed Products:
a. Sclavo has presented indications on TA-1 associated with Alpha-Interferon with regard to lung tumors to the Commissione Unica del Farmacao, C.U.F.
15. Inventions. Sclavo does not own or have any ownership or license rights, including patents and patent applications, copyrights and copyright applications, for any Invention in respect of the Licensed Products, except for:
Italian Patent application No.1216056, entitled "Composizioni Farmaceutiche Contenenti Timusina Alfa 1, with Filippo Lattanzi as the inventor.
EXHIBIT A-1
Schedule of Exceptions
to Sclavo's Representations and Warranties
None other than:
14. Sclavo is not able to warrant that the Pending Application identified in Section 14 of Exhibit A will ultimately be approved and authorized by the appropriate governmental authorities or that it will result in Approval of any kind.
EXHIBIT B
SciClone Representations and Warranties
Subject only to the exceptions specified in Exhibit B-1 attached hereto, SciClone hereby represents and warrants to Sclavo as follows:
1. Organization. SciClone is a corporation duly organized, validly existing and in good standing under the laws of the State of California, U.S.A.
2. Authorization. This Agreement has been duly and validly authorized, executed and delivered by SciClone, and this Agreement constitutes the valid and binding agreement of SciClone, enforceable against SciClone in accordance with its terms. SciClone has all requisite corporate power and authority to execute, deliver and perform this Agreement. All necessary corporate action on the part of SciClone has been taken to authorize the execution, delivery and performance of this Agreement.
3. Effect of Agreement; Consents. The execution, delivery and
performance of this Agreement do not conflict with, or result in a breach of,
any other agreement, instrument, document, governmental permit, law or rule
affecting SciClone. No consent from any third party or from any governmental
authority is required to be obtained on the part of SciClone to permit the
consummation of the transactions contemplated by this Agreement, excepting only
as may be needed under the laws of the Territory with respect to SciClone being
the transferee of the Transferred Items, and except that the registration for
the resale of the Shares will need to be completed with the SEC as specified in
Section 5.2 of this Agreement.
4. Shares. The Shares to be issued by SciClone to Sclavo pursuant to this Agreement will be, when issued, (i) duly authorized and validly issued to Sclavo or its Permitted Nominee, and (ii) fully paid for and nonassessable. The certificates for the Shares, when delivered to Sclavo or its Permitted Nominee, will be free and clear of all liens or other encumbrances, other than customary securities law restrictive legends until the Shares become registered with the United States Securities and Exchange Commission (the "SEC").
5. Condition of SciClone. SciClone has furnished to Sclavo copies of SciClone's most recent filings with the SEC, consisting of its Form 10-K for the year ended December 31, 1996, its Form 10-Q for the quarter ended June 30, 1997, and its proxy statement for the 1997 annual meeting, together with SciClone's annual report to stockholders for the fiscal year ending December 31, 1996. None of said filings or the annual report contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained therein not misleading, and there has not been a material adverse change in the business, properties, assets, condition (financial or other), results of operations or prospects of SciClone since December 31, 1996.
6. SEC Filings. SciClone has been subject to the reporting requirements of Section 13 of the Exchange Act for more than 36 months and has filed all of the reports required to be filed thereunder during the 12 months preceding the date hereof.
EXHIBIT B-1
Schedule of Exceptions
to SciClone's Representations and Warranties
NONE
EXHIBIT D
Sclavo's Consent to ISF
[Draft for letterhead of Sclavo]
__________, 1998
ISF
Re: Manufacturing thymosin alpha 1 Product
Dear ______________:
This letter is to inform you that Sclavo and SciClone are entering into an agreement pursuant to which Sclavo will no longer be manufacturing thymosin alpha 1 ("TA-1") in Italy. This agreement will have no impact on any arrangement ISF may have as a third party manufacturer for finished thymosin alpha 1 with SciClone or its Affiliates. Sclavo hereby acknowledges that Sclavo has no right to object to ISF entering into any manufacturing or supply agreement for TA-1 with SciClone or its Affiliates.
Sincerely,
SCLAVO S.p.A
By:_________________________________
EXHIBIT E
Form of Officer's Certificate
The undersigned officer of Sclavo S.p.A. ("Sclavo") hereby certifies to SciClone Pharmaceuticals, Inc. ("SciClone"), with respect to that certain Acquisition Agreement dated _________________, 1998 between Sclavo and SciClone (the "Acquisition Agreement"), that:
1. I am the duly elected and acting ________________ officer of Sclavo; and
2. All of Sclavo's representations and warranties set forth in Exhibit A attached to the Acquisition Agreement (i) are hereby repeated and restated as of the date hereof (the "Closing Date"), and (ii) remain accurate, true and correct as of the Closing Date.
Dated as of: _______________________
EXHIBIT F
Return of Rights Letter
SIGMA-TAU FINANZIARIA
ia 19 febbraio 1998
- via fax -
Avv. Maria Cristina Marcucci
Sclavo SpA
Castelvecchio Pascoli
Lucca
Gentile Dottoressa,
Re: Timosina alpha 1
In seguito alla varie conversazioni tenutesi sull'argomento in oggetto, la presente per confermarLe quanto segue.
Sigma-Tau Industries Farmaceutiche Riunite SpA ("Sigma-Tau") necessita di alcune informazioni al fine di rinnovare presso il MinSan italiano la propria Autorizzazione all'Immissione in Commercio della specialita farmaceutica denominata PARATIM, contenente Timosina alpha 1.
Sclavo SpA e in posseso di tali informazioni ed e disposta a fornirle a Sigma-Tau. Sigma Tau dichiara che la AIC del PARATIM cosi rinnovata verra usata da Sigma-Tau solo dietro sottoscrizione di un accordo di licenze tra la societa titolare dei diritti sulla Timosina alpha 1 in Italia e Sigma-Tau.
Con i migliori saluti,
Doc. Mauro Bove
EXHIBIT F (cont'd)
Informal Translation of Mr. Mauro Bove's letter to Dr. Maria Cristina Marcucci
Re: Thymosin Alpha 1
Following our various telephone conversation regarding the captioned product, this is to confirm what follows:
Sigma-Tau Industrie Farmaceutiche Riunite SpA ("Sigma-Tau") needs some information in order to renew with the Italian Ministry of Health its "AIC" for the pharmaceutical specialty named PARATIM containing Thymosin Alpha 1.
Sclavo SpA holds such information and is ready to provide Sigma-Tau with them. Sigma-Tau declares that the "AIC" thus renewed shall only be used by Sigma-Tau after the execution of a license agreement between the company holding the rights on Thymosin Alpha 1 in Italy and Sigma-Tau.
With best regards,
TABLE OF CONTENTS
Page
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RECITALS ......................................................................................................1
ARTICLE I Definitions..........................................................................................1
ARTICLE II Representations and Warranties......................................................................6
2.1 Representations and Warranties by Sclavo......................................................6
2.2 Representations and Warranties by SciClone....................................................6
ARTICLE III Implementation Schedule............................................................................6
3.1 Effective Date................................................................................6
3.2 Closing.......................................................................................6
ARTICLE IV Obligations of Sclavo...............................................................................6
4.1 Sclavo's Obligations on Effective Date........................................................6
4.2 Sclavo's Obligations Prior to the Closing Date................................................7
4.3 Adverse Event.................................................................................8
4.4 Non-Competition...............................................................................8
4.5 Prorations of Expenses........................................................................8
4.6 Clinical Trials...............................................................................9
4.7 Verification; Refund of Consideration.........................................................9
4.8 Sclavo Affiliates.............................................................................9
ARTICLE V Obligations of SciClone..............................................................................9
5.1 Purchase Price................................................................................9
5.2 Share Registration...........................................................................10
5.3 Indemnification Regarding Share Registration.................................................11
5.4 Share Resale Restriction.....................................................................13
5.5 SRL Subsidiary...............................................................................13
5.6 Non-Exclusive Distributor....................................................................13
5.7 Continuation of Warranties...................................................................14
ARTICLE VI Closing Date and Items.............................................................................14
6.1 Closing Date.................................................................................14
6.2 Closing Items................................................................................14
ARTICLE VII Confidentiality...................................................................................15
ARTICLE VIII Indemnity........................................................................................15
8.1 Indemnity by Sclavo..........................................................................15
8.2 Procedure....................................................................................16
ARTICLE IX Arbitration........................................................................................16
9.1 Arbitration..................................................................................16
ARTICLE X Termination.........................................................................................16
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TABLE OF CONTENTS
Page
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10.1 Default......................................................................................16
10.2 Inability to Transfer........................................................................16
10.3 Effect of Termination........................................................................17
ARTICLE XI General Provisions.................................................................................17
11.1 No Assignment By Sclavo......................................................................17
11.2 Assignment By SciClone.......................................................................17
11.3 Entirety.....................................................................................17
11.4 Survival.....................................................................................17
11.5 Waiver.......................................................................................18
11.6 Counterparts.................................................................................18
11.7 Writing......................................................................................18
11.8 Headings.....................................................................................18
11.9 Notice.......................................................................................18
11.10 Currency.....................................................................................18
11.11 Survival.....................................................................................19
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TABLE OF CONTENTS
Page
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RECITALS ......................................................................................................1
ARTICLE I Definitions..........................................................................................1
ARTICLE II Representations and Warranties......................................................................6
2.1 Representations and Warranties by Sclavo......................................................6
2.2 Representations and Warranties by SciClone....................................................6
ARTICLE III Implementation Schedule............................................................................6
3.1 Effective Date................................................................................6
3.2 Closing.......................................................................................6
ARTICLE IV Obligations of Sclavo...............................................................................6
4.1 Sclavo's Obligations on Effective Date........................................................6
4.2 Sclavo's Obligations Prior to the Closing Date................................................7
4.3 Adverse Event.................................................................................8
4.4 Non-Competition...............................................................................8
4.5 Prorations of Expenses........................................................................8
4.6 Clinical Trials...............................................................................9
4.7 Verification; Refund of Consideration.........................................................9
4.8 Sclavo Affiliates.............................................................................9
ARTICLE V Obligations of SciClone..............................................................................9
5.1 Purchase Price................................................................................9
5.2 Share Registration...........................................................................10
5.3 Indemnification Regarding Share Registration.................................................11
5.4 Share Resale Restriction.....................................................................13
5.5 SRL Subsidiary...............................................................................13
5.6 Non-Exclusive Distributor....................................................................13
5.7 Continuation of Warranties...................................................................14
ARTICLE VI Closing Date and Items.............................................................................14
6.1 Closing Date.................................................................................14
6.2 Closing Items................................................................................14
ARTICLE VII Confidentiality...................................................................................15
ARTICLE VIII Indemnity........................................................................................15
8.1 Indemnity by Sclavo..........................................................................15
8.2 Procedure....................................................................................16
ARTICLE IX Arbitration........................................................................................16
9.1 Arbitration..................................................................................16
ARTICLE X Termination.........................................................................................16
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TABLE OF CONTENTS
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10.1 Default......................................................................................16
10.2 Inability to Transfer........................................................................16
10.3 Effect of Termination........................................................................17
ARTICLE XI General Provisions.................................................................................17
11.1 No Assignment By Sclavo......................................................................17
11.2 Assignment By SciClone.......................................................................17
11.3 Entirety.....................................................................................17
11.4 Survival.....................................................................................17
11.5 Waiver.......................................................................................18
11.6 Counterparts.................................................................................18
11.7 Writing......................................................................................18
11.8 Headings.....................................................................................18
11.9 Notice.......................................................................................18
11.10 Currency.....................................................................................18
11.11 Survival.....................................................................................19
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EXHIBIT 10.29
FIRST AMENDMENT TO ACQUISITION AGREEMENT
This First Amendment is entered into as of April ____, 1998 with respect to that certain Acquisition Agreement dated as of April ____, 1998 (the "Agreement"), made between SciClone Pharmaceuticals, Inc., a California corporation ("SciClone"), and Sclavo S.p.A, an Italian company ("Sclavo"), with respect to the following facts:
A. Various terms are defined in the Agreement, and said defined terms shall have the same meaning in this Amendment.
B. Pursuant to Section 5.1 of the Agreement, SciClone is to pay to
Sclavo a Purchase Price consisting of (i) the Cash Price of US $1,000,000, and
(ii) the Shares consisting of SciClone's Common Stock having a value of US
$1,500,000.
C. Pursuant to the terms of this Amendment, Sclavo and SciClone have agreed to reduce the Cash Price and to fix the number of the Shares, as set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants set forth in this Amendment, SciClone and Sclavo hereby agree as follows:
1. Cash Price. In lieu of the US $1,000,000 Cash Price set forth in
Section 5.1(a) of the Agreement, the Parties hereby mutually agree to reduce the
Cash Price to US $_________, which shall be the new, amended, defined "Cash
Price". In Section 3.2 of the Agreement, the US $900,000 figure is hereby
amended to be US $____________.
2. Shares. In lieu of the US $1,500,000 worth of the Shares as specified in Section 5.1(a) of the Agreement, SciClone and Sclavo hereby mutually agree that the number of the Shares to be issued by SciClone to Sclavo as of the Closing Date shall be a fixed number of the Shares equal to _________ shares.
3. Stock Warrant. In consideration for this Amendment, SciClone shall also grant to Sclavo at the Closing a Stock Warrant, in customary form, entitling Sclavo to purchase up to ___________ shares of SciClone's Common Stock at an exercise purchase price of US $________ per share, which Stock Warrant shall remain available for exercise until the second anniversary of the Closing Date.
4. Effect. Excepting only as expressly set forth in this Amendment, all of the other terms and provisions of the Agreement shall remain in full force and affect.
IN WITNESS HEREOF, the parties by their authorized representative said and executed this agreement as of the date in here first above written.
SCLAVO S.P.A. SCICLONE PHARMACEUTICALS, INC. By:________________________________ By:________________________________ Title:_____________________________ Title:_____________________________ |
EXHIBIT 10.30
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, TOGETHER WITH THE REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS REGISTERED UNDER THE SECURITIES ACT, OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
To Purchase 375,000 Shares of Common Stock of
SCICLONE PHARMACEUTICALS, INC.
THIS CERTIFIES that, for value received, Sclavo S.p.A. (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after one day after the date hereof and on or prior to April ___, 2000 (the "Termination Date") but not thereafter, to subscribe for and purchase from SCICLONE PHARMACEUTICALS, INC., a California corporation (the "Company"), three hundred seventy-five thousand (375,000) shares of Common Stock (the "Warrant Shares"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be Four Dollars and Twelve and One-Half Cents (US $4.125). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, pursuant to paragraph 9 hereof.
2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made at any time or times after the date hereof, in whole or in part, before the close of business on the Termination Date, or such earlier date on which this Warrant may terminate as provided in paragraph 12 below, by the surrender of this Warrant and the Notice of Exercise annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder hereof at the address of such Holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased; whereupon the Holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares of Common Stock purchased hereunder shall be delivered to the holder hereof within five (5) trading days after the date on which this Warrant shall have been exercised as aforesaid. Payment of the Exercise Price of the shares may be by certified check or cashier's check or by wire transfer to an account designated by the Company in an amount equal to the Exercise Price multiplied by the number of shares of Common Stock being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder of this Warrant or in such name or names as may be directed by the Holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for shares of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Holder Representations. The Holder of the Warrant agrees and acknowledges that the Warrant is being purchased for the Holder's own account, for investment purposes only, and not for the account of any other person, and not with a view to distribution, assignment, pledge or resale to others or to fractionalization in whole or in part. The Holder further represents, warrants and agrees as follows: no other person has or will have a direct or indirect beneficial interest in this Warrant and the Holder will not sell, hypothecate or otherwise transfer the Warrant except in accordance with the Securities Act and Regulation D thereunder and applicable state securities laws or unless, in the opinion of counsel for the Holder acceptable to the Company, an exemption from the registration requirements of the Securities Act and such laws is available.
7. Closing of Books. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant.
8. No Rights as Stockholder until Exercise. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company prior to the exercise thereof. If, however, at the time of the surrender of this Warrant and purchase the Holder hereof shall be entitled to exercise this Warrant, the shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be assigned by the surrender of this Warrant and the Assignment Form annexed hereto duly executed at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company); provided, however, that this Warrant may not be resold or otherwise transferred except with the prior consent of the Company and (i) in a transaction registered under the Securities Act, or (ii) in a transaction pursuant to an exemption, if available, from such registration and whereby, if requested by the Company, an opinion of counsel reasonably satisfactory to the Company is obtained by the holder of this Warrant to the effect that the transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents and warrants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant or stock certificate, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of this Warrant or stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all or substantially all of its assets, or (ii) to effect a transaction (by merger or otherwise) in which more than 50% of the voting power of the Company is disposed of (collectively, a "Sale or Merger Transaction") in which the consideration to be received by the Company or its stockholders consists solely of cash, the Company shall give the Holder of this Warrant thirty (30) days notice of the proposed effective date of the transaction specifying that the Warrant shall terminate if the Warrant has not been exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction in which the consideration to be received by the Company or its stockholders consists in part of consideration other than cash, the Holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise Price in effect immediately prior to such action, the kind and amount of shares and other securities and property which it would have owned or have been entitled to receive after the happening of such transaction had this Warrant been exercised immediately prior thereto.
(c) "Piggy-Back" Registration. The Holder of this Warrant shall have the right to include all of the shares of Common Stock underlying this Warrant (the "Registrable Securities") as part of any registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8) and must be notified in writing of such filing; provided, however, that the holder of this Warrant agrees it shall not have any piggy-back registration rights pursuant to this Section 12(c) if the shares of Common Stock underlying this Warrant are freely tradable in the United States pursuant to the provisions of Regulation D. Holder shall have five (5) business days to notify the Company in writing as to whether the Company is to include Holder or not include Holder as part of the registration; provided, however, that if any registration pursuant to this Section shall be underwritten, in whole or in part, the Company may require that the Registrable Securities requested for inclusion pursuant to this Section be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If in the good faith judgment of the underwriter evidenced in writing of such offering only a limited number of Registrable Securities should be included in such offering, or no such shares should be included, the Holder, and all other selling stockholders, shall be limited to registering such proportion of their respective shares as shall equal the proportion that the number of shares of selling stockholders permitted to be registered by the underwriter in such offering bears to the total number of all shares then held by all selling stockholders desiring to participate in such offering. Those Registrable Securities which are excluded from an underwritten offering pursuant to the foregoing provisions of this Section (and all other Registrable Securities held by he selling stockholders) shall be withheld from the market by the Holders thereof for a period, not to exceed one hundred eighty (180) days, which the underwriter may reasonably determine is necessary in order to effect such underwritten offering. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 12(c) prior to the effectiveness of such registration whether or not any Warrant holder elected to include securities in such registration. All registration expenses incurred by the Company in complying with this Section 12(c) shall be paid by the Company, exclusive of underwriting discounts, commissions and legal fees and expenses for counsel to the holders of the Warrants.
13. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. The Company may at its discretion, at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the Holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth computation by which such adjustment was made. Such notice, in absence of manifest error, shall be conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of the Company's Common Stock upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Nasdaq Stock Market ("NASDAQ") (or on the principal national securities exchange on which the Common Stock is admitted to trading or listed or, if not listed or admitted to trading on NASDAQ or a national securities exchange, as reported by the National Quotation Bureau, Inc. or other similar organization ("Other Exchanges")) for the three (3) trading days immediately prior to the date such dividend is payable.
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be construed and shall be given effect in all respects as if it had been issued and delivered by the Company on the date hereof. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall be governed by and construed in accordance with the laws of the State of California as such laws are applied to agreements between California residents entered into and
to be performed entirely within California.
(b) Restrictions. The holder hereof acknowledges that the Common Stock acquired upon the exercise of this Warrant, if not registered, may have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holders hereof of the Company shall be delivered or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.
Dated: April ___, 1998
SCICLONE PHARMACEUTICALS, INC.
By:
Title:_______________________________
NOTICE OF EXERCISE
To: SCICLONE PHARMACEUTICALS, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of SCICLONE PHARMACEUTICALS, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any.
(2) By signing below, the undersigned hereby certifies that the shares of Common Stock to be issued upon exercise of this Warrant have been registered under the Securities Act of 1933 (the "Act"), or that an exemption from registration under the Securities Act is available for such shares of Common Stock.
(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
Dated:
NOTE: Signature must conform in all respects to holder's name as specified on the face of the attached warrant.
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
______________________________________________________________ whose address is
______________________________________________________________________________.
Dated: ______________, 199
Holder's Signature: _____________________________
Holder's Address: _____________________________
Signature Guaranteed: __________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
| ARTICLE 5 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | SEP 30 1998 |
| CASH | 2,358,516 |
| SECURITIES | 4,560,356 |
| RECEIVABLES | 3,225,323 |
| ALLOWANCES | 0 |
| INVENTORY | 1,490,298 |
| CURRENT ASSETS | 9,591,760 |
| PP&E | 1,380,447 |
| DEPRECIATION | (948,404) |
| TOTAL ASSETS | 15,693,581 |
| CURRENT LIABILITIES | 4,354,243 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 6,156,398 |
| COMMON | 111,161,841 |
| OTHER SE | (105,978,901) |
| TOTAL LIABILITY AND EQUITY | 15,693,581 |
| SALES | 2,461,387 |
| TOTAL REVENUES | 2,461,387 |
| CGS | 680,904 |
| TOTAL COSTS | 680,904 |
| OTHER EXPENSES | 13,838,427 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | (14,721,347) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (14,721,347) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (14,721,347) |
| EPS PRIMARY | (0.94) |
| EPS DILUTED | 0 |