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ALSERES PHARMA INC 10-K 2009 Documents found in this filing:Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-K/A
Amendment No. 1
For the fiscal year ended December 31, 2008
OR
For the transition period
Commission file number 0-6533
ALSERES PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Registrant’s telephone number, including area code (508) 497-2360
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Based on the last sales price of the registrant’s Common Stock as reported on the NASDAQ
Capital Market on June 30, 2008 (the last business day of our most recently completed second fiscal
quarter), the aggregate market value of the 20,807,645 outstanding shares of voting stock held by
nonaffiliates of the registrant was $18,929,664.
As of April 15, 2009, there were 23,055,645 shares of the registrant’s Common Stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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EXPLANATORY NOTE
This
Amendment No. 1 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K of Alseres
Pharmaceuticals, Inc. (the “Company”, “our” or “we”) for the year ended December 31, 2008 that was
originally filed with the Securities and Exchange Commission on
March 31, 2009 and is being filed to
provide the information required by Items 10, 11, 12, 13 and 14 of Part III.
This Amendment also amends Item 9B of Part II to add information that would otherwise be required
to be disclosed in a report on Form 8-K. In connection with the filing of this Amendment and
pursuant to the rules of the SEC, we are including with this Amendment certain new certifications
by our principal executive officer and principal financial officer; accordingly, Item 15 of Part IV
has also been amended to reflect the filing of these new certifications.
This Amendment
does not otherwise modify or update disclosures in the original filing, or
change our previously reported financial statements and other financial disclosure.
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PART II
ITEM 9B. OTHER INFORMATION
We are party to a December 2006 license agreement, the CETHRIN License, with BioAxone Therapeutic
Inc., a Canadian corporation, or BioAxone, pursuant to which we were granted an exclusive,
worldwide license to develop and commercialize specified compounds including but not limited to
CETHRIN® as further defined in the CETHRIN License. The terms of the CETHRIN License are described
under the subheading “CETHRIN License” in the “Certain Relationships and Related Transactions”
section of Item 13 of Part III of this 10-K/A. On April 24, 2009 we entered into an agreement, the
Amendment Agreement, with BioAxone pursuant to which the CETHRIN License was amended to provide
that during a specified period, the SubLicense Period, we will use reasonable commercial efforts to
enter into a sublicense agreement for the technology licensed to us under the CETHRIN License. The
Amendment Agreement further provides that all of the pre-commercial financial milestones, and the
performance-related milestones contained in the CETHRIN License are eliminated and replaced with a
formula-based approach to sharing any and all sublicense income with BioAxone. The Amendment
Agreement provides that, in the event we execute a sublicense agreement within the SubLicense
Period that meets certain specified minimum terms, we will be entitled to receive a fixed
percentage of all sublicense consideration in any and all forms and the remainder will be paid to
BioAxone. If we fail to execute a sublicense agreement during the SubLicense Period, the CETHRIN
License and our right to sublicense it will terminate and we will instead be entitled to receive a
lower fixed percentage of any and all income received by BioAxone if and when they enter into a
future third party license agreement for the CETHRIN technology. The Amendment Agreement includes
a mutual release of all of the claims described that each party had previously alleged against the
other under the CETHRIN License. Certain terms of the Amendment Agreement for which we are seeking
Confidential Treatment are not disclosed herein.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
Directors
Our Board of Directors (the “Board”) currently consists of seven directors. Set forth
below are the names of each current member of our Board, their ages, the year in which each first
became a director and their principal occupations and business experience during the past five
years.
The principal occupations and qualifications of each director are as follows:
Peter G. Savas. Mr. Savas has been the Chairman of the Board and our Chief Executive
Officer since September 2004. From March 2004 to September 2004, Mr. Savas was the Managing Partner
of Tughill Partners, a life sciences consulting firm. From September 2000 to March 2004, Mr. Savas
served as Chief Executive Officer and President and, from April 2001 to March 2004, as Chairman, of
Aderis Pharmaceuticals, Inc., a privately-held biopharmaceutical company. From 1992 to 2000,
Mr. Savas served as President of Unisyn, Inc., a contract manufacturer of biologics, and was also
Unisyn’s Chief Executive Officer from 1995 to 2000. Mr. Savas serves on the board of directors of
pSivida Corp., a leading drug delivery company.
Robert S. Langer, Jr., Sc.D. Dr. Langer has been a member of our Board since June 2000.
Dr. Langer is an Institute Professor at the Massachusetts Institute of Technology (“MIT”) and has
been on the faculty of MIT since 1977. Dr. Langer serves on the boards of directors of Momenta
Pharmaceuticals, Inc., a biotechnology company, Echo Therapeutics, Inc., a medical device and specialty
pharmaceutical company, and Wyeth, a pharmaceutical company. In addition, Dr. Langer is on the
board of directors of several private companies.
Michael J. Mullen, C.P.A. Mr. Mullen has been a member of our Board since June 2004.
Mr. Mullen has been the Chief Financial Officer of Magellan Biosciences, Inc., a clinical
diagnostics company, since July 2006. From March 2006 to July 2006, Mr. Mullen was an independent
consultant. From February 2003 to March 2006, Mr. Mullen was the Chief Financial Officer of JMH
Capital, a private equity firm. From September 2000 to December 2002, Mr. Mullen was the Chief
Financial Officer of Magellan Discovery Technologies, a private equity sponsored buyout firm.
John T. Preston. Mr. Preston has been a member of our Board since June 2004.
Mr. Preston has been a Partner of C Change Investments Since
June 2008 and President and Chief Executive Officer of Continuum Energy Technologies since
April 1999. He is also a Senior Lecturer at MIT. Mr. Preston serves on the board of directors of
Clean Harbors, Inc., an environmental services and hazardous waste treatment company. In addition,
Mr. Preston is on the board of directors of several private companies.
William Guinness. Mr. Guinness has been a member of our Board since July 2006. Mr. Guinness
has been Chairman of Sibir Energy plc, a UK independent oil and gas production company, since March
1999, having previously been a Non-Executive Director of Pentex Energy plc and Pentex Oil plc.
Since 1988, Mr. Guinness has been involved with various private venture capital operations, which
cover areas as diverse as metal manufacturing, general aviation and fine art consultancy.
Mr. Guinness is also a director of a number of private companies involved in a wide range of
commercial activities. Mr. Guinness previously served on our Board of Directors from June 30, 2003
to September 20, 2003.
Henry Brem. Dr. Brem has been a member of our Board since February 2007. Dr. Brem is a
professor at Johns Hopkins University School of Medicine and has been on the faculty since 1984.
Dr. Brem serves as the Director of the Department of Neurosurgery, Harvey Cushing Professor of
Neurosurgery, Ophthalmology, and Oncology. Dr. Brem is also Director of the Hunterian Neurosurgical
Research Laboratory. Dr Brem trained in surgery at the Peter Bent Brigham Hospital of Harvard
Medical School, and in neurosurgery at the Neurological Institute of New York at Columbia
University. Dr. Brem has authored more than 150 articles in scientific journals and has developed
FDA-approved therapies for neurological diseases.
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Gary E. Frashier. Mr. Frashier has been a member of our Board since February 2007.
Mr. Frashier, through his company Management Associates, has been a strategic consultant to
emerging growth companies in the life sciences field since January 1999. Since June 2006,
Mr. Frashier has served as a director and Executive Vice President, and since June 2007 as Chief
Financial Officer and Secretary of Apex BioVentures Acquisition Corporation, a special purpose
acquisition company. From 1990 until September 1998, Mr. Frashier served as Chief Executive Officer
of OSI Pharmaceuticals, Inc., a biotechnology company, and, from January 1997 until September 2000,
as its Chairman of the Board. From 1987 until 1990, Mr. Frashier served as President and CEO of
Genex Corporation, a protein engineering company, and from 1984 until 1987, as Chairman and CEO of
Continental Water Systems, Inc., a manufacturer and marketer of equipment to produce high purity
water used by the pharmaceutical, medical, electronics and research industries. Previously,
Mr. Frashier also served as Executive Vice President of Millipore Corporation, a provider of
products and services to biopharmaceutical, manufacturing, clinical, analytical and research
laboratories, and President of Millipore’s Waters Associates subsidiary. Mr. Frashier serves on the
board of directors of Texmira Pharmaceuticals Corporation, a Canadian
biopharmaceutical company, Apex BioVentures Acquisition Corp, a blank
check company and
Achillion Pharmaceuticals, Inc., a biopharmaceutical company.
Code of Business Conduct and Ethics
We have adopted a written Code of Business Conduct and Ethics that applies to our
directors, officers and employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar
functions. We amended and restated our Code of Business Conduct and Ethics in July 2005. We
have posted the Amended and Restated Code of Business Conduct and Ethics on our website,
which is located at www.alseres.com. In addition, we intend to disclose on our website all
disclosures that are required by law or The NASDAQ Stock Market, Inc. listing standards
concerning any amendments to, or waivers from, any provision of the Code.
Executive Officers:
The following is a list of our current executive officers and their principal positions:
Mark J. Pykett, V.M.D, Ph.D, M.B.A. Dr. Pykett was appointed President and Chief
Operating Officer in February 2005. Dr. Pykett previously served as Executive Vice President and
Chief Operating Officer when he joined us in November 2004. In 1996, Dr. Pykett founded Cytomatrix,
LLC, a biotechnology company, and served as its President and Chief Executive Officer until 2003,
when Cytomatrix merged with Cordlife, Pte. Ltd., a subsidiary of CyGenics, Ltd., a biotechnology
company. Dr. Pykett served as President of Cordlife from 2003 to 2004 and as President of CyGenics
from 2004 until joining us and as a director of CyGenics until 2005. Dr. Pykett serves on the board
of directors of Adventrx Pharmaceuticals, Inc., a biotechnology company.
Kenneth L. Rice, Jr., J.D., LL.M., M.B.A. Mr. Rice was appointed Executive Vice
President, Finance and Administration and Chief Financial Officer in July 2005. Mr. Rice was
appointed Secretary in September 2005. In June 2005, Mr. Rice served as a part-time consultant to
the Company. From April 2001 to June 2005, Mr. Rice served as Vice President, Chief Financial
Officer, Chief Commercial Officer and Secretary of Aderis Pharmaceuticals, Inc., a privately-held
biopharmaceutical company. From August 1999 through March 2001, Mr. Rice served as Vice President
and Chief Financial Officer of MacroChem Corporation, a publicly-traded drug delivery company.
No family relationships exist between any of our executive officers and our directors.
Our executive officers are elected annually by the board of directors and serve until their
successors are duly elected and qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers (including a
person performing a principal policy-making function) and persons who own more than 10% of a
registered class of our equity securities (“10% Holders”) to file with the Securities and Exchange
Commission initial reports of ownership on a Form 3 and reports of changes in ownership of our
common stock and our other equity securities on a Form 4 or Form 5. Directors, executive officers
and 10% Holders are required by Securities and Exchange Commission regulations to furnish to us
copies of all of the Section 16(a) reports they file. Based solely upon a review of the copies of
the Forms 3, 4 and 5
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(and any amendments thereto) furnished to us and the written representations made by the reporting
persons to us, we believe that during fiscal 2008 each of our directors, officers and 10% Holders
filed all of their respective reports required by Section 16(a) in a timely fashion, except as
described herein. Robert Gipson, a 10% holder, failed to timely file
Forms 4 with respect to the
purchase of convertible promissory notes in March and June, 2008 and shares of common stock and
warrants on November 20, 2008. Mr. Gipson filed such information on a Form 4 with the SEC on April
23, 2009.
Audit Committee
Our Board has a standing Audit Committee that currently consists of Messrs. Mullen,
Preston and Guinness. Our Board has determined that each of the members of the Audit Committee are
independent as defined under the rules of the Nasdaq Stock Market and the independence requirements
contemplated by Rule 10A-3 under the Exchange Act.
The Board has also determined that Mr. Mullen is an “audit committee financial expert” as
defined in Item 407(d)(5) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2008
The following table sets forth information concerning compensation for services in all
capacities earned by our Chief Executive Officer, our Chief Financial Officer and each other of
our executive officers as of December 31, 2008, collectively referred to as the Named Executive
Officers for the fiscal years indicated.
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We have entered into employment agreements with each of our named executive officers, which
are effective for one year terms and automatically renew for additional 12 month periods
thereafter, unless either party notifies the other party in writing not less than 90 days prior to
expiration. These agreements establish base salaries (subject to annual adjustment by the
Compensation Committee), provide other benefits, and include confidentiality and non-competition
provisions. Subject to certain contingencies, each Named Executive Officer is entitled to a
severance allowance in the event that he is terminated in certain circumstances, as more fully
described under the caption “Potential Payments Upon Termination or Change-in-Control” below.
Our Compensation Committee typically makes initial awards of stock options to new executives
and additional grants as part of our overall compensation program annually thereafter in
conjunction with the review of their individual performance. Historically, we have generally
granted stock options subject to time-based vesting, typically over the first three to four years
of the ten-year option term. However, in January 2006, the Compensation Committee granted option
awards to each of our executive officers, subject to vesting upon the achievement of certain
corporate milestones. These performance-based vesting stock options were all cancelled in January
2009 in connection with an option repricing program.
Vesting and exercise rights cease shortly after termination of employment except in the case
of death or disability or as specifically set forth in the respective employment agreements. Prior
to the exercise of an option, the holder has no rights as a stockholder with respect to the shares
subject to such option, including voting rights and the right to receive dividends or dividend
equivalents.
We set the exercise price of all stock options to be equal to or greater than the closing
price of our common stock on the grant date. No option grants were awarded to our Named Executive
Officers in 2008.
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Outstanding Equity Awards at Fiscal Year-End 2008
The following table sets forth information regarding outstanding option awards held by
our Named Executive Officers as of December 31, 2008.
Potential Payments Upon Termination or Change-in-Control
On March 31, 2006, we entered into employment agreements with each of Messrs. Savas,
Pykett and Rice effective January 1, 2006 for a term of one year, and on April 16, 2007, we
entered into an employment agreement with Mr. Bobe. These four agreements are collectively
referred to as the Employment Agreements. Each Employment Agreement automatically renews for
an additional 12 month period, unless either party notifies the other party in writing not
less than 90 days prior to expiration.
In general, in the event of termination without “cause” (as defined in the Employment
Agreements) or voluntarily by an executive within one year following a “change in control” (as
defined below), the Employment Agreements provide for (i) a cash severance payment equal to the sum
of 75% — 100% of the sum of an executive’s highest base salary in effect during the preceding 12
month period and the average annual cash bonus paid during the preceding twenty-four month period,
(ii) the continuation of health care benefits for a period of 9 to 12 months following termination
of employment, and (iii) full acceleration of the vesting of all of the executive’s unvested equity
awards. In the event of termination of employment by us for “disability” (as defined in the
Employment Agreements), the Employment Agreements provide for a cash severance payment equal to the
sum of 75% — 100% of the sum of an executive’s highest base salary in effect during the preceding
12 month period and the average annual cash bonus paid during the preceding twenty-four month
period.
A “change in control” means:
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If the employment of any Named Executive Officer is terminated, unless employment is
terminated without cause or after the occurrence of a change in control, such Named
Executive Officer will remain subject to certain conditions regarding non-competition,
non-solicitation and confidentiality, for a period of one year following the date of
termination of employment.
Mr. Bobe was no longer an employee as of December 31, 2008, and is involved in a
dispute with us regarding the terms of his separation.
Compensation of Directors
In 2008, our non-employee directors consisted of: (i) Robert S. Langer, Jr.;
(ii) Michael J. Mullen; (iii) John T. Preston, (iv) William Guinness, (v) Henry Brem, and
(vi) Gary E. Frashier.
Our non-employee director compensation is as follows:
(i) an annual retainer of $25,000;
(ii) a fee per meeting attended of $2,500; and
(iii) an annual fee of $10,000 for chairing each of the Nominating and Corporate
Governance and Science and Technology committees and $20,000 for chairing each of the
Audit and Compensation Committees.
Each new non-employee director is automatically granted an option to purchase
25,000 shares of our common stock, referred to as New Director Options, upon initial
election or appointment, or the Automatic Grant Date. The exercise price of any New Director
Options granted shall equal the fair market value of shares of our common stock subject
thereto on the Automatic Grant Date. New Director Options immediately vest as to 1/3 of the
shares with the remaining 2/3 of the shares subject to such New Director Options vesting in
equal monthly installments over two years, or New Director Option Vesting.
Each non-employee director is automatically granted an option to purchase 25,000 shares
of our common stock annually, or the Annual Director Options. The Annual Director Options
are granted in the fourth quarter of each calendar year, or the Annual Grant Date. The
exercise price of any Annual Director Options granted shall equal the fair market value of
shares of our common stock subject thereto on the Annual Grant Date. Annual Director Options
vest in equal monthly installments over two years, or Annual Director Option Vesting. Newly
elected non-employee directors are eligible to receive the Annual Director Options in the
fourth quarter of the second calendar year of service.
During 2008, the Company did not grant the Annual Director Options in accordance
with the compensation plan as described above. The Annual Director Options were granted in
January 2009.
As described more fully below, this table sets forth the compensation information for
our non-employee directors in 2008:
As of December 31, 2008, the number of shares underlying options held by each
non-employee director was as follows:
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security Ownership
The following table sets forth information, as of March 31, 2009, regarding the
beneficial ownership of our common stock by:
Unless otherwise indicated below, the address for each listed director and executive
officer is c/o Alseres Pharmaceuticals, Inc., 239 South Street, Hopkinton, Massachusetts 01748.
Beneficial ownership shown is determined in accordance with the rules of the Securities and
Exchange Commission and, as a result, includes voting and investment power with respect to shares.
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Equity Compensation Plan Information
This table shows information about our common stock that may be issued upon the exercise
of options under all of our equity compensation plans as of December 31, 2008. As required by the
Securities and Exchange Commission rules, we include in footnote (2) to this table a brief
description of the material features of our option issuances that have not been approved by our
stockholders.
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On July 18, 2005, we granted an aggregate of 84,000 non-qualified options to purchase
shares of our common stock to Noel Cusack, Senior Vice President of Preclinical Development, Pamela
McDonough, our Corporate Controller, and Lee Summers, our former Director of Quality Systems, in
connection with the commencement of their employment with us. These options were granted without
stockholder approval pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv) under the following
terms: ten-year duration, an exercise price of $1.96 per share and equal monthly vesting over three
years. As of December 31, 2005, 12,833 non-qualified options to purchase shares of our common stock
were cancelled.
On July 18, 2005, we granted Kenneth L. Rice, Jr., our Executive Vice President Finance
and Administration and Chief Financial Officer, an option to purchase shares of common stock in
connection with the commencement of his employment with us. These options were granted without
stockholder approval pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv) under the following
terms: 300,000 non-qualified stock options, ten-year duration, an exercise price of $3.25 per
share, of which one-third immediately vested and the remaining two-thirds will vest in equal
monthly installments over three years.
On September 10, 2004, we granted Peter G. Savas, our Chief Executive Officer, an option
to purchase shares of common stock in connection with the commencement of his employment with us.
These options were granted without stockholder approval pursuant to NASDAQ Marketplace Rule
4350(i)(1)(A)(iv) under the following terms: 400,000 non-qualified stock options, ten-year
duration, an exercise price of $3.75 per share, of which one quarter immediately vested and the
remaining three quarters will vest in equal monthly installments over four years.
On November 18, 2004, we granted Mark J. Pykett, our President and Chief Operating
Officer, an option to purchase shares of common stock in connection with the commencement of his
employment with us. These options were granted without stockholder approval pursuant to NASDAQ
Marketplace Rule 4350(i)(1)(A)(iv) under the following terms: 100,000 non-qualified stock options,
ten-year duration, an exercise price of $3.75 per share, of which one quarter immediately vested
and the remaining three quarters will vest in equal monthly installments over four years.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Director Independence
Under applicable NASDAQ rules, a director will only qualify as an “independent
director” if, in the opinion of our Board of Directors, that person does not have a
relationship which would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. Our Board of Directors has determined that none of
Messrs. Brem, Frashier, Guinness, Langer, Mullen, or Preston, each of whom serves on at
least one of our Audit, Compensation, Nominating and Corporate Governance, Science and
Technology and Finance Committees, has a relationship which would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director and that
each of these directors is “independent” as that term is defined under Rule 4200(a)(15) of
the NASDAQ Stock Market Inc., Marketplace Rules.
Certain Relationships and Related Transactions
For information relating to a consulting agreement with Mr. Langer, who served during
2008 as a member of our Compensation Committee, see Corporate Governance — Compensation of
Directors. For information relating to our employment and severance arrangements with our
Named Executive Officers, see “EXECUTIVE COMPENSATION — Potential Payments Upon Termination
or Change-in-Control.”
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Common Stock
In November 2008, we completed a private placement with Robert Gipson of 543,478 shares of its
common stock which raised $1,000,000 in gross proceeds. In connection with the November 2008
private placement, we also issued warrants (the “November 2008 Warrants”) to purchase 543,478
additional shares of common stock that were exercisable at $1.84 per share between six months and
two years after the closing. In connection with the private placement, we agreed with Mr. Gipson
(the “Letter Agreement”) that if we sold shares of its common stock at a price below $1.84, subject
to certain exceptions, prior to December 31, 2009, Mr. Gipson would be entitled to receive, for no
additional consideration, additional shares of common stock and warrants in accordance with a
pre-determined formula.
In January 2009, we completed a private placement with Robert Gipson of 1,000,000 shares of
its common stock which raised $1,000,000 in gross proceeds. In addition, we issued an additional
456,522 shares of its common stock to Mr. Gipson pursuant to a Letter Agreement. In connection with
the January 2009 private placement, Mr. Gipson agreed to the cancellation of the November 2008
Warrants.
Promissory Notes
On March 18, 2008, we amended and restated our outstanding amended and restated
unsecured convertible promissory note purchase agreement in favor of Robert L. Gipson, a
holder of greater than 5% of our outstanding capital stock, or the March 2008 Amended
Purchase Agreement, to (i) increase the amount we could borrow by $5,000,000 to $30,000,000
and (ii) provide that we may incur up to an additional $5,000,000 of indebtedness from the
Purchasers upon the same terms and conditions pursuant to the
March 2008 Amended Purchase Agreement. In March 2008, we issued a convertible
promissory note to Robert Gipson in the aggregate principal amount of $5,000,000 pursuant to
the March 2008 Amended Purchase Agreement.
The amounts borrowed by us under the March 2008 Amended Purchase Agreement bear interest at
the rate of 5% per annum and may be converted, at the option of the Purchasers into (i) shares of
our common stock at a conversion price per share of $2.50, (ii) the right to receive future royalty
payments related to our molecular imaging products (including Altropane and Fluoratec) in amounts
equal to 2% of our pre-commercial revenue related to such products plus 0.5% of future net sales of
such products for each $1,000,000 of outstanding principal and interest that a Purchaser elects to
convert into future payments, or (iii) a combination of (i) and (ii). Any outstanding notes that
are not converted into our common stock or into the right to receive future payments will become
due and payable by the earlier of December 31, 2010 or the date on which a Purchaser declares an
event of default (as defined in the March 2008 Amended Purchase Agreement). However, each Purchaser
is prohibited from effecting a conversion if at the time of such conversion the common stock
issuable to such Purchaser, when taken together with all shares of common stock then held or
otherwise beneficially owned by a Purchaser exceeds 19.9%, or 9.99% for Highbridge and ISVP, of the
total number of issued and outstanding shares of our common stock immediately prior to such
conversion unless and until our stockholders approve the conversion of all of the shares of common
stock issuable thereunder.
In June 2008, we entered into a convertible promissory note purchase agreement, or the June
2008 Purchase Agreement, with Robert Gipson pursuant to which we could borrow up to $5,000,000. In
June 2008, we issued a convertible promissory note to Robert Gipson, or the June 2008 RG Note, in
the aggregate principal amount of $5,000,000 pursuant to the June 2008 Purchase Agreement. The
terms of the June 2008 Purchase Agreement are consistent with those of the March 2008 Amended
Purchase Agreement described above.
We are subject to certain debt covenants pursuant to the March 2008 Amended Purchase Agreement
and the June 2008 Purchase Agreement, or Purchase Agreements. If we (i) fail to pay the principal
or interest due under the Purchase Agreements, (ii) file a petition for action for relief under any
bankruptcy or similar law or (iii) an involuntary petition is filed against us, all amounts
borrowed under the Purchase Agreements may become immediately due and payable by us. In addition,
without the consent of the Purchasers, we may not (i) create, incur or otherwise permit to be
outstanding any additional indebtedness for money borrowed, (ii) declare or pay any cash dividend,
or make a distribution on, repurchase, or redeem, any class of our stock, subject to certain
exceptions or sell, lease, transfer or otherwise dispose of any of our material assets or property
or (iii) dissolve or liquidate.
In February 2009, Neurobiologics, Inc., or the Subsidiary, issued to Robert Gipson an
unsecured promissory note, pursuant to which the Subsidiary borrowed an aggregate principal amount
of $1,000,000 (the “Subsidiary Note”). Interest on the Subsidiary Note accrues at the rate of 7%
per annum and all principal and accrued interest is due and payable on demand of Mr. Gipson.
As of March 31, 2009, we had issued six promissory notes, including the note with the
Subsidiary, for an aggregate principal amount of $35,880,000.
In March and April 2009, we entered into three Securities Purchase Agreements to sell
60,000 shares of our Series F Convertible Preferred Stock, $0.01 par value per share, or the
Series F Preferred Stock, to Robert Gipson for gross proceeds of $1,500,000.
CETHRIN License
In December 2006, we entered into a license agreement, or the CETHRIN License, with
BioAxone Therapeutic Inc., a Canadian corporation, or BioAxone, pursuant to which we were
granted an exclusive, worldwide license to develop and commercialize specified compounds
including but not limited to CETHRIN® as further defined in the CETHRIN License. The CETHRIN
License calls for us to conduct development and commercialization activities of CETHRIN and
, to pay certain pre-commercialization
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milestones and on-going royalties on sales of CETHRIN
when and if approved for marketing. The CETHRIN License includes a development plan with
discrete development milestones which, if not met, could result in additional payments to
BioAxone and/or loss of some or all of our license rights.
Under the CETHRIN License, we agreed to $10,000,000 in up-front payments of which we paid
BioAxone $2,500,000 upon execution of the CETHRIN License and $7,500,000 in March 2007. We also
agreed to pay BioAxone up to $25,000,000 upon the achievement of certain milestone events and
royalties based on the worldwide net sales of licensed products, subject to specified minimums, in
each calendar year until either the expiration of a valid claim covering a licensed product or a
certain time period after the launch of a licensed product, in each case applicable to the specific
country. The CETHRIN License provides for a series of performance milestones any of which, if not
achieved by us in the timeframes agreed in the CETHRIN License, could form the basis of a claim for
compensation to BioAxone and possibly the termination of some or all of our rights under the
CETHRIN License. The CETHRIN License further provides us with relief from our performance
obligations in the event that such performance is effectively rendered impossible due to safety or
efficacy issues with CETHRIN during its development. Additionally, the CETHRIN License
provides a warranty that all of the clinical materials provided to us by BioAxone in connection
with the CETHRIN License were manufactured in accordance with cGMP.
On January 22, 2009, we received notice from BioAxone alleging that we failed to meet one of
the performance milestones in the CETHRIN License that was required to have been met on or before
January 1, 2009. This notice purported to terminate the CETHRIN License, sought payment of a
$2,000,000 penalty from us to BioAxone for such purported failure and requested that we transfer to
BioAxone its rights to the Master Cell Bank and all licensed intellectual property under the
CETHRIN License.
We believe that the purported termination is without effect. Our performance obligations under
the CETHRIN License are specifically excused in the event that a safety issue renders such
performance impossible. Our prior discovery that the Master Cell Bank from which CETHRIN is
manufactured may contain an unintended animal derived contaminant rendering it not in compliance
with the requirements of cGMP, represents such a safety risk for CETHRIN. We have notified BioAxone
of the contamination issue and its position that the purported termination and demand for payment
is considered to be without effect. The CETHRIN License provides for all disputes arising out the
CETHRIN License to be settled by binding arbitration. In the event we are unable to reach an
agreement with BioAxone with respect to the licensing of CETHRIN, we intend to pursue arbitration.
We believe that BioAxone has not met the requirements of the CETHRIN License. We are working
with BioAxone to address deficiencies related to BioAxone’s production of CETHRIN but there is no
assurance that we will be able to do so. Any failure to address these deficiencies could delay
future clinical development for CETHRIN. Current development for CETHRIN, including the
manufacturing of additional CETHRIN drug product, has been suspended until such time that we have
resolved its dispute with BioAxone, secured additional working capital and/or a strategic
partnership, and discussed the future development plan with the regulatory authorities.
Frank Bobe, our former Executive Vice President and Chief Business Officer was a former
Chairman and Chief Executive Officer at BioAxone.
On April 24, 2009 we entered into an agreement, the Amendment Agreement, with BioAxone pursuant to
which the CETHRIN License was amended to provide that during a specified period, the SubLicense
Period, we will use reasonable commercial efforts to enter into a sublicense agreement for the
technology licensed to us under the CETHRIN License. The Amendment Agreement further provides that
all of the pre-commercial financial milestones, and the performance-related milestones contained in
the CETHRIN License are eliminated and replaced with a formula-based approach to sharing any and
all sublicense income with BioAxone. The Amendment Agreement provides that, in the event we
execute a sublicense agreement within the SubLicense Period that meets certain specified minimum
terms, we will be entitled to receive a fixed percentage of all sublicense consideration in any and
all forms and the remainder will be paid to BioAxone. If we fail to execute a sublicense agreement
during the SubLicense Period, the CETHRIN License and our right to sublicense it will terminate and
we will instead be entitled to receive a lower fixed percentage of any and all income received by
BioAxone if and when they enter into a future third party license agreement for the CETHRIN
technology. The Amendment Agreement includes a mutual release of all of the claims described that
each party had previously alleged against the other under the CETHRIN License. Certain terms of
the Amendment Agreement for which we are seeking Confidential Treatment are not disclosed herein.
Indemnity Agreements
We have entered into indemnity agreements with each of our directors and executive
officers containing provisions that may require us, among other things, to indemnify those
directors and officers against liabilities that may arise by reason of their status or
service as directors and officers. The agreements also provide for us to advance to our
directors and officers expenses that they expect to incur as a result of any proceeding
against them related to their service as directors and officers.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Registered Public Accounting Firm’s Fees and Other Matters
The following table summarizes the fees billed to us for professional services rendered
by McGladrey & Pullen, LLP and PricewaterhouseCoopers LLP, our prior independent registered
public accounting firm, for each of the last two fiscal years:
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Audit Fees
Audit fees consist of fees for the audit of our consolidated annual financial
statements, the review of the interim consolidated financial statements included in our
quarterly reports on Form 10-Q and other professional services provided in connection with
statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees consist of fees for assurance and related services that are
reasonably related to the performance of the audit or review of our consolidated financial
statements and are not reported under “Audit Fees.” These services include consultations
concerning financial accounting and reporting matters not classified as audits.
Tax Fees
Tax fees consist of fees for tax compliance, tax advice and tax planning services.
All Other Fees
All other fees for 2008 consisted of fees relating to an accounting research tool.
Policy on Audit Committee Pre-approval of Audit and Permissible Non-audit Services of
Independent Registered Public Accounting Firm
Consistent with policies of the SEC regarding independent registered public accounting
firm independence and our Audit Committee Charter, our Audit Committee has the
responsibility for appointing, retaining, setting compensation and overseeing the work of
the independent registered public accounting firm. Our Audit Committee’s policy is to
pre-approve all audit and permissible non-audit services provided by the independent
registered public accounting firm. Our Audit Committee presently pre-approves particular
services on a case-by-case basis. In assessing requests for services by the independent
registered public accounting firm, our Audit Committee considers whether such services are
consistent with the independent registered public accounting firm’s independence, whether
the independent registered public accounting firm is likely to provide the most effective
and efficient service based upon their familiarity with us, and whether the service could
enhance our ability to manage or control risk or improve audit quality.
All of the audit-related, tax and other services provided by McGladrey & Pullen, LLP
and PricewaterhouseCoopers LLP in fiscal year 2008 and related fees were approved in advance
by our Audit Committee. None of the services and fees were approved using the “de-minimis”
exception under SEC rules.
Our Audit Committee believes that the provision of the non-audit services above is
compatible with maintaining the independent registered public accounting firm’s
independence.
PricewaterhouseCoopers LLP served as our independent registered public accounting firm
for 2006. On April 18, 2007, the Audit Committee of the Board of Directors dismissed
PricewaterhouseCoopers LLP as our independent registered public accounting firm. The reports
of PricewaterhouseCoopers LLP on our consolidated financial statements as of and for the
fiscal years ended December 31, 2005 and 2006 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles, except that the reports of PricewaterhouseCoopers LLP included an
explanatory paragraph regarding the existence of substantial doubt about our ability to
continue as a going concern.
During our fiscal years ended December 31, 2005 and 2006 and through April 18, 2007
(the “Relevant Period”), (a) there were no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make reference thereto in their
reports on the financial statements for such years and (b) there were no reportable events
as defined in Item 304(a)(1)(v) of Regulation S-K.
On April 18, 2007, the Audit Committee selected McGladrey & Pullen, LLP to serve as our
independent registered public accounting firm to audit our consolidated financial statements
beginning with the fiscal year ending December 31, 2007.
During the Relevant Period, neither we nor anyone on behalf of us consulted with
McGladrey & Pullen, LLP on any matter regarding: (1) either the application of accounting
principles to a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on our consolidated financial statements, and neither a
written report nor oral advice was provided to us that McGladrey & Pullen, LLP concluded was
an important factor considered by us in reaching a decision as to an accounting, auditing or
financial reporting issue; or (2) either a disagreement or a reportable event, as defined in
Item 304(a)(1)(iv) and (v) of Regulation S-K, respectively.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized this 30th day of April, 2009.
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EXHIBIT INDEX
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